Delving further on litigation for the dissolution of companies

As mentioned in last month’s issue, a governance structure where each party holds 50% equity interest has a serious defect: once the “personalised nature” of the company breaks down, giving rise to a “deadlock”, it is impossible to cure the situation through the company’s own equity governance structure. Under this situation, it is likely that a company dissolution dispute will occur, as no effective resolution can be passed.

Burden of proof and rules

The different interests of the parties for the dissolution of a company result in a difference in their approaches to the adducement of evidence. However, if the claims of either party are to secure judicial support, they must comply with the rules of evidence set out in the Company Law and its judicial interpretations.

The Interpretations of the Company Law (2) specify the conditions for the dissolution of a company where a shareholder alone or shareholders together hold at least 10% of all the shareholder voting rights and institute a legal action for the dissolution of the company on the grounds set out below, and if the provisions of article 183 of the Company Law are satisfied, the people’s court is required to accept the same:

1. The company has been unable to call a shareholders’ meeting or shareholders’ general meeting for at least two years and serious difficulties have arisen in its operations and management;
2. When they vote, the shareholders have been unable to reach the statutory percentage or the percentage specified in the company’s articles of association, making it impossible to pass a valid resolution of the shareholders’ meeting or shareholders’ general meeting for at least two years, and serious difficulties have arisen in the company’s operations and management;
3. There has been a longstanding conflict between company directors that cannot be resolved by the shareholders’ meeting or shareholders’ general meeting, and serious difficulties have arisen in the company’s operations and management; or
4. Another serious difficulty has arisen in the company’s operations and management and its continued existence would cause a material loss to the interests of the shareholders.