The new Company Law of the PRC, which came into effect on 1 July 2024, for the first time clarifies in legislative form that the rules for the accelerated expiration of shareholders' capital contribution obligations may be applied when a company is under non-bankruptcy, non-dissolution, non-execution status.

Before the new Company Law came into effect, the people's courts generally did not support the accelerated expiration of shareholders' capital contribution obligations. The rules for the accelerated expiration of shareholders' capital contribution obligations are only allowed to apply in the following situations:

1. The company has started bankruptcy proceedings. [Basis: Article 35 of the Bankruptcy Law.]
2. The company is dissolving. [Basis: Article 22 of Judicial Interpretation of the Company Law (II)].
3. The company has no assets available for execution and meets the conditions for bankruptcy but does not apply for bankruptcy. [Basis: Article 6 of the Minutes of the National Courts' Civil and Commercial Trial Work Conference (Fa [2019] No. 254).]
4. The company maliciously extends the shareholder's capital contribution period to evade debts. [Basis: Article 6 of the Minutes of the National Courts' Civil and Commercial Trial Work Conference (Fa [2019] No. 254)].

Article 54 of the new Company Law stipulates that if a company is unable to pay off its due debts, the company itself or creditors with due debts shall have the right to require the shareholders who have subscribed for capital but have not yet reached the capital contribution deadline to pay their capital contributions in advance. It means that as long as a limited liability company is not able to pay its due debts, the company or creditors with due debts also can require the application of accelerated expiration of shareholders' capital contribution obligations, even when the company is under non-bankruptcy, non-dissolution, non-execution status.

Article 54 of the new Company Law expands the application scope of the rules for the accelerated expiration of shareholders' capital contribution obligations, which enhances the protection of the creditors’ interests. However, the new Company Law does not specify the criteria for determining a company is unable to pay off its due debts. How to define a company is unable to pay off its due debts in judicial practice? Further judicial interpretation is needed to clarify.

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