Directors' Liability to Third Parties under Article 191 of the PRC Company Law 2023

Abstract

This study discusses the new provisions of Article 191 of the the Company Law of the People’s Republic of China, as amended in 2023, on the liability of directors to third parties. The study first analyses the trust fund theory as the jurisprudential basis for directors' liability to third parties, pointing out that directors, as trustees of the company's capital, are required to assume fiduciary obligations to creditors. The study then points out the deficiencies of Article 191, including the lack of a hierarchical liability arrangement and the lack of clarity on how the liability of directors and the company for the losses of third parties is to be shared. The study proposes that the principle of differentiation of directors' liability to creditors should be established, and their liability to third parties should be reduced according to the status and salary level of the directors in turn. At the same time, it is suggested that directors should be jointly and severally liable for direct damages, while they should be supplementally liable for indirect infringements, so as to balance the interests of all parties and maintain the stability of the corporate governance structure.