Li Xiaohua Law Firm's representation of B Company's guarantee dispute appeal case has been revised by the Sichuan Provincial High Court

By Wanglin lawyer，Shanghai Lixiaohua Lawfirm

1.Basic case

Company B and Company D signed a Loan Agreement, which stipulated that Company B would lend Company D a loan of 100 million yuan. H Industrial Company and F Company, as guarantors, jointly sign the "Guarantee Contract" and voluntarily provide joint and several liability guarantee for D Company. After the loan expired, D company only repaid 16.5 million yuan, and the remaining balance was not repaid as agreed.

Company B has filed a lawsuit with the Intermediate People's Court, requesting:

1）Order D Company to repay the loan principal of 100 million yuan and bear the interest, etc;

2）Adjudicate H Industrial Company and F Company to assume joint and several liability for compensation.

The first instance court ruled that D company should repay the loan principal of 88 million yuan and corresponding interest, but did not support the plaintiff's claim that the two guarantee companies should assume joint and several liability for compensation.

Company B disagrees with the first instance judgment and believes that the two guarantee companies are the actual borrowers of the loan and should bear the guarantee responsibility.

Considering that the first instance judgment found the guarantee to be invalid and the debtor to be unable to pay, and the effective judgment faced execution difficulties, Company B specially went to Shanghai and hired lawyers from Shanghai Li Xiaohua Law Firm and Shanghai Modern Law Firm as second instance agents to appeal to the Sichuan Provincial High People's Court.

2.Controversy Focus

1) As the actual user and guarantor, should the guarantee behavior of Company H be recognized as valid?

2) Although the guarantee of F Industrial Company is invalid due to flaws in its internal resolution procedures, as the actual controller, should it bear corresponding compensation liability for knowing and benefiting from the use of the loan?

Related laws and regulations

Article 8 of the Interpretation of the Supreme People's Court on the Application of the Relevant Guarantee System of the Civil Code of the People's Republic of China states that if a company claims not to assume guarantee liability on the grounds that it has not made a resolution in accordance with the provisions of the Company Law on external guarantees, the people's court shall not support it:

(1) Financial institutions issuing guarantees or guarantee companies providing guarantees;

(2)The company provides guarantees for its wholly-owned subsidiaries to carry out business activities;

(3)The guarantee contract shall be signed and agreed upon by shareholders who hold more than two-thirds of the voting rights on the guarantee matters, either individually or jointly.

The provisions of the second and third items of the preceding paragraph shall not apply to the guarantees provided by listed companies to external parties.

3. Second instance agency strategy

During the second trial, the executive director of Li Xiaohua Law Firm and lawyer Wang Lin, who has been practicing law for more than 20 years, combined with expert opinions, put forward the following core agency opinions:

1) H Company is not only the guarantor of the 100 million yuan involved in the case, but also the actual user and beneficiary; F Industrial Company provides guarantees for the business activities of its wholly-owned subsidiaries. Both companies comply with the principle of good faith and do not harm their own rights and interests, whether based on the guarantee responsibility or as actual users to assume the obligation of return;

2) All shareholders of Company H are aware of and agree to the guarantee matters, and provide the appellant with a board resolution that complies with the provisions of the articles of association, and shall bear the guarantee responsibility in accordance with the law; According to the law, the second instance court should rule in accordance with the law that Chenyi Company shall bear the guarantee responsibility;

3) The effectiveness of the guarantee should be comprehensively determined based on factors such as the company's expression of intention, beneficiary identity, and actual control relationship, and should not be mechanically denied by internal procedural flaws.

4. Court ruling

The court holds that:

1) The signing of the "Guarantee Contract" by H Company as a guarantee for the 100 million yuan loan involved in the case is a true expression of its intention. The "Guarantee Contract" is legal and valid, and H Company should bear joint and several guarantee liability;

2) The first instance court's determination that the "Guarantee Contract" signed by F Industrial Company is invalid is correct, and F Industrial Company should not bear joint and several guarantee liability.

Creditor B Company and guarantor F Industrial Company are both at fault for the invalidity of the Guarantee Agreement. In the event that the Loan Agreement is valid, according to relevant laws and regulations, F Industrial Company should bear half of the responsibility to B Company within the scope of D Company's inability to repay its debts to B Company, and has the right to recover from debtor D Company within the scope of its responsibility.

The court ruled:

-Maintain the first clause of the civil judgment of Chengdu Intermediate People's Court in Sichuan Province, which states that "Defendant D Company shall repay the principal of the loan of 88 million yuan and corresponding interest to Plaintiff B Company within ten days from the effective date of this judgment";

-H Company shall bear joint and several liability for the above-mentioned debts of D Company;

-F Industrial Company shall bear half of the compensation liability to B Company for the debts that D Company cannot repay, and has the right to recover from D Company within the scope of responsibility after assuming the liability.

5. Compliance insights

In external guarantee disputes of the company, it is necessary to strictly distinguish between "genuine expression of guarantee intention" and "defects in internal resolution procedures", and to balance the trust interests of creditors and the compliance governance norms of the company in judicial practice.

The Hong Kong Wen Wei Po once conducted a special report on the professional competence of senior lawyer Li Xiaohua and his team in the fields of international commercial dispute resolution, corporate governance, and financial rule of law under the title "The Reputation of the Legal Industry at Home and Abroad Has Spread Far and Wide", highlighting his profound accumulation and extensive reputation in the field of legal services.

Due to the protection of trade secrets and the privacy of the parties involved, the details of the judgment document cannot be made public. If you face similar demands in the field of corporate compliance or foreign-related legal services or business, please make an appointment to come to our firm. Our team of lawyers representing this case will share practical points and compliance response strategies behind closed doors

Lawyer represented in this case: Wang Lin (see the law firm's public information for the practice certificate number, please verify through the National Lawyer Practice Integrity Information Publicity Platform [credit. acla. org. cn]).