Judicial Approaches to Revoking Corporate Registration Changes Following the Non-Establishment of Capital Increase Resolutions

Abstract

Article 28 of the newly amended Company Law of the People’s Republic of China provides that where a corporate resolution is declared invalid, revoked, or confirmed as not having been validly adopted, the company shall apply for cancellation of the registration made on the basis of that resolution. However, in disputes concerning defective corporate resolutions, courts remain divided on how to deal with registration changes that have already been completed following a capital increase, and in particular on whether the pre-capital-increase shareholding structure and registered capital should be restored. Capital increase resolutions differ from ordinary corporate resolutions in that they often affect not only the internal allocation of rights among existing shareholders, but also the reliance interests of new investors, creditors, and other external parties. The revocation of registration changes following a defective capital increase resolution therefore requires courts to balance two competing concerns: correcting defects in internal corporate governance and preserving the stability of external transactions.Drawing on representative judicial decisions, this article examines whether and under what conditions registration changes should be revoked after a capital increase resolution is found not to have been validly adopted. It argues that courts should avoid both automatic restoration and blanket preservation of the existing registration status. Instead, a more differentiated approach is required. Courts should first distinguish between internal shareholder disputes and external investment relationships, and then examine whether the new shareholder is a genuine external investor, whether that investor acted in good faith, and whether a legally protectable reliance interest has arisen. Only after such an inquiry can courts determine whether the registration changes should be revoked and the original registration status restored. This article further argues that where a court confirms the non-establishment of a capital increase resolution but declines to revoke the corresponding registration changes, the judgment should still address how the injured shareholder’s rights may be substantively protected. In this way, judicial reasoning can better reconcile shareholder protection, corporate registration credibility, and transaction security.