Shareholders Face Criminal Charges for Malicious Company Deregistration

In late May 2021, employees of Company A reported unpaid wages to authorities. The Human Resources and Social Security Department (HRSSD) launched an investigation and discovered that Company A had ceased operations due to poor management, leaving over CNY 500,000 in unpaid wages.

The HRSSD ordered Company A to rectify the wage arrears. However, after six months with no administrative appeal or payment, the department sought court enforcement in March 2022. It was then revealed that Company A had deregistered its business—one day before the HRSSD issued its administrative order. This deregistration voided enforcement procedures and forced the revocation of the original order due to the company’s legal dissolution.

Collaborating with prosecutors, the HRSSD interviewed Company A’s three shareholders. Investigations confirmed that they had submitted a fraudulent liquidation report to deregister the company despite knowing about the ongoing wage dispute and labor investigation—a clear case of malicious deregistration to evade liabilities.

The HRSSD reissued an administrative order holding the shareholders personally liable for the debt. When they refused to comply, prosecutors referred them to police for suspected "criminal refusal to pay labor remuneration."

In April 2023, the shareholders settled all wage arrears to avoid criminal prosecution.

Key Takeaway:

Malicious deregistration tactics, such as fabricating liquidation documents to sidestep employee claims, expose shareholders to criminal liability.

For expert guidance on corporate compliance and labor disputes, contact Dongjin Consulting.

Mike Chang

Partner

mikechang@shanghaiinvest.com