To guard the hobbies of the minority shareholders, the regulators and exchanges ask a public company to comply with certain provisions and necessities of internal approval and 
information disclosure on the guarantee. The “undisclosed guarantee” utilized in exercise refers to the assure that is made without following the internal approval and public disclosure tactics as supplied for and required. A usually visible “undisclosed assure” is the case in which the actual controllers or majority shareholders of a public organization, via taking benefit in their management over the business enterprise, issue assure documents with the stamp of the agency for the debts of their own or any affiliated birthday celebration. The public agency is probably referred to as to perform the assure duty when the debtor is insolvent – as a result, the property of the general public shareholders are occupied, and the interests of the agency and the minority shareholders are jeopardized.
The Company Law has laid down provisions as to the process by using which a assure is made in Article 16, as follows:
(1) wherein the organization invests in different businesses or makes assure to others, the problem will be determined via the resolution of the board of administrators, the shareholders or the shareholders’ meeting as according to the articles of affiliation; where the articles of affiliation have made limits to the whole amount of the investments or the ensures, or to the quantity of single funding or assure, the boundaries shall no longer be breached;
(2) where the enterprise makes a guarantee for the shareholders of the real controllers of the corporation, the problem shall be determined by way of the decision of the shareholders or the shareholders’ meeting;
(three) the shareholders supplied for in the preceding item, or the shareholders ruled by means of the actual controllers provided for within the previous item, shall not participate in the decision, and the problem will pass by way of most people votes of the closing shareholders with voting rights.
The courts affirmed the criminal impact and validity of the undisclosed assure made through the general public agencies in most of the cases in the past:
Case 1: The undisclosed guarantee isn’t nullified because of violation of obligatory provisions. In 2014, in the debt agreement dispute between Dayuandong Port branch of China Merchants Bank, and Dalian Zhenbang Fluoro Coatings and Dalian Zhenbang Group, the very best court docket affirmed that the undisclosed guarantee made via the public organization Zhenbang is powerful and legitimate. The dispute focuses on whether or not the assure, made without the consent of the shareholders’ meeting, should be nullified because of violating Article 16.2 of the Company Law. The ideally suited courtroom held the view that the aim of the law is to constrain the sports of the employer and save you the real controllers or senior control of the organization from acting in prejudice of the pursuits of the employer, minority shareholders or different creditors. The essence of the law, therefore, is an internal controlling procedure, which can not be used to bind the counterparty of the transaction.
Therefore, the availability will be interpreted as obligatory management rule, and the violation of such policies does now not render the settlement null and invalid. The very best courtroom judged in favor of the transaction security and the pastimes of the creditor.
