SAIC Launches a New Campaign under an Old Company Law
In December 2015, the SAIC (State Administration of Industry and
Commerce), China's central business registry, announced on its
website that with effect from December 2015, individuals on the
Supreme People's Court's list of delinquent judgment
debtors (called "Dishonest Persons Subject to
Enforcement") will be automatically barred from registration
as a legal representative, director, supervisor or general manager
of any company nationwide.
The PRC Company Law has a long existing rule that
"individuals who do not discharge substantial personal debts
when due shall not act as director, supervisor or general manager
of a company". However, in the past, the SAIC only
requested the investor of a company to certify on application forms
that the appointees for the legal representative, etc. meet the
relevant legal requirements, but it had no effective means to check
Background of This SAIC New Campaign
In recent years, the Chinese government has been trying to
establish a credit rating system. In October 2013, the Supreme
People's Court published its "List of Dishonest Persons
Subject to Enforcement" ("List") on its official
In March 2014, the Supreme People's Court signed an MOU with
several other central governmental agencies, including the SAIC, to
impose various sanctions/restrictions on persons on the List,
including bans on air and high-speed rail travel within China and
bank loans, and barring registration as legal representative,
director, supervisor or general manager of any company nationwide.
The Chinese rules of civil procedure also permit judgment creditors
to apply to ban judgment debtors leaving China until their debts
The Supreme People's Court shares the List with the other
agencies for their real time monitoring.
How This SAIC Ban Will Work and Its Impact
The SAIC has connected its computer system to the List so that
the SAIC computer system will automatically block the registration
of any individuals as legal representative, director, supervisor or
general manager if they are on the List, and the SAIC will notify
the affected person to contact relevant court to discharge their
judgment debts to be removed from the List.
This will affect any filings for the first appointment of a
legal representative, director, supervisor or general manager with
the SAIC, but it is not yet clear whether it will affect incumbent
According to the SAIC, there are currently 1.7 million persons
on the List. If the SAIC were to remove all existing delinquent
officers, there would be hundreds of thousands of companies
(especially domestic companies) who may need to change their legal
representatives or directors, which will be a huge burden not only
on the companies but also on the SAIC. Therefore, it can be
expected that the SAIC will take a gradual approach to this endemic
problem in China.
Multinationals, which commonly appoint non-resident officers in
China, should enhance their financial and management control of
subsidiaries in China to ensure that even minor judgment debts are
satisfied so that they are not disqualified from serving as a
company officer in China, let alone banned from travel in
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