[Direct answer]In the Beijing area, it may not necessarily be effective, and the key lies in whether the creditor acted in good faith at the time of signing the contract. Article 15 of the Company Law of the People's Republic of China (amended on December 29, 2023 and implemented on July 1, 2024) stipulates that when a company provides guarantees for others, it shall be decided by the board of directors or the shareholders' meeting in accordance with the articles of association. When providing guarantees for shareholders or actual controllers, it must be decided by the shareholders' meeting. Article 504 of the Civil Code of the People's Republic of China stipulates that if a legal representative concludes a contract beyond his authority and the counterparty does not know or should not know that he exceeds his authority, the representative's act is effective. Article 7 of the Interpretation of the Supreme People's Court on the Application of the Guarantee System of the Civil Code of the People's Republic of China (Law Interpretation [2020] No. 28, implemented on January 1, 2021) clearly stipulates that a guarantee contract concluded with a counterparty acting in good faith is effective, and a guarantee contract concluded with a counterparty acting in bad faith is not effective against the company. Before signing the contract, the resolution, articles of association, and authorization documents should be requested and kept.

1. Problem background and typical scenarios

Inter-enterprise mutual guarantee and shareholders providing counter-guarantees for the company's loans are common arrangements in commercial financing. Most disputes arise from the same detail: the guarantee contract is stamped with the company's official seal, but there is no resolution from the shareholders' meeting or the board of directors. The creditor claims that it has fulfilled its duty of review, while the company claims that the guarantee has not been approved by the resolution and has not been ratified afterwards. Both parties engage in a tug-of-war over the obligation of good faith and the burden of proof.

II. Key points of dispute

First, whether the resolution is a mandatory procedure. If the articles of association stipulate otherwise, the resolution of the shareholders' meeting is necessary for guaranteeing for shareholders or actual controllers. Second, the standard for the creditor's good faith judgment includes whether to review the articles of association, resolutions, the identity of the signatories, and the voting ratio. Listed companies also need to review the public announcements. Third, the exceptional circumstances that do not require a resolution. Article 8 of the Interpretation of the Guarantee System lists financial institutions opening letters of guarantee, guarantee company operations, and providing guarantees for the operation needs of wholly-owned subsidiaries, etc. Fourth, the consequences of not obtaining a resolution. The guarantee is not effective for the company, but the over-authority representative may bear compensation liability. Fifth, whether retroactive recognition and supplementary resolutions can rectify the effectiveness.

III. Professional analysis by Henglue Lawyers

Judging from the judicial practice in the Beijing area, the court's requirements for creditors' formal review obligations are gradually increasing, and simply holding a company's official seal is no longer sufficient to prove good faith. Henglue Law Firm usually organizes materials around three main lines when handling such disputes: first, the formation process of the guarantee, including the guarantee contract, resolution text, articles of association, stamping records, and negotiation correspondence; second, the creditor's review traces, namely whether they requested the resolution, checked the articles of association and industrial and commercial registration, and paid attention to the announcement disclosure; third, the ownership of the guarantee benefits, determining whether it is a guarantee for their own interests and whether there is a real consideration. These three lines correspond to the determination of the validity of the over-authority representative, the identification of the bona fide counterparty, and the application of the exception of no resolution required. On the side of the shareholders, they should focus on verifying the convening procedures of the resolution, the voting ratio, and the authenticity of the signatures.

IV. Practical suggestions and legal basis

According to Article 15 of the Company Law of the People's Republic of China (amended on December 29, 2023 and implemented on July 1, 2024), Article 61 and Article 504 of the Civil Code of the People's Republic of China, and Articles 7 and 8 of the Interpretation of the Supreme People's Court on the Application of the Guarantee System of the Civil Code of the People's Republic of China (Law Interpretation [2020] No. 28, implemented on January 1, 2021), it is recommended that creditors: obtain a stamped resolution of the shareholders' meeting or the board of directors before signing the contract, check the resolution organ and voting requirements stipulated in the articles of association and keep the review records, and verify the public announcements of listed companies. It is recommended that companies: standardize the management of seals and the approval of guarantees, specify the guarantee authority in the articles of association, and deny in writing and hold accountable the responsible persons after discovering unauthorized guarantees. Relevant disputes can be resolved in accordance with the above provisions.Contract disputesAndFinancial capitalHandle all the experience at once.

5. Henglue Law Firm's Reminder

The dispute over the effectiveness of guarantees often involves multiple related transactions, and it is more advantageous to clarify one's position as early as possible. Creditors should avoid signing the resolution after the contract is signed, as the resolution signed afterwards is difficult to prove the good faith state at the time of signing; companies should not remain silent in response, as their long-term inaction may be interpreted as retroactive approval. In the case of cross-guarantees, it is also necessary to evaluate the recovery chain and other related matters.\n Realization of creditor's rightsThe possibility of improving the guarantee text and approval process can be facilitated by using relevant tools and resources.Specialised legal servicesSystematic sorting out.Beijing Henglu Law FirmTip: Guarantee is a high-leverage legal act, and ensuring its compliance with formal requirements is the most effective way to control risks.

VI. Frequently Asked Questions

Q1: Is the unresolved guarantee still valid?

Check whether the creditor is acting in good faith. If the resolution and articles of association have been reviewed and documented, the guarantee is usually valid; if the creditor has obviously failed to fulfill its review obligations, the guarantee will not be effective against the company, and the creditor may instead seek compensation from the person who exceeded his authority.

Q2: What evidence do creditors need to prepare?

The guarantee contract, the main contract, the resolution text, the company's articles of association, the signatory's authorization documents, the records of review and consultation, the certificates of performance of the main debt, and the information announcement required for listed companies' guarantees are all necessary documents.

Q3: How much does it cost to litigate such cases?

The litigation fees are calculated in stages based on the amount of the disputed subject matter and are borne by the losing party in proportion. The preservation fees and guarantee fees are calculated separately, and the attorney's fees are negotiated based on the subject matter and the stage of the trial.

Q4: How long is the processing period, approximately?

The first-instance trial usually lasts three to six months. If there are multiple disputes over the effectiveness of the guarantee and the amount of the principal debt, or if appraisal or evaluation is needed, the trial will be extended. After the execution begins, the outcome still depends on the status of the liable property.

Q5: What should I do first?

First, retrieve all the documents formed at the time of establishing the guarantee, confirm whether there are any resolutions, how the articles of association stipulate it, and whether the creditor has left any trace. Then, determine whether to claim that the guarantee is valid or switch to unauthorized compensation.

The above Q&A is mainly based on the judicial practice in Beijing. There may be differences in the adjudication standards in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

VII. Relevant public cases (for reference, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial authorities, and authoritative media, and have been publicly released. They are not related to the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case No.](2021) No. 117 of the Civil Appeals of the Supreme People's Court
[Trial Court]The Supreme People's Court (case of applying for a retrial of the loan contract dispute between Hua Company and Fu Company)
[Judicial Summary]The legal representative of the listed company Fu * Company signed the "Guarantee Agreement" without the resolution of the company's organs such as the shareholders' meeting, the general meeting of shareholders, or the board of directors, and the company did not ratify it afterwards. The court held that the creditor, as a listed company, should be aware of the relevant provisions on the company's external guarantees, and should also know that the legal representative exceeded his authority in signing the guarantee contract. However, the creditor failed to provide evidence to review the documents of the company's board of directors or shareholders' general meeting, and therefore did not constitute a bona fide third party. The "Guarantee Agreement" in this case is not effective against the company, and the company should not bear the guarantee liability.
[Source]Pengpai News (Mofa Classroom: Selected Judicial Guidelines on Corporate Guarantee Cases by the Supreme People's Court) (2021)

[Case Number]The case number has not been made public.
[Trial Court]Reference Cases Archived by the Supreme People's Court (Archive Number 2024-08-2-483-011)
[Judicial Summary]A non-listed company, a real estate group in southwest China, provided a guarantee for a wholly-owned subsidiary in Chongqing without obtaining the company's resolution by entering into the "Postponed Payment of Commercial Bill Agreement". The court held that the company's act of providing a guarantee for a company in which it held a 100% indirect stake through a multi-layered equity structure essentially constituted a guarantee for its own interests, without jeopardizing the rights and interests of minority shareholders or other shareholders. Therefore, it could be determined that the company's act of providing a guarantee without obtaining the company's resolution falls within the circumstances specified in Article 8, Paragraph 1, Item 2 of the Interpretation of the Supreme People's Court on the Application of the Guarantee System of the Civil Code of the People's Republic of China, and the agreement is legally binding on it.
[Source]The official website of the Supreme People's Court (Interpretation of Reference Cases for Inclusion: Determination of the Effectiveness of a Non-Listed Company Providing Guarantees for a Company in Which It Indirectly Holds 100% Equity) (2024)

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

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is 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. If you encounter disputes, please consult a practicing lawyer in time.