To protect the pursuits of the minority shareholders, the regulators and exchanges ask a public company to observe certain provisions and requirements of inner approval and disclosure of the guarantee. The “undisclosed assurance” used in exercise refers back to the assurance that is made without following the internal approval and public disclosure methods as furnished and required. A usually visible “undisclosed assurance” is the case in which the actual controllers or majority shareholders of a public business enterprise, with the aid of taking advantage of their to manipulate over the business enterprise, issue assurance files with the stamp of the company for the debts of their own or any affiliated party. The public corporation is probably referred to as carrying out the assured responsibility whilst the debtor is insolvent. As a result, the assets of the general public shareholders are occupied, and the interests of the employer and the minority shareholders are jeopardized.
The Company Law has laid down provisions as to the manner with the aid of which an assurance is made in Article sixteen, as follows:
(1) in which the organization invests in other organizations or makes a guarantee to others, the matter will be determined via the decision of the board of directors, the shareholders, or the shareholders’ assembly as according to the articles of association; where the articles of association have made limits to the whole amount of the investments or the guarantees, or the amount of single investment or guarantee, the limits shall not be breached;
(2) where the business enterprise makes a guarantee for the shareholders of the real controllers of the organization, the problem will be decided via the decision of the shareholders or the shareholders’ assembly;
(three) The shareholders furnished for within the previous item, or the shareholders dominated using the real controllers provided for inside the preceding item, shall not take part in the resolution, and the matter will be decided by way of the public votes of the final shareholders with voting rights.
The courts affirmed the criminal effect and validity of the undisclosed assurance made using the public corporations in most of the cases in the past:
Case 1: The undisclosed guarantee isn’t always nullified because of a violation of mandatory provisions. In 2014, in the debt settlement dispute between the Dayuandong Port branch of China Merchants Bank, Dalian Zhenbang Fluoro Coatings, and Dalian Zhenbang Group, the very best court affirmed that the undisclosed assurance made by the public organization Zhenbang is powerful and legitimate. The dispute focuses on whether or not the guarantee, made without the consent of the shareholders’ assembly, needs to be nullified due to violating Article 16.2 of the Company Law. The perfect courtroom held the view that the regulation aims to constrain the employer’s activities and prevent the real controllers or senior management of the corporation from acting in prejudice of the interests of the organization, minority shareholders, or other lenders. Therefore, the essence of the law is an internal controlling process, which can’t be used to bind the counterparty of the transaction.
