Business Case Notes | Determination of the Liability of the Executed Party in the Execution Procedure - Share Transfer Issues

Preface

This note is based on a recent enforcement case handled by us. The applicant and the defendant are both corporate entities. The case involves a contract dispute over a sales transaction. The client won the case in both the first and second instance. After the victory, the defendant company failed to repay the debt. The client filed an application for enforcement. During the process of filing the case, it was discovered that the defendant company had undergone a shareholding transfer, which raised suspicion. Negotiations were conducted with the other party, and an enforcement settlement was finally reached.

Based on this, this note analyzes the responsibility-bearing entities, scope, sequence, and practical rules of the executed company after a shareholding transfer during the enforcement process. Therefore, this article is written based on the latest "Company Law" and enforcement judicial interpretations, as well as typical court cases from various regions and mainstream judicial viewpoints, to provide guidance for enforcement objections, the addition of (executed party) as a defendant， and the actual operation of equity disposal. The content is only for practical case reference and does not constitute formal legal opinions.

Core case handling issues： During the enforcement stage， if a company that is the defendant undergoes a shareholding transfer， what types of legal responsibilities should the company， the original shareholders， and the acquiring shareholders bear， and what are the boundaries， evidentiary points， practical prohibitions， and paths (means of protection) in the enforcement procedure？

01 Case background and problem introduction

In the practice of civil compulsory enforcement， a large number of cases of final settlement， enforcement objections， and enforcement reconsideration all revolve around the same core difficult issue： After a case enters the compulsory enforcement procedure， the executed company， in an attempt to evade debts and transfer assets， changes its shareholders through shareholding transfer， thereby causing the creditor's rights of the applicant to be unable to be realized. In practice， there are widespread cognitive misunderstandings. Many parties and even some grassroots case handlers even believe that "the transfer of equity， the responsibility is cleared," mistakenly thinking that after the shareholding transfer， the original shareholders do not need to bear responsibility， and the new shareholders do not need to guarantee. This ultimately leads to the loss of the best opportunity for enforcement and the suspension of the creditor's rights.

Based on the recent handled enforcement cases and the new judicial rules after the implementation of the 2023 revised "Company Law," the author systematically examines the responsibility system of the executed company during the enforcement stage after a shareholding transfer.

Core clarification of three practical core issues：

First， is the executed company itself exempt from liability due to the shareholding transfer?

Second， in different scenarios of shareholding transfer， what types of liability， scope， and sequence should the new and old shareholders bear?

Third， what are the boundaries of enforcement procedures and substantive litigation， and which entities can be directly added in the enforcement process and which need to be litigated separately for protection， avoiding procedural flaws such as substituting enforcement for litigation?

From the perspective of practical case handling， the shareholding transfer of the executed company does not affect the company's liability for debt repayment. As an independent legal entity， the company always assumes the liability for the debts determined by the effective legal documents with all its assets. The shareholding transfer is merely a change in the shareholder entity， which is a commercial act at the shareholder level and does not change the legal entity qualification of the company or have the legal effect of debt exemption or debt transfer. All the core premises for liability exemption do not hold true. The shareholding transfer is by no means a legal way for the company to evade enforcement.

02 Core case handling conclusion and responsibility system review

Based on current laws， judicial interpretations， and typical court cases from the Supreme People's Court and local high courts， the responsibility borne by the executed company after a shareholding transfer during the enforcement process can be summarized as the sixteen-character core rule： "Company (guarantee)， shareholders' supplementary responsibility， sequence of liability pursuit， and legal limitation." Liability is borne by the company's own assets as the first priority. Only when the company's assets are insufficient to repay all debts can specific shareholders be directly added in the enforcement procedure for supplementary liability， joint liability， or secondary liability based on legal circumstances. Without legal provisions， it is not allowed to arbitrarily add entities or expand the scope of liability.

The constant responsibility of the executed company

Regardless of how many times the shareholding changes occur during the enforcement process or how the shareholder entities change， the executed company is always the first responsible party for the case-related debts and must use all its assets， debts， intellectual property rights， and other all executable properties to repay the debts. The transfer of equity merely changes the company's equity structure, does not eliminate the company's independent legal personality, and does not change the entity responsible for the company's external debts. This responsibility is absolute and constant and is not affected by changes in equity. In practice, even after the company completes the equity transfer and the legal representative changes, the executing court can still normally seize, freeze, and dispose of all the company's assets, and cannot suspend or terminate the execution due to the equity transfer.

Shareholder hierarchical liability (core accountability scenario)

When the company's assets are insufficient to repay debts, the responsibility of shareholders should be distinguished based on the status of capital contributions, the time point of equity transfer, subjective fault, and company type. Different scenarios have completely different types of liability, sequence of responsibility, and scope. This is the most controversial and finely divided core point in case handling.

1. Current shareholders have not paid or have not paid in full the capital contributions

According to Article 17 of the "Provisions on Certain Issues Concerning the Amendment and Addition of Parties in Civil Execution", when the property of a corporate entity as the debtor is insufficient to repay debts, the applicant for execution can directly apply to add the current shareholders, the contributors, or the joint initiators as the party subject to execution. The shareholder shall bear supplementary liability within the scope of the unpaid capital and interest. This rule is the most commonly used and least controversial accountability path in the execution procedure. No separate lawsuit is required, and the applicant for execution can directly apply to add through the execution objection procedure, with the highest practical efficiency.

Key points of case handling: This liability is not affected by the equity transfer. As long as the current shareholder has a capital contribution defect, regardless of the time of equity transfer or whether they are aware, they must prioritize the responsibility of making up the capital and repaying the debt. The judgment is unified， and courts across the country have supported it.

2. Original shareholders failed to fulfill their capital contribution obligations and then transferred their equity

According to the aforementioned judicial interpretation， if the original shareholders transfer their equity when the capital contribution obligation has expired and they failed to fulfill it in accordance with the law， and the company's assets are insufficient to repay debts， the original shareholders can be added as the party subject to execution. In the case of insufficient company assets to repay debts， they shall bear supplementary liability within the scope of the unpaid capital. In practical case handling， it is necessary to carefully distinguish the core boundaries： The application of this clause is premised on the expiration of the capital contribution obligation. Equity transfer that has not reached the capital contribution period cannot be directly applied to this clause for adding the original shareholders as the party subject to execution.

At the same time， judicial judgments strictly distinguish between procedural review and substantive review. For complex facts such as non-expired capital contribution transfer， whether it is maliciously avoiding debts， and whether it abuses the term benefits， they fall within the scope of substantive trial. The execution procedure cannot directly determine through the execution procedure without judicial review. Judicial application of the addition rule should be cautious to avoid procedural violations being revoked by higher courts.

3. Liability for priority in equity transfer that has not reached the capital contribution period (core rule of the new Company Law)

After the implementation of the new "Company Law" in 2023， the rules on the term of capital contribution under the subscription system have been significantly adjusted. The liability for equity transfer that has not reached the capital contribution term has a clear priority rule， completely changing the chaotic judgment scale of the previous and new shareholders' joint accountability. The current mainstream judicial view and the answer of the Supreme People's Court clearly state： If the equity that has not reached the capital contribution term is transferred， the liability for capital contribution and repayment shall be borne by the transferee shareholder first； only when the transferee shareholder has no assets available for execution and cannot fulfill the responsibility， can the original transferor shareholder be added， and the responsibility for the unpaid portion of the transferee shareholder shall be secondary supplementary liability.

Case prohibition： It is not allowed to add both new and old shareholders as joint liability in the execution procedure. The "priority of the transferee first， then the transferor" rule must be followed， and concurrent addition is prone to be ruled invalid. This is a typical procedural defect of substituting the judicial review for the execution procedure.

4. Special liability for shareholder withdrawal of capital contributions

Regardless of whether the equity is transferred or not, and regardless of the number of transfers, as long as the shareholder has the legal circumstances of withdrawing capital, the creditor should, through litigation procedures, add the shareholder who withdrew capital as the person subject to enforcement, and require him/her to bear the supplementary liability for the supplementary compensation within the scope of the capital withdrawal and interest, which cannot be directly added in the enforcement process. The withdrawal of capital is an illegal act that seriously infringes upon the company's capital, and the responsibility is independent of the equity transfer behavior, and is not affected by the change of equity. Even if the shareholder has transferred the equity and withdrawn from the company, he/she still needs to bear the legal responsibility for the withdrawal behavior during his/her tenure.

5. Special Joint Liability of One-person Limited Liability Company

If the executed party is a one-person limited liability company, when the company's property is insufficient to repay the debts, the burden of proof reversal rule shall be applied: the sole shareholder shall prove that the company's property and personal property are independent and there is no confusion. If the shareholder fails to complete the proof, the applying enforcement court may directly apply to add this shareholder as the person subject to enforcement and bear the unlimited joint liability for all debts of the company.

Key points of case handling: If the equity of a one-person company is transferred, it is necessary to review the time point when the debt was formed and the period of the shareholder's tenure. The debt before the equity transfer shall be borne by the original sole shareholder; the debt after the equity transfer shall be borne by the current sole shareholder. It is not allowed to arbitrarily pursue responsibility across periods.

6. Joint Liability for Unregistered Liquidation

During the enforcement process, if the executed company, in order to avoid debts, directly applies for cancellation registration without going through the legal liquidation procedure, resulting in the loss of company accounts and inability to liquidate, the shareholders of the limited liability company, the directors of the joint-stock company, and the controlling shareholders may be added as the persons subject to enforcement and bear the joint liability for all debts of the company. This responsibility belongs to the legal liquidation responsibility and is independent of the equity transfer behavior. Even if the shareholder has transferred the equity, as long as he/she is a person who bears the obligation of liquidation and has committed an illegal cancellation act, he/she shall bear the responsibility.

The boundary and procedural restrictions of joint liability for multiple equity transfers

The enforcement addition strictly follows the principle of legalism and limited extension. It is prohibited to pursue responsibility in an infinite chain. In practice, a large number of cases have the situation where the executed company avoids debts by directly applying for cancellation registration without going through the legal liquidation procedure, resulting in the loss of company accounts and inability to liquidate. In such cases, the shareholders of the limited liability company, the directors of the joint-stock company, and the controlling shareholders may be added as the persons subject to enforcement and bear the joint liability for all debts of the company. The judicial interpretation clearly stipulates that the enforcement procedure can only add the defective capital contributor, the shareholder who withdrew capital, and the person who violated the liquidation obligation within the legal scope, and shall not layerly pursue responsibility on "the shareholders of the shareholders" and other indirect subjects.

For cases where the multiple transfer chain exceeds the liability circumstances clearly listed in the judicial interpretation and requires the determination of substantive facts such as malicious collusion, evasion of enforcement, and defective acquisition, the enforcement procedure has no right to review and should be claimed through substantive procedures such as execution objection lawsuits and shareholder liability disputes lawsuits, and strictly prevent judicial substitution of review. At the same time, the judiciary adheres to the "one-time addition principle" to avoid repeated addition and excessive liability pursuit, and protect the legitimate rights and interests of shareholders.

03 Case Analysis and Summary of Judging Standards

The author, based on the effective enforcement rulings of courts in various regions from 2021 to 2025, selected five typical cases to review the core viewpoints, disputed points, and risks of losing the case, and summarized the rules that can be directly applied in case handling.

Case 1: Prohibition of Enforcement Procedure from Adding Successive Acquirers after Multiple Equity Transfers [(2025) Sichuan 0603 Enforcement Objection 244]

Basic facts: During the enforcement process, multiple original shareholders of the executed company transferred their equity, and the applicant for enforcement claimed to add all the successive acquirers as the persons subject to enforcement.

Judgment core viewpoint: Enforcement addition follows the principle of legalism, and only the original defective capital contributor can be added. The joint liability of the successive acquirers has no direct basis for enforcement procedure. If the creditor claims that the successive acquirers should bear the responsibility, it shall be sued through substantive litigation, and shall not be directly added in the enforcement objection procedure.

Case enlightenment: In multi-round equity transfer cases, do not blindly layerly pursue responsibility in the enforcement procedure. For the pursuit of liability on the successive acquirers, prioritize the path of substantive litigation to avoid procedural flaws being rejected.

Case 2: Zero-price defective capital contribution equity transfer, both the new and old shareholders are liable 【(2024) Min 0802 Chongji 36】

Basic facts: The previous shareholders of the executed company failed to make capital contributions and transferred equity at zero price multiple times. The company had no assets to repay debts, and the applicant creditor requested the addition of all the new and old shareholders.

Judicial core viewpoint: If equity is transferred without payment or without making capital contributions, it is presumed that the transferee shareholder is aware of the capital contribution defect. The original shareholders shall bear supplementary liability within the scope of their unpaid capital contributions, and the transferee shareholder shall bear joint liability. The court legally supported the addition of all the defective shareholders.

Case 3: Implementation of the rules for adding batch defective capital contribution shareholders 【(2021) Yue 0112 Chongji 328】

Basic facts: The shareholders of the executed company failed to make capital contributions and transferred equity one after another. The company's assets were insufficient to repay the huge debts, and the applicant creditor batch-removed the previous shareholders.

Judicial core viewpoint: If shareholders transfer equity without making capital contributions, regardless of whether they withdraw from the company or participate in its operation, they shall bear supplementary liability within the scope of their unpaid capital contributions. Internal equity agreements cannot be used to oppose external creditors. All the defective shareholders were legally added.

Case 4: Extension of capital contribution period + Unexpired Transfer of Equity, All Shareholders Bear Liability 【(2024) Lu 1703 Chongji 17】

Basic facts: After the formation of the debt, the shareholders of the executed company extended the capital contribution period through the shareholders' meeting resolution, and several shareholders transferred equity before the expiration of the capital contribution period. The company had no assets available for execution.

Judicial core viewpoint: After the formation of the debt, if shareholders extend the capital contribution period maliciously and use the period of capital contribution to evade debts, the capital contribution period shall accelerate, and all the new and old shareholders shall bear the liability for repayment within the scope of their unpaid capital contributions.

Case 5: Unexpired Equity Transfer, Execution Procedure Refuses to Add Original Shareholders 【(2025) Jing 0115 Chongji 546】

Basic facts: The original shareholders transferred equity before the expiration of the capital contribution period. The applicant creditor claimed to add the original shareholders for liability.

Judicial core viewpoint: Unexpired equity transfer shall not be considered as malicious debt avoidance or evasion. It belongs to the substantive review scope. The execution procedure has no right to directly determine it. It was legally rejected the application for addition.

Case 6: Practical Illegal Penalties and Risk Warnings

During the execution process, parties evade execution through false equity transfer, forging equity materials, and concealing the facts of equity change. They not only cannot exempt from civil liability but will also face administrative and judicial dual penalties. These are the risk points that need to be highlighted for parties in the case handling process.

1. Penalty for false equity change: If the parties forge the shareholders' meeting resolution or equity transfer agreement to fraudulently obtain the equity change registration from the market supervision department, they will be ordered to correct by the regulatory department and fined. The relevant change registration can be legally revoked, and the evasion of execution behavior is invalid.

2. Penalty for illegal equity change in financial institutions: If the equity change of banks, rural credit cooperatives, etc. is not reported as required or does not implement the avoidance system, the regulatory department can impose fines, warnings, etc. on the institution and its responsible persons.

Note: The above translations are based on the provided Chinese text and aim to convey the meaning accurately and naturally in English.

3. Judicial Punishment Risk: If a party maliciously transfers assets through and evades enforcement measures, the court may legally impose fines and detention on the Defendant and relevant responsible persons. In cases of serious circumstances， it may be suspected of the crime of refusing to execute judgments or rulings， and criminal responsibility will be pursued accordingly.

05

Case Handling Practical Guidance and Client Suggestions

Based on the aforementioned regulations, cases, and judicial rules, we have sorted out standardized case handling practical steps for both the applicant for enforcement and the respondent. We have clarified the key points of evidence presentation, the selection of procedures, and the risk avoidance plans.

Practical Steps for the Applicant for Enforcement of Debt Recovery

1. Prioritize the verification of company assets: Exhaust all measures for querying and disposing of company properties such as real estate, vehicles, deposits, creditor rights, and intellectual property rights. Collect evidence to prove that "the company's assets are insufficient to cover debts" as a basis for adding shareholders.

2. Layered liability pursuit of shareholders: First, verify the capital contribution situation of current shareholders. For those who have not made full or sufficient contributions, directly apply for enforcement to add them as shareholders. For cases where there is no due transfer of equity, first pursue the transferee and add the original shareholder only after there is no property available for enforcement. For cases of capital withdrawal, one-person company confusion, or malicious dissolution, initiate a special addition procedure accordingly.

3. Differentiate procedural paths: For simple defects in capital contribution, one-person company confusion, or illegal dissolution, use the execution objection procedure to quickly add. For complex situations such as multiple equity transfers, pursuit of the successor shareholder, or malicious debt avoidance determination, promptly file an execution objection lawsuit to avoid the rejection of the procedure.

4. Fix core evidence: Focus on obtaining business archives, equity transfer agreements, capital contribution certificates, resolutions of shareholders' meetings with extension periods, equity transaction price flowcharts, and company cancellation registration materials, to prove core facts such as capital defect, malicious avoidance, and knowing the transferee.

5. Standardize equity disposal: When applying for court enforcement of equity, strictly follow the notification procedure for priority purchase rights, and reserve a legal waiting period of twenty days to avoid procedural flaws leading to the revocation of the disposal action.

Risk Avoidance Suggestions for Respondents and Equity Transferees

1. Respondent Company: Cannot evade enforcement through false equity transfer, malicious dissolution, or asset transfer. Otherwise, it will face judicial penalties, and the corresponding avoidance actions will be invalid. It still needs to bear the full liability for repayment.

2. Equity Transferee: Before acquiring the equity of the respondent company, thoroughly verify the capital contribution fulfillment situation, the capital contribution deadline, whether there is capital withdrawal, judicial seizure, etc. to avoid assuming joint liability after acquiring the defective equity.

3. Original Shareholder: For those whose capital contributions have expired but have not been made, cannot use equity transfer to evade responsibility. For those who have not transferred equity by the due date, retain legal transfer evidence to avoid the presumption of malicious debt avoidance and prevent the risk of secondary supplementary liability.

06 Summary of Case Handling and Judicial Trend Prediction

Through this special review, it is clear that the core logic of responsibility for equity transfer in the enforcement stage is: the company's responsibility is constant, the shareholder's responsibility is legal, the pursuit order is clear, and the procedural boundaries are clear. After the implementation of the new 2023 Company Law, judicial judgment standards have become more refined, completely ending the chaotic state of previous exemption of equity transfer and disorderly pursuit of new and old shareholders, forming a unified judicial system of "first the company, then the shareholders; first the transferee, then the transferor; the addition is determined by procedural review, and the fault is determined by substantive trial."

From the trend of case handling practice, in the future, courts will further strengthen the legalism of enforcement addition, strictly distinguish the boundaries between the enforcement procedure and the substantive trial, and prevent the practice of substituting enforcement for trial and unlimited pursuit of responsibility. At the same time, they will severely crack down on behaviors of using the term "subscription period" to benefit multiple equity transfers and maliciously evading enforcement, increasing the pursuit intensity for defects in capital contribution, capital withdrawal, malicious delay, and illegal dissolution.

As a practicing lawyer handling such enforcement cases, when dealing with such cases, one should abandon the "one-size-fits-all" pursuit thinking, precisely distinguish the types, sequence, and scope of responsibility in different equity transfer scenarios, strictly follow procedural rules, precisely present evidence, and precisely implement measures, not only maximizing the protection of the applicant's legal creditor rights, but also adhering to the judicial procedural boundaries, safeguarding the legitimate commercial rights of the parties, and achieving the legal, efficient, and stable disposal of enforcement cases.

07 Appendix: Core Applicable Regulations

The laws and regulations and judicial interpretations involved in this case are all the current valid versions. By combining practical case handling, the core provisions are accurately interpreted to avoid deviations in the application of legal provisions.

"Provisions on Changing and Adding Parties in Civil Execution (Amended in 2020)"

1. Article 17: Clearly stipulates the supplementary liability of shareholders who have not contributed or have not contributed in full. This is the direct legal basis for executing and adding current shareholders. The applicable threshold is the lowest and the practical application is the most extensive.

2. Article 19: Regulates the liability of the original shareholders who transferred their equity after the due payment of capital contributions. The core applicable conditions are "capital contribution obligation has expired + not fulfilled + transfer of equity", all of which are indispensable.

3. Article 20: The liability clause for corporate personality confusion in one-person companies. The core practical highlight is the inversion of the burden of proof, which greatly reduces the difficulty for the applicant to prove.

4. Article 21: The joint liability clause for shareholders who have not undergone liquidation and cancellation. This clause is for the execution of maliciously canceling the company to avoid debts, and it is an important basis for safeguarding creditor rights.

"Company Law" (Revised in 2023)

1. Article 85: Clearly stipulates the procedural rules for compulsory execution of company shares. When compulsory executing company shares, the company and all shareholders must be notified. Other shareholders have a priority purchase right for twenty days. Failure to exercise this right within the time limit is regarded as a waiver. This is the core procedural basis for the judicial disposal of company shares.

2. Article 88: Adds the rule for the priority order of shareholders' liability for unexpired equity transfer, establishing a "transferee priority, transferor supplementary" liability system, and unifying the judicial standards after the implementation of the new Company Law.

"Company Law Judicial Interpretation (III)" (Amended in 2020)

Article 18: Clearly stipulates the two-way liability pursuit rule for defective capital contribution transfer of equity. If a shareholder transfers equity without fulfilling the capital contribution obligation, the transferee who is aware of this shall bear joint liability with the old and new shareholders; the transferee can claim compensation from the original shareholder and can also pursue compensation from the original shareholder after fulfilling the liability, providing a basis for substantive litigation liability pursuit.

"Civil Procedure Law" (Revised in 2023)

Clarifies the assistance execution rules for changes in property rights during execution. The court can issue an assistance execution notice to the registration authority to forcibly handle the change of equity registration, eliminating the registration obstacles for equity transfer and ensuring the implementation of the execution.