Many foreign investors are concerned about the legal risks involving the legal representative in China. Following our last article, “Legal Representative in China: Civil Liabilities”, we continue to explain to you the administrative liabilities a legal representative in China may assume from the perspective of Chinese lawyers in the field of foreign investment.

1. Failing to disclose the property status truthfully

According to Article 248 of the Civil Procedure Law of the People’s Republic of China (Amended in 2021), where the person subjected to execution fails to perform the obligations stipulated in the legal document in accordance with the execution notice, such person subjected to execution shall report the current property status and the property status in a year prior to the date when such execution notice is received. If the person subjected to execution refuses to report or makes false report, the people’s court may impose a fine or detention on the person subjected to execution or its legal representative, the principal person in charge of the relevant unit or the person who is directly responsible according to the seriousness of the circumstances.

According to Article 202 of the Company Law of the People’s Republic of China, where a company makes any false records or conceals any important facts in such materials as financial and accounting statements submitted to the relevant competent department, the relevant competent department shall impose a fine of not less than RMB 30,000 but not more than RMB 300,000 upon the directly responsible persons in charge and other directly responsible persons.

According to Article 204 Paragraph 2 of the Company Law of the People’s Republic of China, where, in the process of liquidation, a company hides any of its properties or makes any false records in its balance sheet or property checklist, or distributes any of the company’s properties before clearing off its debts, it shall be ordered by the company registration authority to make a rectification, and may be fined not less than 5% but not more than 10% of the value of the company properties it has hidden or distributed prior to the clearing of company debts, and the directly responsible person in charge as well as other directly responsible persons may be fined not less than RMB 10,000 but not more than RMB 100,000.

As per the aforesaid provisions, since the legal representative is generally deemed as the directly responsible person of the company, he is likely to be imposed such administrative penalties as fines and detention in the following circumstances:

1) The company as the person subjected to execution fails to perform its obligations specified in the judgment and refuses to report the relevant property status;

2) The company makes false records or conceals important facts in its financial statements;

3) The company tries to hide or distribute its properties before clearing off the debts in the process of liquidation.

2. Failing to perform the obligations specified in the legal document in force

According to Article 24 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Execution Procedures of the Civil Procedure Law of the People’s Republic of China, and Article 3 of the Several Provisions of the Supreme People’s Court on Restricting High Consumption and Relevant Consumption of the Person Subjected to Execution, if the company fails to perform its obligations in accordance with the legal document in force and the court has ordered enforcement, the legal representative may be imposed execution measures including restrictions on exit and high consumption (such as traveling by air or booking star hotels).

3. Industry-specific or Field-specific Liabilities

In certain industry or fields, there will be special regulations. If the relevant legal representative fails to supervise the company’s performance of corresponding responsibilities, such legal representative may be subjected to administrative penalties. For example, in the field of cybersecurity, according to Article 59 of the Cybersecurity Law of the People’s Republic of China, where the network operator fails to perform the obligations of protecting cybersecurity stipulated by law, if the network operator refuses to make corrections or causes consequences such as endangering cybersecurity, the relevant competent authorities may impose a fine on the directly responsible person in charge, which generally includes the legal representative.

As Chinese lawyers experienced in the field of foreign investment for a long time, we have assisted many foreign invested enterprises in their legal issues related to legal representatives. If you have any legal questions regarding the legal representative, please feel free to contact us via administrator@legalandwise.com.

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