Debt Joinder, Joint Repayment and External Guarantees: The Compliance Boundaries of Listed Companies' Credit Enhancement Practices
01 Introduction
With the strengthening of regulatory oversight on the disclosure of external guarantees by listed companies, in practice, some listed companies have adopted the methods of debt participation or being a co-debtor in the loan contract to evade the obligation to disclose external guarantees. This has become an important form for listed companies to provide credit enhancement for others, especially related parties, in their financing activities. This article analyzes the differences in internal decision-making and disclosure between debt participation, joint repayment, and external guarantees from a theoretical and regulatory perspective. It also examines the differences in obligations between the debt participant/joint repayer and the guarantor, and clarifies the legal risks faced by such avoidance methods through theory and judicial practice.
02 Differences between Debt Joinder, Co-borrowers and External Guarantors
Creditors, when dealing with listed companies, choose to provide credit enhancement for the debtors by having the listed companies act as debt participants or co-debtors. This is mainly based on multiple considerations such as the companies' ability to fulfill obligations, procedural convenience, and the effectiveness of credit enhancement. Meanwhile, listed companies accept such transaction arrangements mainly due to the convenience of the procedures.
From the perspective of the internal decision-making process, according to Article 9 of the "Interpretation of the Supreme People's Court on the Application of the Civil Code of the People's Republic of China on Relevant Guarantee Systems" (hereinafter referred to as the "Guarantee System Interpretation"), the guarantee matters of listed companies shall be resolved by the board of directors or the shareholders' meeting; otherwise, the guarantee contract shall not take effect, and the listed company shall not bear the guarantee liability or compensation liability. The internal decision-making mechanism for external debts of the company is mainly constrained by the company's articles of association and internal management systems. Listed companies usually review the relevant proposals on the annual financing and borrowing limits at the annual general meeting of shareholders, and authorize the board of directors or the management to handle the financing and borrowing business within a certain limit. According to Article 12 of the "Guarantee System Interpretation", if the legal representative joins the debt in the name of the company, when the people's court determines the validity of this act, it can handle it in accordance with the relevant rules on companies providing guarantees for others as stipulated in this interpretation.
From the perspective of information disclosure obligations, the provision of guarantees by listed companies falls under major transactions that must be disclosed. However, in terms of liabilities, major debts should be disclosed promptly. For instance, Article 6.1.1, Item (5) of the "Stock Listing Rules of Shenzhen Stock Exchange (Revised in 2026)" explicitly classifies providing guarantees (including guarantees for subsidiaries, etc.) as major transactions without any limit on the amount; according to Article 6.1.2, Item (5) of this rule, if the transaction amount (including assumed debts and expenses) exceeds 10% of the company's latest audited net assets and the absolute amount is over 10 million yuan, it constitutes a major transaction. The "Stock Listing Rules of Shanghai Stock Exchange (Revised in April 2026)" Article 6.1.1, Item (4) explicitly classifies external investments (including entrusted investment, investment in subsidiaries, etc.) as major transactions, without any limit on the amount; according to Article 6.1.2, Item (3) of this rule, if the transaction amount (including assumed debts and expenses) exceeds 10% of the company's latest audited net assets and the absolute amount is over 10 million yuan, it constitutes a major transaction.
From the perspectives of debt participation, co-borrowers and co-guarantors, the debts assumed by the debt participant, co-borrower/repayment person, and the original debtor are of the same nature. However, the guarantee has a subordinate nature. The period during which obligations and responsibilities are assumed is the agreed-upon or legally prescribed guarantee period. After the co-borrower/repayment person fulfills the repayment obligation, in the absence of any agreement, they do not have the legal right to claim repayment from other debtors.
03 Theoretical and Practical Aspects of Through-Business Review for Listed Companies as Co-Borrowers/Repayment Parties
Regarding this credit enhancement measure for the listed company, the academic community points out that a penetrating review approach should be adopted. The focus should be on examining the contents stipulated in the contract, the process of contract signing, and the situation of contract performance, etc. If the listed company actually fails to receive or use the funds but still has to bear the joint repayment responsibility, it should be regarded as a typical case of debt assumption, and the rules of guarantee should be applied for handling; if the listed company receives some of the funds, a comprehensive judgment should be made on whether the allocation of funds among the joint borrowers is reasonable.
In the "2024 Financial Trial Work Report and Typical Cases of Zhejiang Courts" released by the Zhejiang Higher People's Court in September 2025, a typical case was announced. The Hangzhou Intermediate People's Court held that the listed company in question had no record of debts as a borrower in its financial affairs and no records of financial transactions with other co-borrowers; there was also no evidence indicating the need for instructions for payment or proxy collection; from the entire process of signing and fulfilling the "Loan Agreement", it could be seen that the listed company did not have the factual basis for co-borrowing; therefore, it should not be limited to the literal meaning of the contract, but should explore the true intentions of all parties substantively to determine the legal relationship between the parties.
The stock listing rules of both the Shanghai and Shenzhen stock markets all contain safeguard clauses. According to Article 7.7.8 (6) of the "Stock Listing Rules of the Shanghai Stock Exchange" and Article 7.7.9 (6) of the "Stock Listing Rules of the Shenzhen Stock Exchange", when a listed company enters into an important contract that may have a significant impact on the company's assets, liabilities, equity and operating results, it must disclose the information in a timely manner. In the aforementioned typical cases, the second-instance court cited these rules and ruled that the creditor, during the transaction with a certain listed company, failed to review the company's announcement and failed to fulfill its reasonable duty of care. Therefore, the second-instance court reversed the judgment and dismissed all the lawsuit requests of the creditor against the listed company.
In the 2019 second-instance judgment of the Supreme People's Court on the financial loan contract dispute between CITIC Bank and LeTV Network [Case No.: (2019) Supreme People's Court Civil Appeal Case No. 1438], a reasoning of "lighter cases to clarify heavier cases" was adopted. The first-instance court held that although LeTV Network's act of joining its shareholder LeTV Holdings' debt did not fall under the category of providing guarantee for the shareholder, the company's commitment to assume responsibility for the debt by joining the debt was a more direct act that should have been subject to a resolution of the shareholders' meeting; LeTV Network's expression of its intention to join the debt of its shareholder LeTV Holdings, which was neither subject to a resolution of the shareholders' meeting nor a resolution of the board of directors, violated the relevant provisions of the Company Law. The second-instance court held that compared with the guarantee liability, the debt borne by the person joining is heavier. In the absence of clear stipulations in the current legislation regarding the conditions for the effectiveness of debt joining, the original judgment analogously applied the relevant provisions of the law regarding the guarantee provided by a listed company for its shareholders to determine the effect attribution, the legal basis was sufficient, and it also conformed to the legal interpretation method of "lighter cases to clarify heavier cases".
04 Conclusion
When listed companies provide credit enhancement for others' debts through debt participation or co-debtors, although it is different in form from the typical external guarantee, from a legal effect and economic essence perspective, it often leads the listed companies to bear obligations for repayment that are no less than those of guarantee responsibilities. The current judicial practice has clearly tended to adopt the penetrating review approach of "substance over form", and based on the legal interpretation method of "lighter cases clarify heavier ones", it analogizes such behaviors to apply the rules of external guarantees, requiring them to follow the board or shareholders' meeting resolution procedures and to make announcements in accordance with the disclosure standards for guarantees.
Meanwhile, the stock listing rules of the Shanghai and Shenzhen Stock Exchanges stipulate a disclosure obligation for major contracts that may affect a company's assets and liabilities through safeguarding clauses. This provides a rule-based basis. If creditors fail to review the corresponding announcements of listed companies and fail to exercise reasonable due diligence, their claims may not be supported by the courts. Therefore, listed companies and related creditors should fully recognize that debt assumption and joint repayment are not compliant shortcuts to circumvent guarantee regulations. Their internal decision-making and information disclosure requirements are essentially similar to or even stricter than those for external guarantees.
It is suggested that listed companies should actively fulfill the obligations of resolution and announcement when participating in such transactions, in accordance with the standards for external guarantees; creditors should carefully review the internal resolutions and publicly disclosed information of listed companies to avoid the failure of credit enhancement measures due to procedural flaws. The regulatory authorities can further clarify the information disclosure guidelines for debt participation and joint repayment, reduce the uncertainty in legal application, and maintain the security of securities market transactions and the order of information disclosure.
