[Direct answer]In the Beijing area, if a listed company provides guarantees in violation of regulations, shareholders can sue it in accordance with the law. When a company provides guarantees for shareholders or actual controllers, it must obtain the resolution of the shareholders' meeting, and related shareholders must abstain from voting (Article 15 of the Company Law of the People's Republic of China, amended on December 29, 2023 and implemented on July 1, 2024); if the legal representative provides guarantees beyond his authority, the guarantee will be effective against the company if the counterparty acts in good faith, but will not be effective against the company if the counterparty acts in bad faith (Article 504 of the Civil Code of the People's Republic of China, implemented on January 1, 2021). Shareholders may first request the board of supervisors or the audit committee to sue, and if the request is rejected or no lawsuit is filed within 30 days, or if the situation is urgent, they may initiate a shareholder representative lawsuit. For more details, please refer to the following link:Financial capital and cross-border legal services involving foreign affairs.

I. Problem Background and Typical Scenarios

Holding shareholders and actual controllers using listed companies to provide guarantees for their illegal activities and transfer benefits to themselves is a typical means of draining the company's assets. Common situations include: providing guarantees for related parties without the approval of the board of directors or shareholders' meeting; guarantee amounts exceeding the limits set in the articles of association; failing to abstain from voting when providing guarantees for shareholders or actual controllers; failing to disclose the guarantee matters in accordance with the law; and causing the company to be ordered to bear huge debts or have its accounts frozen due to illegal guarantees. Small and medium-sized shareholders often only discover the problems after regulatory penalties or lawsuits are initiated, at which point issues such as the validity of the guarantee contracts and the paths of accountability for responsibilities become relevant. For corporate governance compliance issues, please refer to the following link:Intellectual property and long-term legal advisory services for enterprises.

II. Key points of dispute

The disputes usually focus on four points. Firstly, whether the guarantee contract is effective for the company: whether the counterparty has reviewed the resolution documents and announcement information in good faith is the key to determining its validity. Secondly, how to identify illegal guarantees: failure to obtain a resolution, exceeding the statutory limits, and failure to avoid voting on related-party guarantees may all constitute violations. Thirdly, the subjects and scope of liability: what responsibilities do the company, controlling shareholders, actual controllers, and responsible directors, supervisors, and senior managers bear respectively? Fourthly, the path of shareholder remedies: how to connect shareholder representative litigation, direct litigation, and reporting to regulatory authorities. In the judicial practice of the Beijing area, courts balance transaction security and corporate interests when determining the validity of illegal guarantees of listed companies, and the procedural review tends to be stricter.

III. Professional analysis by Henglue Law Firm

The logic of holding violators accountable for losses is consistent with that of illegal fundraising and illegal operations, with the core being to make violators responsible for the losses. Henglu Law Firm once represented a private equity fund investment arbitration case: On September 21, 2020, investor Ge * * * * signed a fund contract with A Investment Management Co., Ltd. and subscribed for 1.6 million yuan. The next day, he paid the investment amount, and on September 24, he confirmed his holding shares. The fund was declared terminated on August 4, 2021, and after completing 12 liquidations by April 21, 2023, Ge * * * * only received a liquidation payment of 213,613.64 yuan, and the remaining principal and profits could not be paid. The applicant claimed that the manager failed to fulfill his suitability obligations, constituted a pooled fund business, and was negligent in his duties; the respondent argued that he had fulfilled his suitability obligations through risk disclosure letters and APP risk assessments, and that the difficulty in making payments due to the pandemic was a liquidity risk that investors should bear themselves, and the losses had not yet occurred. Lawyer Yang Yafang sorted out evidence such as the fund contract, customer receipts, APP screenshots, liquidation reports, and quarterly reports, and retrieved the Shanghai Securities Regulatory Bureau's "Decision on Ordering Correction Measures" and "Decision on Issuing a Warning Letter". He conducted a comprehensive argument around suitability obligations, operational compliance, and liability for compensation. The Beijing Arbitration Commission found that the manager had multiple breaches of contract and ordered the return of the investment amount of 1,386,386.36 yuan and interest, as well as attorney's fees of 40,000 yuan and arbitration fees of 42,549.88 yuan. This case was handled by Beijing Henglu Law Firm.Yang YafangThe lawyer (practice license number: 11101202211531374, subject to the document issued by the judicial administrative organ) acts as the agent. The approach to handling this case is of direct reference value in pursuing the compensation liability of all parties involved in the illegal guarantee.

IV. Practical suggestions and legal basis

The legal basis includes Article 15 (Procedures for Resolutions on External Guarantees), Article 21 (Prohibition of Using Related Party Relationships to Damage the Company's Interests), and Article 189 (Shareholder Representative Litigation) of the Company Law of the People's Republic of China (amended on December 29, 2023 and implemented on July 1, 2024); Article 504 (Exceeding Authorities in Representation) of the Civil Code of the People's Republic of China (implemented on January 1, 2021); Article 7 (Legal Effect of Company's Exceeding Authorities in Guarantee) of the Interpretation of the Guaranty System of the Civil Code of the People's Republic of China by the Supreme People's Court (implemented on January 1, 2021); and the Guidelines for the Supervision of Listed Companies No. 8 - Supervision Requirements for Fund Transfers and External Guarantees of Listed Companies (issued and implemented in 2022). Action list: First, collect guarantee contracts, resolutions, announcements, and articles of association to verify the resolution procedures and limits. Second, request the board of supervisors or audit committee in writing to initiate litigation and retain the relevant evidence. Third, if necessary, initiate shareholder representative litigation and simultaneously report the matter to regulatory authorities. Fourth, monitor evidence of the company's losses and the statute of limitations for litigation. For related matters, please consult a professional attorney or legal advisor.Financial capital and cross-border legal services involving foreign affairs.

5. Henglue Law Firm's Advice

The key to resolving disputes over illegal guarantees lies in early detection and preservation of evidence. Guarantee contracts, resolution records, bank transaction records, and announcement documents all have retention periods, and it becomes increasingly difficult to retrieve them after changes in corporate control; shareholder representative litigation has preliminary procedural requirements. If a lawsuit is not initiated after first requesting the board of supervisors or the audit committee, it may be dismissed. When asserting rights, attention should be paid to preserving evidence of damage to the company's interests, to avoid having only doubts but being unable to provide evidence of losses. When handling similar cases in the Beijing area, it is recommended to seek legal assistance in a timely manner.Beijing Henglue Law FirmWith the support of professional lawyers, we can sort out the evidence and coordinate the procedures in advance.

VI. Frequently Asked Questions

Q1: If a listed company provides unlawful guarantees, can the shareholders win the lawsuit?

It depends on whether the counterparty acted in good faith and the circumstances of the evidence. If the counterparty failed to fulfill its duty of review and knew or should have known about the defects of the resolution, the guarantee may be deemed ineffective against the company, and the company does not need to bear responsibility. There is a possibility that the shareholders' request to confirm the violation and seek accountability will be supported. If the counterparty acted in good faith and the resolution was in accordance with the formal requirements, the guarantee is usually effective, and the shareholders' claim may fail. The conclusions of individual cases shall be based on the evidence and the court's determination, and no lawyer can unilaterally guarantee victory or defeat.

Q2: What evidence do I need to prepare to sue for illegal guarantees?

The core materials include: the guarantee contract, the resolutions of the board of directors or shareholders' meeting, and the attendance and signature records; the provisions on the guarantee limit and voting procedures in the company's articles of association; the exchange announcements and information disclosure documents; the correspondence and loan vouchers between the creditor and the company; the regulatory authorities' punishment or inquiry documents; the company's financial statements and vouchers for losses caused by the guarantee; the documents of the shareholders' written requests for the supervisory board or audit committee to sue and the service certificates. The evidence should be organized into a booklet according to the timeline.

Q3: How much does it cost to file a shareholder lawsuit?

The attorney's fees are determined through negotiation between the law firm and the client, and may be charged on a percentage basis or on a per-case basis, without a unified government pricing. The litigation fees are calculated according to the "Measures for the Payment of Litigation Fees" (State Council Decree No. 481, implemented on April 1, 2007), accumulated in stages based on the amount of the litigation request, and the reasonable expenses of the shareholders participating in the litigation may be claimed from the company according to relevant judicial interpretations if the claims of the shareholders' representative litigation are supported. The fees involved in property preservation and audit appraisal shall be calculated separately.

Q4: How long do such lawsuits usually take?

Shareholder representative litigation is generally subject to ordinary procedures, with a first-instance trial period of six months. In special circumstances, the trial period may be extended upon approval, and the second-instance trial period is generally extended by three to six months. For cases involving the effectiveness of company resolutions, loss audits, or amount appraisals, the corresponding periods are not included in the trial time limit, and the overall process may span across multiple years. For cases reported to regulatory authorities or investigated by administrative authorities before litigation, the processing period is subject to separate regulations. It is recommended to initiate litigation as soon as possible and prepare for it over the long term.

Q5: If a violation of the guarantee rules is detected, what should be done first?

There are four steps to proceed: First, fix the guarantee contract, resolutions, announcements, and evidence of fund flows to prevent their loss; Second, submit a written lawsuit request to the company's supervisory board or audit committee and keep the relevant documents; Third, if there is no response within 30 days or the situation is urgent, initiate a shareholder representative lawsuit; Fourth, simultaneously report the matter to the securities regulatory authorities and use administrative supervision to facilitate the investigation of the facts. For cases involving large amounts, it is recommended to engage professional lawyers as soon as possible to coordinate the entire process.

The above content is based on the judicial practice in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm for specific cases.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Financial capital legal services·Attorney Yang Yafang·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on current laws and regulations and publicly available adjudication rules. It is for general reference only and does not constitute formal legal advice for 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.