New Judicial Interpretation Introduces Stricter Shareholder Liability

On 6 December 2010 the Supreme People's Court of the People's Republic of China (the "PRC") promulgated Interpretation (III) of Several Issues relating to the Application of the PRC Company Law ("Interpretation III"), which came into force on 16 February 2011.

Interpretation III specifies the application of the PRC Company Law in disputes arising from company establishment, capital contributions and transfer of equity interests. Although procedural in nature, Interpretation III modifies the corporate legal framework in the PRC. Foreign investors should also consider it when drafting or amending corporate documents of foreign invested enterprises ("FIEs").

The main relevance of Interpretation III is likely to be the direct liability of a shareholder to its subsidiary's creditors for its own failure and that of other shareholders to provide capital contributions (see item 3 below for details).