ON THE LEGAL EFFECT OF CORPORATE REPRESENTATIVES’ UNAUTHORIZED GUARANTEE IN CHINA

The Article 16 of the Company Law was recognized as a loop hole among scholars of law in China. However, through a scrutiny of its modification and evolution from 1993 till today, we can assert that Article 16 should be a administrative and mandatory provision, the breach against of which does not necessarily entails loss of legal effect for unauthorized guarantee contracts as confirmed by the Company law. To settle issues about the effect of corporate representatives’ unauthorized guarantee, several categories should be divided for different situations. When the counterpart is bona fide, the guarantee contract should be deemed as valid; if the counterpart is malicious or when the company fails to ratify with follow-up authorization, then the guarantee contract should be null or invalid. For this purpose, judicial organs may learn from the systems of Germany or Taiwan region in deciding whether the counterpart is bona fide or not, or joint liability should be imposed on the corporate representative to reach a fair judgement that protects the interests of both the company and the counterpart.