DeHeng’s Successful Representation in an International Commercial Dispute Selected as a Typical Foreign-Related Commercial Case by the Nantong Court

2025-07-01

Recently, the Nantong Intermediate People’s Court in Jiangsu Province held a press conference to release its 2021-2024 Work Report on Foreign-Related and Hong Kong, Macao, and Taiwan-Related Commercial Trials, along with a selection of typical cases.

A shareholder status confirmation dispute case, in which DeHeng lawyers successfully represented a Korean company against a Hong Kong company, was selected as one of the eight typical foreign-related commercial cases by the Nantong Court.

The case concerned a wholly foreign-owned enterprise (WFOE) established in the Chinese mainland by the Korean company. The actual controller of the Hong Kong company served as the legal representative and senior executive of the WFOE. The Hong Kong company produced a share transfer agreement, claiming it had acquired the Korean company’s entire equity stake in the WFOE and had completed the industrial and commercial registration changes with the administrative authority. The Korean company alleged that the seal and the legal representative’s signature on the share transfer agreement were forged by the Hong Kong company. The Korean company filed a lawsuit seeking confirmation of its status as the WFOE’s sole shareholder and demanding that the Hong Kong company fulfill its obligation to assist with the registration reversal.

After hearing the case, the Nantong Intermediate Court held that the Korean company was the sole shareholder of the WFOE at the time of its establishment. Although the Hong Kong company had completed the industrial and commercial registration changes based on the share transfer agreement, it failed to prove that both parties had reached a consensus on the share transfer. The Korean company’s claim that the seal and signature on the agreement were forged was supported by a judicial appraisal opinion, leading the court to rule that the agreement could not prove a mutual intent to transfer shares. Furthermore, while there were communication records regarding a potential share transfer between the Hong Kong company’s actual controller and the Korean company’s legal representative, the content of these records did not constitute a consensus. Consequently, the Nantong Intermediate Court issued a first-instance judgment confirming the Korean company as the WFOE’s sole shareholder and ordering the Hong Kong company, the current registered shareholder, to fulfill its obligation to assist with the registration reversal.

Following the first-instance judgment, the Hong Kong company and the WFOE filed an appeal. The Jiangsu High People’s Court issued a second-instance judgment, dismissing the appeal and upholding the original ruling.

A key challenge in this case was the complex communication history between the parties during the share transfer negotiations, which required the court to hold four hearings and conduct on-site verifications. After the dispute reached a deadlock, DeHeng lawyers took over the case and conducted a thorough investigation. They found that the Hong Kong company had not even been registered with the Hong Kong Companies Registry at the time it claimed the share transfer agreement was signed, making a consensus between the parties impossible at that time. During the trial, DeHeng lawyers also cited the Hong Kong Companies Ordinance and the newly issued Minutes of the National Symposium on the Foreign-Related Commercial and Maritime Trial Work of Courts to refute the opposing party’s arguments.

Before the effective judgment in the shareholder status confirmation dispute, DeHeng lawyers also successfully represented the Korean company in an administrative lawsuit against the administrative authority. The court issued an administrative judgment in advance, determining that the industrial and commercial registration changes for the WFOE were based on falsified application materials. The court ruled to revoke the administrative authority’s registration changes for the WFOE, regardless of whether a consensus on the share transfer existed.

The successful outcomes in this series of cases significantly reduced the derivative risks for the client following the loss of control over the WFOE, effectively curbed the illegal activities of the opposing party, and ultimately led to the proper resolution of the dispute.