JC Master Information | A “debt‑for‑asset” ruling was overturned three times—by the intermediate court, the higher people’s court, and the Supreme People’s Court—yet it ultimately became a case study for inclusion in the database.
Release Date:
2026-04-16
“Supreme Precedent” Editor:
A ruling on “settlement by way of property” was overturned three times—by the intermediate court, the higher people’s court, and the Supreme People’s Court—yet it ultimately became a reference case included in this issue. The key points are as follows:
1. One of the inherent characteristics of an enforcement ruling on “settlement by way of property” is that the enforcing court’s ruling shall… to put The property of the party subject to enforcement shall be valued and transferred to the applicant for enforcement, rather than to any person other than the applicant. The execution ruling in this case concerning “settlement by way of property” (namely, Execution Ruling No. (2017) Gan 01 Zhi 811‑1) does not conform to the inherent characteristics of an execution ruling on “settlement by way of property.” Although, on the surface, it appears to be an “enforcement ruling for debt settlement by way of property,” in essence it is a sale‑off proceeding whereby the enforcing court, bypassing the auction process, directly adjudicates that the debtor’s assets shall be transferred to a party other than the applicant for enforcement.
2. When the executing court sells property that has been sealed or frozen, it shall first resort to auction ( Online Judicial Auction ) in this manner; If the enforcing court intends to forgo auction in favor of a sale by public auction, it must obtain the unanimous and explicit consent of the applicant for enforcement, the party subject to enforcement, and any relevant right holders; otherwise, such a sale may not be conducted.
In this case, The executing court has not obtained the explicit consent of the party subject to enforcement, The issuance of an enforcement ruling for “settlement by way of property” that directly sells the enforced party’s assets to a person other than the applicant for enforcement violates statutory provisions and should be set aside.
3. The shareholders’ right of first refusal shall… Applicable only to limited liability companies. Even if the articles of association of a joint-stock company stipulate… Shareholders’ preemptive right of purchase , and can only be in that Joint-stock company Internally, it imposes restrictions on its shareholders’ transfer of equity interests, but such… Regulation It has no binding force on the compulsory enforcement activities of the people’s courts.
4. Even if the applicant’s shareholders enjoy a right of first refusal, such right shall be exercised in auctions conducted in accordance with the law, Liquidation procedure Exercise in China. In this case, on the face of it, The applicant’s shareholder exercised the right of first refusal in the “sale by auction” procedure; however, as noted above. The sale procedure in this case is unlawful because it was conducted without the consent of the judgment debtor; therefore, The applicant’s shareholder Exercising the right of first refusal under this procedure is also unlawful.
Main Text
Enforcement Supervision Case Regarding the Loan Contract Dispute Between Gansu Jia Company, Gansu Yi Company, and Wang Moumou
— Without going through auction or sale procedures, a direct ruling to transfer the shares held by the judgment debtor in a joint-stock company should not be issued. Transfer of equity ownership To the shareholders of the company
Case Registration Number: 2023-17-5-203-021 / Enforcement / Enforcement Supervision Case / Supreme People’s Court / December 29, 2020 / (2020) Supreme People’s Court Enf. Supv. No. 18 / Enforcement / Date of Registration: February 22, 2024 / Date of Amendment: February 23, 2024
Keywords: enforcement, enforcement supervision, equity, shareholder, ruling, right of first refusal
Summary of the Judgment
After the executing court has appraised the equity in the judgment debtor’s possession that belongs to the applicant for enforcement, it directly rules that such equity shall vest in the applicant’s shareholder without resorting to an auction procedure. In essence, this amounts to a direct sale of the equity at issue to the applicant’s shareholder, bypassing the auction process. In the course of enforcement proceedings, when the people’s court seeks to dispose of seized or frozen property, it shall, as a general rule, first resort to auction. Where property is to be disposed of by way of auction, such disposal shall be conducted through online judicial auctions. This approach enables potential bidders to obtain timely and accurate information, thereby participating in judicial auction proceedings. Through vigorous bidding, the sale price of the asset can fully reflect its market value. The higher the proceeds from the sale, the more effectively creditors’ claims are satisfied, while also safeguarding the legitimate rights and interests of debtors. Accordingly, If you wish to abandon the auction method and opt for a sale by public disposal , as it significantly affects the interests of both parties and the relevant rights holders, it should be subject to their consent. Therefore, Where neither party nor the relevant rights holders have expressly consented to the sale, the executing court may not proceed directly with the sale. Where the shareholders of the applicant for enforcement are entitled to a right of first refusal, such right shall be exercised in accordance with the legally prescribed auction or sale procedures.
Basic Facts of the Case
In the dispute over a loan contract between Gansu Company A and Gansu Company B, together with Wang Moumou, the Intermediate People’s Court of Lanzhou City, Gansu Province (hereinafter referred to as the Lanzhou Intermediate Court) rendered Civil Judgment No. (2017) Gan 01 Min Chu 24 on April 26, 2017, ordering the defendants, Gansu Company B and Wang Moumou, to repay to the plaintiff, Gansu Company A, the principal of RMB 20 million within ten days from the date the judgment becomes effective, together with interest in the amount of RMB 88,767 (as of December 12, 2016), plus interest accruing until the principal is fully repaid, calculated at an annual rate of 6%. The court filing fee of RMB 142,244 and the property preservation fee of RMB 5,000 shall be borne by the defendants, Gansu Company B and Wang Moumou.
Gansu Company B and Wang Moumou, dissatisfied with the decision, filed an appeal with the Gansu Provincial Higher People’s Court (hereinafter referred to as the Gansu High Court). After review, on August 21, 2017, the Gansu High Court rendered Civil Judgment No. (2017) Gan Min Zhong 355, dismissing the appeal and upholding the original judgment. The judgment conofficeed that Gansu Company B and Wang Moumou had executed a promissory note stipulating that they were willing to pledge their shares in Gansu Company A as collateral; upon maturity, if they were unable to repay the loan, they would voluntarily waive their shares in Gansu Company A.
During the enforcement proceedings, the Lanzhou Intermediate People’s Court commissioned Gansu Hengtong Asset Appraisal Co., Ltd. to appraise the 20.1 million yuan equity interest in Gansu Jia Company held by Gansu Yi Company, which had been lawfully seized and frozen. On April 23, 2018, Gansu Hengtong Asset Appraisal Co., Ltd. issued Appraisal Report No. Gan Heng Ping Bao Zi [2018] No. 003. On July 11, 2018, Gansu Jia Company replied to the Lanzhou Intermediate People’s Court, stating that, pursuant to a resolution of its shareholders’ meeting, the aforementioned equity interest was to be acquired in full and on a priority basis by Gansu Bing Company at the appraised value of RMB 19,086,785.75. On September 26, 2018, The Lanzhou Intermediate People’s Court issued Case No. (2017) Gansu 01 Zhi 811-1. Enforcement Ruling ， Ruling The 30.7692% equity interest in Gansu Jia Company held by the judgment debtor, Gansu Yi Company, Ownership belongs to Gansu Company C, Ownership from This ruling shall be served upon Gansu Bing Company from the date of service. Transfer On September 28 of the same year, the Lanzhou Intermediate People’s Court, upon application by the applicant for enforcement, Gansu Company A, issued Enforcement Ruling No. (2017) Gan 01 Zhi 811‑2, terminating the enforcement proceedings. In response, Gansu Company B and Wang Moumou filed objections to the enforcement, arguing that Gansu Company A is a joint-stock company and thus not subject to the provisions of the Company Law of the People’s Republic of China regarding pre-emptive rights; moreover, the pre-emptive rights of other shareholders apply only under identical conditions. They further contended that, during the enforcement in this case, the equity at issue was neither publicly auctioned nor sold with the consent of the judgment debtor, yet the court nonetheless rendered a ruling to satisfy the debt by offsetting it with the equity itself, concurrently issuing a ruling terminating the enforcement—actions that allegedly fail to comply with relevant legal provisions.
Lanzhou Intermediate People’s Court Upon review, on December 4, 2018, the decision (2018) Gansu 01 Zhiyi No. was rendered. Enforcement Ruling No. 768 ， The court rules as follows: 1. The Execution Ruling No. 811 (2017) of Gansu Province, Case No. 01, which granted debt satisfaction by way of property, is hereby revoked. II. The termination of enforcement ruling No. 811-2 (2017) issued by the Gansu Provincial Higher People’s Court, Case No. 01, is hereby revoked.
Company A of Gansu Province, dissatisfied with the decision, filed a request for reconsideration with the Higher People’s Court of Gansu Province. Gansu Higher People’s Court On June 7, 2019, it issued Execution Ruling No. 66 (2019) of Gansu Province. The ruling overturns the Lanzhou Intermediate People’s Court. Execution Ruling No. 768 of 2018, Gansu 01 Zhiyi.
Company B of Gansu, dissatisfied with the decision, filed a petition for review with the Supreme People’s Court. Supreme People’s Court On December 29, 2020 An enforcement ruling No. 18 of 2020 issued by the Supreme People’s Court was rendered, The ruling overturns the Gansu High People’s Court. (2019) Gansu Execution Review No. 66 Execution Ruling, upholding the Lanzhou Intermediate People’s Court’s (2018) Gansu 01 Execution Objection No. 768 Execution Ruling.
Reasons for the Judgment
The court’s final judgment holds that the central issue in this case is whether the Lanzhou Intermediate People’s Court’s decision to transfer the equity at issue to the shareholders of Gansu Jia Company violates statutory provisions.
With regard to the decision rendered by the Lanzhou Intermediate People’s Court… The nature of Execution Ruling No. 1 in Case No. (2018) Gan 01 Zhi 811 In this case, after appraising the equity interests, the Lanzhou Intermediate People’s Court, without resorting to an auction procedure, directly transferred the 30.7692% equity stake in Gansu Company A held by the judgment debtor. The ruling holds that the property belongs to Gansu Bing Company, one of the shareholders of Gansu Jia Company. Although Company A of Gansu Province is the applicant for enforcement, it and its shareholder, Company C of Gansu Province, are distinct civil entities. Even if, with the consent of both the applicant and the respondent, the respondent’s property is directly valued and transferred to the applicant to offset the debt—without resorting to auction or sale—the property is still transferred to the applicant, not to the applicant’s shareholder. Accordingly, the ruling rendered by the Lanzhou Intermediate People’s Court in this case… (2018) Gansu 01 Zhi 811 No. 1 Execution Ruling; its nature does not fall under… Order for Debt Settlement by Property , in essence, it involves directly transferring the equity at issue to Gansu Company C without going through an auction procedure.
【 “Supreme Case Law” Editor’s Note, WeChat Official Account: Based on data published on the China Judgments Online website “of cloth” Execution Ruling No. 18 of the Supreme People’s Court (2020) Records indicate, The editor believes that the “reasoning of the judgment” recorded above… (2018) Enforcement Ruling No. 811-1 in Case No. Gan 01 ” should be attributed to an input error by court staff, It should be amended to “ (2017) Enforcement Ruling No. 811-1 in Case No. Gan 01 ”.】
Whether the Lanzhou Intermediate People’s Court’s direct sale constitutes an unlawful act depends on whether it violates Article 31 of the Supreme People’s Court’s Provisions on the Auction and Sale of Property in Civil Enforcement Proceedings. According to that provision, where the parties and any relevant right holders consent to the sale of property that has been sealed, seized, or frozen, such property may be sold. The prerequisite for directly selling property that has been sealed, seized, or frozen in a case is that both parties and the relevant right holders expressly submit their consent to the executing court. In the course of enforcement proceedings, when the people’s court seeks to realize the value of property that has been sealed or frozen, it shall first adopt the method of auction; if the property is to be disposed of through auction, it must be conducted via online judicial auction. Conducting online judicial auctions enables potential bidders to obtain timely and accurate information, thereby participating in the bidding process. Through vigorous competition, the sale price can more fully reflect the market value of the property. The higher the proceeds from the sale, the more conducive it is to satisfying the creditor’s claims, while also safeguarding the legitimate rights and interests of the debtor. Accordingly, if the court chooses to forgo the auction procedure in favor of direct sale, given the substantial impact on the interests of both parties and the relevant right holders, such a decision must be made with their explicit consent. In this case, Gansu Company A’s interpretation of the parties’ prior expression of intent in the promissory note—“deemed as the judgment debtor’s explicit consent”—is inconsistent with the spirit of the judicial interpretation.
With regard to whether the shareholders of Gansu Company A have a right of first refusal, Article 72 of the Company Law of the People’s Republic of China governs this right; this article is located in Chapter III, “Transfer of Equity Interests in Limited Liability Companies.” It is thus evident that, The law only expressly provides that shareholders of a limited liability company enjoy a right of first refusal; however, the business license of Gansu Jia Company in this case indicates that its corporate form is a joint-stock company, and thus the provision does not apply. Article 72 of the Company Law of the People’s Republic of China stipulates. Gansu Jia Although the company’s articles of association provide for shareholders’ preemptive rights, such provisions are intended to govern the autonomous transfer of equity interests by the shareholders and do not, as a matter of course, bind the people’s courts in their compulsory enforcement proceedings. Even if shareholders exercise their preemptive right of purchase, such exercise must be conducted within the framework of legally prescribed auction or sale procedures. In this case, the sale procedure was carried out without the consent of the judgment debtor, rendering the shareholders’ exercise of their preemptive right unlawful.
Associated Index
Article 31 of the Provisions of the Supreme People’s Court on the Auction and Sale of Property in Civil Enforcement Proceedings by the People’s Courts
Execution Objection: Execution Ruling No. 768 of the Lanzhou Intermediate People’s Court (2018) Gansu 01 Zhiyi Zi, dated December 4, 2018.
Enforcement Review: Gansu High People’s Court Enforcement Review Ruling No. 66 (2019), dated June 7, 2019.
Enforcement Supervision: Supreme People’s Court (2020) Supreme People’s Court Enforcement Supervision No. 18 Enforcement Ruling (December 29, 2020)
The case text was revised on February 23, 2024.
( Reposted from: Supreme Court Precedent)
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