Understanding the Judicial Interpretation

The judicial interpretation, promulgated on June 29, 2024, and effective from July 1, 2024, provides clarity on the temporal application of the revised Company Law. It is a crucial document that ensures the seamless transition between the old and new legal regimes. By adhering to the principle of non-retroactivity while allowing for certain retroactive applications where beneficial, the interpretation seeks to balance legal consistency with the need for modernized legal standards.

Key Provisions and Their Business Implications

• General Temporal Application Rules: The new Company Law will apply to civil disputes arising from legal facts that occur after its implementation on July 1, 2024. For disputes originating from legal facts before this date, the previous laws and judicial interpretations will generally apply.

However, if applying the new Company Law better aligns with its legislative intent and provides a more favorable outcome, the courts may choose to apply the new provisions retroactively. This includes cases involving improper shareholder meeting procedures, disputes over shareholder resolutions, and issues related to equity transfers before the new law’s implementation.

• Favorable Retroactivity Rules: The interpretation outlines several scenarios where retroactive application of the new law is considered beneficial. For instance, disputes involving the validity of civil juristic acts, such as corporate resolutions or mergers, may see the new law applied retroactively if it better serves justice and aligns with the revised legal standards.
• Contract Performance Under the New Law: Contracts related to companies, particularly those involving listed companies, will be subject to the new law if disputes arise after its implementation. This includes matters such as shareholding contracts, financial assistance provided by companies for acquiring their shares, and other related financial arrangements.
• Addressing Previously Unregulated Areas: The interpretation also provides guidance on how to handle disputes in areas that were not clearly regulated under the old law. For example, it clarifies the responsibilities of shareholders in equity transfers and the rights of minority shareholders when a controlling shareholder abuses their power.
• Liquidation and Liability: For cases involving liquidation obligations, the timing of the legal facts and the proximity to the new law’s effective date will determine whether the old or new law applies. The interpretation provides specific rules for recalculating the time limits for liquidation obligations under the new law, ensuring that companies have clear guidance on their responsibilities.
• Res Judicata and Retrials: Cases that were finalized before the new law’s implementation will generally not be reopened under the new rules, except in specific instances where a retrial is granted. The interpretation affirms that the legal framework at the time of the original ruling will govern such retrials.

Strategic Considerations for Businesses

With the new Company Law and its accompanying judicial interpretation set to take effect, businesses must carefully assess their current operations, contracts, and corporate governance practices. Legal teams should review existing contracts and corporate structures to ensure compliance with the new provisions and to anticipate any potential disputes that could arise under the new legal regime.

Additionally, companies should be proactive in understanding how the retroactive application of certain provisions might impact ongoing or future litigation. Engaging with legal counsel to navigate these changes is essential for mitigating risks and capitalizing on the opportunities presented by the revised Company Law.

Conclusion

The promulgation of the Supreme People’s Court’s judicial interpretation on the temporal effect of the Company Law marks a significant step in China’s legal evolution. As businesses prepare for the new law’s implementation on July 1, 2024, understanding the nuances of this transition will be key to maintaining legal compliance and safeguarding business interests in a rapidly changing regulatory environment. By staying informed and proactive, companies can effectively manage the challenges and opportunities presented by this significant legal development.