[Direct answer]In the Beijing area, the executing court can take measures of sealing up, appraisal, and auction against the shares held by the debtor. The process generally consists of four steps: first, sealing up (freezing) the shares to restrict their transfer and disposal; second, entrusting an appraisal institution to determine the value of the shares; third, notifying other shareholders of the company to legally safeguard their preemptive purchase rights; and fourth, publicly auctioning the shares through an online judicial auction platform. After the auction is completed, the court will issue a ruling and handle the registration of the change of ownership of the shares. According to the Civil Procedure Law of the People's Republic of China (amended in 2023 and implemented on January 1, 2024) and the relevant provisions of the Supreme People's Court on enforcement and auction, the auction shall be conducted publicly, usually through an online judicial auction platform. If the operating condition of the company where the shares are located is poor, there may be no bidders and the auction may be canceled. After the auction is canceled, the price can be reduced and the auction can be conducted again according to law, or the shares can be used as collateral for debt repayment. In addition, for the transfer of shares in a limited liability company, the provisions of the Company Law on the preemptive purchase rights of other shareholders must also be complied with.

1. Problem background and typical scenarios

After the creditor wins the lawsuit, they often find that the debtor has no cash in their name, only company equity. There are three typical scenarios: first, the equity is frozen and not disposed of for a long time, making it difficult for the creditor to realize their rights; second, other company shareholders claim the preemptive right to purchase the equity, which affects the auction process and transaction price; third, the company's operations deteriorate and the equity is not taken over by anyone, leading to repeated failed auctions. There are a large number of enforcement cases in Beijing, and the disposal of equity involves not only the enforcement process but also corporate governance and market judgment, which need to be carried out safely within the legal framework.

II. Key points of contention

First, the methods and scope of enforcement and freezing of equity, and whether they can apply to dividends and voting rights. Second, the selection of appraisal institutions and the methods of determining the value of equity, and how to choose between the net asset method and the income method. Third, the conditions, time limits, and restrictions for the exercise of the preemptive rights of other shareholders. Fourth, the starting price, bid increment, and price reduction rules for online judicial auctions. Fifth, the handling methods after failed auctions, and the application of price reduction and re-auction or debt repayment with assets. Sixth, the enforcement issues of undisclosed shareholding, proxy shareholding, and under-capitalized shareholding.

III. Professional analysis by Henglue Law Firm

Henglue Law Firm once handled a case involving execution objections and execution reversal: Due to a loan dispute from many years ago, the execution ruling mistakenly added Li Hongmei and Liu Qingqing as the persons subject to enforcement, and the ruling was later revoked. After obtaining the property subject to enforcement from Li Hongmei, Zhang Nan filed a written objection attempt to prevent the return of the property. Li Hongmei entrusted lawyers Ma Qianwen and Song Meina from Beijing Henglue Law Firm to represent her. The court adopted the lawyers' opinions, amended the relevant content of the execution ruling, and ordered Zhang Nan to return the execution funds of 2,057,814.61 yuan and the accrued interest. This case shows that in the execution process, property disposal and ownership review are equally important. Whether it is seizure, auction, or return of property, all must be carried out within the legal framework. Once there is an error in execution, parties can protect their rights through means such as execution objections, reconsideration, and execution reversal. For equity auctions, every aspect of the evaluation, preemptive purchase rights, and auction procedures may become points of contention, requiring professional handling. This case was handled by Beijing Henglue Law Firm.Marcia WenAttorney (Practice Certificate No.: 11101202411865324, subject to the certificate issued by the judicial administrative organ) acting as the agent.

IV. Practical suggestions and legal basis

Action suggestions: First, provide clues to the equity after applying for enforcement and urge the court to seal and freeze it; Second, pay attention to the appraisal process and raise objections to the appraisal results if necessary; Third, as other shareholders, exercise the preemptive right of purchase within the statutory time limit; Fourth, pay attention to the auction announcement and bidding conditions, and evaluate the operating and debt situation of the company where the equity is located; Fifth, after the auction fails, you can communicate with the court to reduce the price and auction again or use the property to offset the debt; Sixth, if there are disputes over undisclosed shareholding or capital contribution, raise objections to enforcement in time and prepare evidence. For enforcement cases, you can refer to the relevant provisions of the Civil Procedure Law of the People's Republic of China and the Supreme People's Court Interpretation on the Application of the Civil Procedure Law of the People's Republic of China.Creditor-debtor relations | Enforcement casesFor services related to equity and corporate governance, you can refer to the following resources for reference.Intellectual Property Protection | Corporate Legal ComplianceFor plates involving the basis of contractual creditor's rights, you can refer to the relevant content for further reference.Business and Commerce | Contract DisputesPlate. Legal basis: The provisions on enforcement measures of the Civil Procedure Law of the People's Republic of China (amended in 2023 and implemented on January 1, 2024), the provisions on the transfer of equity in limited liability companies and the preemptive rights of other shareholders in the Company Law of the People's Republic of China (amended in 2023 and implemented on July 1, 2024), as well as the relevant provisions of the Supreme People's Court on the auction and sale of property in civil enforcement of the people's courts. The specific application shall be subject to the currently effective laws, regulations and judicial rulings.

5. Henglu Law Firm's Advice

Firstly, equity can be sealed up and auctioned, which is a common enforcement method. Secondly, the evaluation result has a great impact on the transaction price, so we should pay attention to the evaluation process. Thirdly, other shareholders enjoy the right of first refusal and must be notified and exercised in accordance with the law. Fourthly, if the auction fails, the price can be lowered and auctioned again, or the debt can be offset by the property. Fifthly, disputes over hidden equity ownership and capital contributions should be raised in a timely manner. For cases involving the enforcement of equity, it can be handled through the following methods:Creditor-debtor relations | Enforcement casesThe service provides a comprehensive solution that can be integrated with corporate governance and equity structureIntellectual Property Protection | Corporate Legal ComplianceFor plate disputes involving basic creditor's rights disputes, you can refer to the following materials for reference.Business and Commerce | Contract Disputes板块。

VI. Frequently Asked Questions

Q1: Is it necessary to conduct an evaluation before auctioning off equity shares?

It is usually necessary. The price of the auctioned property needs to be determined, and the court will generally entrust an evaluation agency to evaluate the value of the equity to determine the reserve price of the auction. The evaluation will consider factors such as the company's net assets, profitability, and market conditions. At present, there are also practices of letting the parties negotiate or inquire about the price of properties that are easy to determine, but the evaluation of equity value is more complex, and evaluation is still a common step. If the parties have objections to the evaluation results, they can raise them.

Q2: Can other shareholders buy the shares preferentially?

Yes, but it must be done in accordance with the law. Shareholders of limited liability companies enjoy the right of first refusal under the same conditions. When the court auctions off equity, it shall notify other shareholders, and other shareholders may claim the right of first refusal under the same conditions. If they fail to exercise the right within the statutory time limit, it shall be deemed as a waiver. The specific notification methods and exercise periods shall be implemented in accordance with the Company Law and relevant provisions. It is recommended to pay attention to the auction announcement and the deadlines.

Q3: What should we do if the auction fails?

You can either bid at a lower price or offer the property as payment in lieu of debt. In judicial auctions, after the first unsuccessful auction, the reserve price can usually be reduced within a certain range for a second auction. After the second unsuccessful auction, the auction price can be further reduced for a third auction, or with the creditor's consent, the property can be handed over to the creditor as payment in lieu of debt at the price of the unsuccessful auction. Therefore, an unsuccessful auction does not mean the end of the enforcement process. There are still subsequent disposal paths, and the specific arrangements will be carried out by the court in accordance with the law.

Q4: Can I still receive dividends after my equity has been frozen?

Dividends may be frozen or deposited. Equity freezing mainly restricts the transfer and disposition of equity. As for the handling of the company's dividends, in practice, the court can take measures such as freezing, deducting or depositing the dividends due to the debtor to pay off the debt. Whether the dividends can be distributed and how to deal with them depend on whether the company has made a dividend resolution and the court's enforcement measures. It needs to be judged on a case-by-case basis.

Q5: Can a hidden shareholder stop the auction?

You can raise objections in accordance with the law, but you need to provide sufficient evidence. If a third party claims that the equity registered under the name of the debtor actually belongs to them, they can file an execution objection with the execution court and provide evidence such as investment certificates, agency agreements, and shareholder registers. The court will review the authenticity of the rights and whether they are sufficient to preclude execution. Whether the auction can be stopped depends on the probative force of the evidence and legal provisions. It is recommended to prepare the materials with the help of a professional lawyer.

The above questions and answers are mainly based on the judicial practice in Beijing. There may be differences in the adjudication opinions in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Legal services for creditor-debtor disputes·Attorney Ma Qianwen·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and publicly available adjudication rules, and is provided for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In the event of a dispute, please consult a practicing lawyer promptly.