Company Illegally Simplifies Cancellation, Shareholder Ordered to Bear Debt and Fined Nearly CNY 100,000

Shareholder A, who also served as the legal representative of Company B, concealed the fact that Company B had outstanding debts (should refund CNY 37,700 to Company C in Shanghai) and submitted the "Enterprise Cancellation Registration Application" and "Simplified Cancellation Commitment of All Investors" to the registration authority, completing the cancellation registration of Company B through the simplified cancellation process in October 2022.

In February 2023, after learning about the cancellation of Company B, Company C reported to the Market Supervision Administration where Company B was located and subsequently filed a lawsuit in court demanding that Shareholder A bear the debt.

The Market Supervision Administration where Company B was located determined that Shareholder A's actions constituted an illegal act of submitting false materials to obtain market entity registration in violation of Article 17 of the "Regulations on the Registration Administration of Market Entities of the People's Republic of China," and issued an "Administrative Penalty Decision" with a fine of CNY 95,000. The court ruled that Shareholder A, due to the illegal cancellation of Company B, as a shareholder, should bear the debt of Company B to Company C.

Dongjin Reminder:

The prerequisite for a company to cancel its registration through a simplified procedure is that the company has not incurred any debts during its existence or has repaid all debts before it can cancel its registration through a simplified procedure. If the conditions are not met, the company cannot cancel its registration through a simplified procedure.

East Jin warns company shareholders that when the company is not operating well, do not take the risk of trying to cancel the company's registration through providing false materials or other improper means to escape debts for illegal purposes, as the outcome will ultimately not be worth the loss.

If enterprises have any questions, they are welcome to consult Dongjin at any time.

Mike Chang

Partner

Email:mikechang@shanghaiiinvest.com