Cases on National Courts Protecting the Resumption of Work during the Epidemic Period (First Batch) (Mainland China)

Jolene Chen

On March 24, the Supreme People’s Court released the Cases on National Courts Protecting the Resumption of Work during the Epidemic Period (First Batch) to show how the courts have provided exemplary contribution in the fight against the epidemic through their judicial actions and proactive mediation in assisting businesses to resume operations during this period.  This article will select two typical cases for brief introduction.

In the case of Dongguan Trust Co., Ltd. (“Dongguan”) suing Zhaoqing Kelun Paper Co., Ltd. (“Zhaoqing Kelun “), Shanying International Holdings Co., Ltd (“Shanying International”) and others over the validity of a contract, Foshan Sanshui Kelun Paper Co., Ltd. pledged the 75% shares of Zhaoqing Kelun it held to Dongguan for RMB 270 million, but failed to timely pay the debt.  Zhaoqing Kelun and Shanying International then signed a Shareholding Agreement for investment in Shanying (Guangdong) with Zhaoqing Kulen’s production line equipment and land provided as consideration and further assigned the equity to Shanying International.  In December 2019, Dongguan filed a complaint with the Zhaoqing Municipal Intermediate People’s Court of Guangdong Province alleging that the Zhaoqing Kelun’s Shareholding Agreement was in breach of the pledged shares and should be declared as invalid, and those assets shall be provisionally seized for the litigation.  The court then seized 300 acres of land and eight factory buildings that Zhaoqing Kelun transferred to Shanying International.  As Shanying International still had some accounts payable to Zhaoqing Kelun, the court was able to bring the matter to settlement on March 13, 2020 after several mediation sessions, where Shanying International paid the RMB 200 million in accounts payable lump sum to Dongguan, and Dongguan then immediately recognized the transaction between Zhaoqing Kelun and Shanying International, as well as applied to lift the provisional seizure.  In this case, the court intended to fully resolve the dispute and worked with all the parties involved, ultimately deciding on the above arrangement to resolve the issue of breach of contract through transferring pledged assets without the consent of the pledger and the pledgee.

In the case involving a contractual dispute between Mr. Xu and Yiwu Bailing Medical Device Co., Ltd. (“Yiwu Bailing”), Yiwu Bailing was ordered to return to Xu an amount of RMB 1,298,400 in a prior court decision, and the compulsory enforcement was conducted by the Yiwu Municipal People’s Court of Zhejiang Province.  In the course of enforcement, since Yiwu Bailing failed to fully comply with that final court decision, it was named as an entity subject to enforcement that has lost its credit, and would be subjected to restrictions on large expenditures and other measures.  With the outbreak, the enforcing court learned that Yiwu Bailing was identified as one of the 36 key medical protection material production enterprises in Zhejiang Province as well as the only supplier for the prevention and control of the epidemic in Jinhua City.  Despite the company stepping up production during the outbreak, because it was named as an entity subject to enforcement that is without credit, it has encountered difficulties in obtaining financing to expand its production capacity and meet the epidemic prevention needs.  On January 31, 2020, Yiwu Bailing applied to the court for credit repair.  Based on the enforcing court’s previous site visit and discussions, the enforcing court explained the matter to the enforcement applicant and, with the written consent of the applicant, lifted the loss of credit and associated restriction measures taken against the company and its legal representative and suspended provisional seizure and other enforcement measures so as to remove the company’s obstacles to obtain financing.  In this case, the court took into consideration of the circumstances of the entity subject to enforcement and understood that being on the loss of credit list has caused it difficulties in obtaining financing, which has led to a shortage of materials for epidemic prevention and the application for credit repair.  After confirming that there is proper cause and the relevant conditions are met, the court decided to temporarily suspend enforcement measures with the consent of the enforcement applicant so that the entity could continue normal operations to produce supplies that are in high demand for epidemic prevention and control.