Solutions to disputes on the return of companies’ certificates

Achange of shareholding structure in a company could lead to alterations in the ownership of the company, its executives, legal representative and governance structure. It is commonplace that former directors or legal representatives refuse to return their companies’ certificates.

Q: How do you solve disputes over the handover of a company’s certificates?

A: The most effective way to retrieve the certificates is to negotiate a voluntary handover with current holders.

If the negotiations come to naught, it would be necessary to reapply for the certificates: issue a statement to declare the lost certificates invalid; bring the shareholder resolution on the change of legal representative and the application signed by the new legal representative to industry and commerce administration departments to apply for a new business licence; and then apply for the company’s official seal and other certificates. Since the invalid certificates are vulnerable to malicious use, it is necessary to retrieve them.

If there are disputes over equity investments, former shareholders or legal representatives, this may obstruct the application for new certificates.

For instance, they could raise objections to the shareholder resolution on the appointment of a new legal representative, and request a people’s court or an arbitral institution to revoke the resolution, according to article 22 of
the Company Law.

It will be difficult to apply for new certificates as the validity of the resolution is in doubt. Therefore, it is necessary to ask for the handover of certificates by current holders through lawsuit or arbitration.

Q: Which body should file a lawsuit to a court or an arbitration application to an arbitral institution to demand the handover of certificates?

A: As the owner of the certificates, the company has the right to request that they be handed over.

In general, a company is the plaintiff or arbitration applicant, and the legal documents (pleading or arbitration application) should carry its official seal and be signed by its legal representative. If the official seal is unavailable, the signature of the legal representative suffices. Article 38 of the General Principles of the Civil Law stipulates that in accordance with the law or the articles of association of the legal person, the responsible person who acts on behalf of the legal person in exercising its functions and powers shall be its legal representative.

The legal representative of a company exercises its functions and powers, and participates in civil activities on its behalf, according to the Company Law and its articles of association, and the legal documents signed by the legal representative can represent the company’s will.

The legal representative can sign the related legal documents requesting the handover of the certificates from the non-legal representative, and can file a lawsuit or an arbitration application over the issue.

If the former legal representative withholds the certificates or orders other holders not to return them, the company should appoint a new legal representative at the shareholders’ meeting to sign legal documents before filing a lawsuit or arbitration application. It is noteworthy that the change of legal representative should be registered with industry and commerce administration departments, but the identity of the new legal representative will not be affected even without the registration.

In the dispute between Chen Yugao and Wuxi Lianzhong Taxi Company Limited over the handover of certificates in 2014, the former legal representative of the taxi company, Chen Yugao, refused to return the company’s certificates to its new legal representative Li Dajin on the grounds that the company’s shareholder resolution violated its articles of association.

Li then sued Chen to return the certificates on behalf of the company. The Jiangsu Provincial Higher People’s Court deemed that though without the registration of the change of legal representative, the effectiveness of the company’s shareholder resolution on appointing Li as its legal representative was not affected, and as the new chairman and legal representative, Li had the right to file a lawsuit on behalf of the company.

Q: Which courts or arbitral institutions will handle disputes on the handover of a company’s certificates?

A: The “dispute over the return of a company’s certificates” was added as a new cause of action in the Provisions on the Cause of Action of Civil Cases issued by the Supreme People’s Court in 2011. According to article 117 of the General Principles of the Civil Law and article 34 of the Property Law, withholding a company’s certificates constitutes a tort.

Guangzhou Intermediate People’s Court handled the dispute between Guangzhou Xiezhuang Cosmetics Company Limited and Li Jie and Gu Fuhua over the return of certificates. Beijing Third Intermediate People’s Court tackled a similar dispute between TTCO Trust Corporation Limited and Beijing Anxingtianxia Technology Development Company. Both courts confirmed that the lawsuits were brought on a tortious act, and the jurisdiction of the lawsuits should be determined based on the tort law.

According to article 28 of the Civil Procedure Law, a lawsuit brought on a tortious act shall be under the jurisdiction of the people’s court of the place where the tort occurs or where the defendant is domiciled. Article 24 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law stipulates that the scope of the place where the tort occurs includes the place where the tort is committed, and the place where the results of the tort occur.

Therefore, the courts in the place where the tort is committed, the place where the results of the tort occur, or the place where the defendant is domiciled shall have jurisdiction, and the subject has the right to file a civil action with any one of the courts.

Besides, if a company’s articles of association stipulate that equity-related disputes shall be subject to arbitration, the company can file an arbitration application to the designated arbitral institution to request the related persons to return its certificates.

Zhang Jianzhou is a partner at AnJie Law Firm