Parent Guarantee Conversion Exposure in PRC Judicial Execution Orders
PRC execution courts add offshore parents directly as judgment debtors for subsidiary debts via accelerated capital shortfalls and treasury commingling.
Execution Addition Provisions
Meaning
A set of procedural regulations issued by the Supreme People Court allows creditors to add new parties as defendants during the enforcement stage of a lawsuit. The application of execution addition provisions is restricted to specific scenarios where the original debtor is unable to satisfy the judgment and third parties share legal liability. This measure accelerates the recovery process by avoiding the need for a separate, lengthy litigation cycle.
It cannot be used to bypass the defense rights of parties who have no statutory connection to the debtor.
Target Group
The primary targets of these regulations are shareholders who have failed to complete their registered capital contributions. Under the execution addition provisions, the court can add these underpaid shareholders to the enforcement action up to the value of their unpaid capital. This rule also applies to successor companies formed through fraudulent divisions designed to evade debt.
Proof Standard
Creditors must provide clear documentary evidence of unpaid capital or corporate commingling to justify the addition. This requirement under the execution addition provisions means that the creditor must obtain official company registration files and bank records before filing the application. The court will reject the application if the evidence is purely speculative.
Procedural Defense
Challenging the decision requires the added party to file an objection with the execution court within fifteen days of receiving the addition ruling. To challenge the execution addition provisions, the objector must present proof of full capital contribution or independent corporate existence. If the court rejects the objection, the party can file an execution objection lawsuit to seek a trial on the merits.
This legal avenue halts the liquidation of the objector’s assets until the court resolves the dispute.