New Liabilities for Directors and Senior Managers

Under the PRC Company Law (2006), directors and senior managers of a foreign-invested, Chinese-registered company have the duty to comply with laws, regulations and the company's articles of association, and owe the company loyalty and diligence. Moreover, they may be liable for compensation to the company if they cause it harm. In principle however, they will not bear civil liability towards third parties (such as the company's creditors) for their actions on behalf of the company.

In recently adopted rules, however, the Supreme People's Court has impacted this well-established principle. For certain activities relating to the non-contribution or withdrawal of registered capital, third-party creditors may directly claim against directors and senior managers. This opens a door for creditors to pressure companies and their managers to fulfill a company's debts; it also emphasizes the importance for directors and managers to establish their duties and the limitations