Under PRC law, the registered legal representative of a company by law is the representative organ of that company. However, since the board of directors and general manager of a company carry out the management and operation of the company, they also function as representative bodies of the company with a respective scope of representation power as stipulated by law, articles of association (“Articles of Association”) or internal rules of the company.
In general, the representative bodies of the debtor have the duty of loyalty and diligence in order not to cause the insolvency of the debtor. If they have violated such duty and caused the insolvency, they shall assume respective civil liability which may include e.g. compensation of the debtor for its losses caused by the above-mentioned violation.
According to the Insolvency Law, “relevant personnel” of the debtor shall have the following main duties during/in connection with the Insolvency Proceedings:
- properly keeping (and/or handing over) all properties, seals, books, documents, etc. of the company which they possess and manage
- conducting work according to the requirements of the People’s Court and the administrator and answering their inquiries truthfully
- attending the creditors’ meeting as non-voting party and answering the creditors’ inquiries truthfully
- not leaving their place of residence without the permission of the People’s Court
- not serving as a new director, supervisor or senior manager of other enterprises.
The law defines the term “relevant personnel” as the legal representative of the company and, upon a decision of the People’s Court, the finance manager and “other operation and management personnel” of the debtor. However, the law does not further define the term “other operation and management personnel”. Normally such personnel in a company typically include members of the board of directors (or the executive director in lieu of a board), general manager and deputy managers (if any). Therefore, it cannot be excluded that a People’s Court interprets the term “other operation and management personnel” in a board way, so that the above-mentioned duties shall apply not only to the representative bodies (i.e. the legal representative, directors (or executive director) and general manager) and the finance manager, but also to other senior management personnel in a company.
The legal representative and other directly responsible representative bodies shall be liable towards the company for compensation if any one of them has committed a fault or gross negligence in causing the debtor to illegally dispose of its assets and, thus, has damaged the interests of the creditors.
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