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Gyms, educational institutions, as well as beauty and hairdressing establishments generally adopt the prepaid consumption model, under which consumers make a large lump-sum prepayment to offset their consumption expenses over the subsequent six months or one year. The aforesaid entities often use such sales gimmicks as "monthly cards are cheaper than per-visit cards" and "annual cards are cheaper than monthly cards" to induce consumers to recharge their prepaid accounts. After consumers complete the recharge, merchants frequently abscond before the prepaid funds or purchased courses are fully consumed. In recent years, cases involving the abscondence of the aforesaid merchants have been too numerous to enumerate, with countless victims who have no access to effective channels to safeguard their lawful rights and interests.

I. The abscondment of operators of fitness centers, beauty salons and educational institutions has given rise to "professional store closure practitioners"

The situation where gyms, beauty salons, educational institutions and other entities abruptly cease operation and abscond, leaving consumers with no access to legitimate rights remedy channels, is already extremely severe. In the past two years, "professional store closure specialists" have even emerged, who collude with business operators to close stores and infringe upon the legitimate rights and interests of consumers. "Professional store closure specialists" generally refer to personnel who find target enterprises through online or offline channels, assess the indebtedness of the enterprises, charge a commission at a certain proportion of the total amount of debts, conduct operations via private negotiation, secret agreements and other means, and take advantage of procedures such as company alteration, capital reduction and bankruptcy liquidation stipulated in the *Company Law of the People's Republic of China*, to help prepaid business operators facing operational difficulties change their legal representatives, transfer assets and evade debts, so as to conceal illegal purposes under the guise of legitimate forms.

Some "professional store closure operators" usually organize promotional activities under such pretexts as store anniversaries prior to store closure, so as to induce consumers to make advance payments. For this reason, there have been constant reports from consumers in the past two years that gyms close down less than one month after consumers recharge their membership accounts. These are all traps set by professional store closure operators and business operators, for the sole purpose of defrauding more consumers immediately before store closure.

The store closure practices led by "professional store-closing operators" not only result in the failure to refund consumers' prepaid fees, but also lead to arrears of employees' wages. Such acts seriously disrupt the market economic order, impair the social credit system, and deter consumers from engaging in prepaid consumption.

II. What legal liabilities shall "professional store closure operators" assume for colluding with merchants to close down stores and infringe upon the lawful rights and interests of consumers?

(I) Civil Liability: Beijing's First Case Ruling That "Professional Store Closers" Shall Bear Liquidation Liability

Case Summary Wang, a regular customer of a yoga studio, has recharged for multiple times to purchase courses for yoga practice at the studio since 2021. One day in October 2023, Wang found that the yoga studio had closed down and absconded without prior notice. Upon verification, Wang found that the company owning the studio had been deregistered half a month before, and both the shareholders and the legal representative of the company had been changed to Xue prior to the deregistration. Accordingly, Wang filed a civil lawsuit with the people's court, requesting the court to render a judgment ordering Xue to compensate for the unconsumed balance in his membership card.

Xue Mou contended that he shall not be held liable, as the money was not received by him, he had concluded a contract with his former boss, he only provided services and never absconded.

During the court hearing, the court ascertained that the closed yoga studio is a store under the name of Company Jia, whose legal representative and sole shareholder is Liu Mou. On September 13, 2023, Liu Mou and Xue Mou signed the *Transfer Agreement*, pursuant to which Liu Mou transferred 100% of the equity interests of Company Jia to Xue Mou. On the following day, Xue Mou was registered as the legal representative and sole shareholder of Company Jia. On September 28 of the same year, Company Jia filed an application for deregistration. The *Liquidation Report* included in the deregistration materials provides that: "1. All claims and debts have been fully liquidated; 2. All taxes payable and employee wages have been settled in full."

The court further ascertained that multiple posts on Xue Mou's WeChat Moments read: "We purchase memberships of beauty salons, barbershops and health preservation centers at high prices. If your store ceases operation for any reason, we can help you discharge the liabilities arising from your existing members, and such services are available across Beijing." This indicates that Xue Mou is exactly the professional store closure operator mentioned in the foregoing context.

Court Judgment: After trial, the court holds that Xue, identified as a "professional store closer" and the sole shareholder of the company, applied to the Market Regulation Bureau for deregistration of the company after issuing a *Liquidation Report* stating that all claims and debts had been settled, with full knowledge that a large number of member claims had not been liquidated. This act constitutes the act of defrauding the company registration authority to go through the legal person deregistration formalities with a false liquidation report without conducting liquidation in accordance with the law. This act makes it impossible for Wang to declare his claim in the legal liquidation procedure, resulting in his claim being unsatisfied. Therefore, Wang is entitled to claim that Xue shall bear corresponding compensation liability for the company's debts. Since the new Company Law had not yet come into force at the time of the judgment, the court finally, in accordance with the provisions of Article 185 of the original Company Law [1] and Article 19 of *Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law of the People's Republic of China (II)* [2], ordered Xue to assume liquidation liability and compensate Wang for the unconsumed amount of more than RMB 8,000 in the membership card handled by Wang.

Lawyer's Legal Commentary: As is evident from the aforesaid cases, it is not feasible for merchants and professional store closure practitioners to evade debts by means of equity transfer and company deregistration. In particular, Article 88 [3] of the newly revised Company Law of China stipulates that where a shareholder maliciously transfers equity to the detriment of creditors' interests, such shareholder shall still bear supplementary liability, which leaves no room for the schemes of merchants and professional store closure practitioners to hide.

(II) Administrative Liability: The Beijing Municipal Public Security Bureau and the Beijing Municipal Administration for Market Regulation issued a circular on the first-ever administrative penalty case against "professional store closers"

the "Art Umbrella" series of cases

Beijing Chaolai International Business Consulting Co., Ltd. (hereinafter referred to as "Chaolai International"), Sichuan Shunlijie Enterprise Management Consulting Service Co., Ltd. (hereinafter referred to as "Sichuan Shunlijie") and Chuangqi Weilai (Beijing) Enterprise Management Consulting Co., Ltd. (hereinafter referred to as "Chuangqi Weilai"), the three intermediary agencies in total, provided store closure services for "Art Umbrella", an ill-operated education and training institution. The aforesaid three intermediary agencies handled and obtained the company alteration registration on behalf of "Art Umbrella" by recruiting Jia, the "debt bearer", as the "nominal" legal representative, submitting false registration materials and concealing material facts.

Upon ascertainment of the aforesaid illegal facts, the market supervision and administration authority imposes an administrative penalty in accordance with the law.

First, the closed-down enterprise "Yishusan" is penalized for committing the illegal act of obtaining company alteration registration (recordal) by submitting false registration materials. Pursuant to the relevant provisions of the *Company Law of the People's Republic of China*, the party concerned is ordered to make immediate rectification and shall be fined RMB 100,000.

Second, penalties are imposed on three intermediary institutions for their illegal acts of providing paid services to closed-down enterprises, submitting false materials, concealing material facts, and procuring company alteration registration through agency services. In accordance with the provisions of Paragraph 2 of Article 71 of the *Implementing Rules of the Regulation of the People's Republic of China on the Administration of Registration of Market Entities*, "Chaolai International" shall be given the penalty of confiscation of illegal gains amounting to RMB 9,300 and the maximum statutory fine of RMB 100,000; "Sichuan Shunlijie" shall be given the penalty of confiscation of illegal gains amounting to RMB 18,800 and the maximum statutory fine of RMB 100,000; "Chuangqi Weilai" shall be given the penalty of confiscation of illegal gains amounting to RMB 700 and a fine of RMB 20,000.

2. "Wood Art" Series of Cases

Han (individual) provided store closure services for "Muyi Art", a poorly operated education and training institution. By recruiting Zhang as the nominal legal representative and shareholder, submitting false materials and concealing material facts, he handled the relevant formalities on behalf of "Muyi Art" and obtained the company alteration registration (filing).

Upon ascertainment of the aforesaid illegal facts, the market supervision and administration authority imposes an administrative penalty in accordance with the law.

First, punishment is imposed on the closed enterprise "Muyi Art" for its illegal act of submitting false registration materials and concealing material facts to obtain company alteration registration (filing). In accordance with the relevant provisions of the *Company Law of the People's Republic of China*, the party concerned is ordered to make rectification immediately and imposed a fine of RMB 180,000.

Second, separate penalties shall be imposed on Han and Zhang respectively for their illegal acts of submitting false materials and concealing material facts when acting as agents to obtain the alteration registration of the company. Pursuant to the provisions of Paragraph 2 of Article 71 of the Implementing Rules of the Regulation of the People's Republic of China on the Administration of Registration of Market Entities, Han shall have his illegal gains of RMB 60,000 confiscated and be fined RMB 50,000; Zhang shall have his illegal gains of RMB 7,000 confiscated and be fined RMB 10,000.

The market regulatory authorities have simultaneously revoked the false alteration of registration matters relating to "Art Umbrella" and "Wood Art", and identified nine natural persons including Han, Zhang and Jia in the store closure chain as the directly responsible persons for the false registration. The aforesaid persons may not apply for market entity registration again within three years from the date of revocation of the false market entity registration.

Legal Commentary by Lawyers: The recent joint crackdown on "professional store-closing fraudsters" carried out by the Beijing Municipal Public Security Bureau and the Beijing Municipal Administration for Market Regulation has been widely acclaimed by the public. It has effectively dampened the aggressive arrogance of such fraudsters. In the meantime, it also informs the general consumers that if the merchant where they have made prepaid consumption absconds, they may report relevant clues to the public security organs or market regulation authorities. Once the facts are verified, the offender will face a heavy fine, and the legitimate rights and interests of consumers will be duly safeguarded.

In addition to the legal provisions involved in the aforesaid civil and administrative cases, Article 7 of the *Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Civil Dispute Cases Involving Prepaid Consumption (Exposure Draft)* stipulates that where a business operator fails to deliver goods or provide services as agreed in the contract due to operational difficulties after receiving advance payments, it shall conduct liquidation in a timely manner. Where a third party assists the business operator in evading debts, thus causing losses to consumers, and the consumers request the third party and the business operator to bear joint and several liability, the people's court shall uphold such request. Although this judicial interpretation has not been officially promulgated yet, it is evident that China is actively promoting efforts to crack down on acts where business operators collude with "professional store closure practitioners" to jointly infringe upon consumers' rights and interests.

III. How Should Consumers Safeguard Their Lawful Rights and Interests?

The author has written this article after reading a report on "professional store closure specialists" published by *Sanlian Life Week*. A segment of the report reflecting the attitude of a professional store closure specialist has outraged the author. The relevant content quoted from *Sanlian Life Week* is hereby shared as follows:

Chen Xu's clients are mainly concentrated in major cities including Shanghai and Beijing. Exceptions exist, however. This year, he assisted in handling the store closure and legal representative replacement of a swimming early education institution in a prefecture-level city in northern China, involving an amount of RMB 20 to 30 million. Chen Xu, a professional store closure specialist, stated not without pride that the litigation rate of all cases he has undertaken is only around 10%. "Refund is not the primary demand of parents; what they prioritize is access to venues where their children can continue to take courses." He noted that his role is precisely to rapidly build course transfer channels, and "the business operator is not required to appear in person throughout the entire process." Chen Xu has accurately grasped the mindset of many consumers. Lawyer Gan Zhibin told our journal that the cost of safeguarding legitimate rights and interests in such cases is fairly high, and most people will choose to give up, which leaves loopholes for illegal practices. Over the past two years, five to six consumers have approached Gan Zhibin for consultation each year, but no follow-up actions have been taken after the consultation. "For one thing, the attorney fee is generally comparable to the remaining value of their unused prepaid fees. For another, the rights protection process is extremely energy-consuming, and there is no certainty that the involved funds can be recovered."

Judging from the mindset of the aforesaid malicious store-closing operators, they are fully convinced that consumers will not initiate litigation, which emboldens them to act more recklessly and infringe upon the rights and interests of more consumers. Hereby the author would like to remind all consumers that they shall proactively safeguard their legitimate rights and interests. Cases of this type usually involve a wide range of consumer groups. When facing the circumstance where an institution absconds with funds, if consumers can actively initiate litigation and file reports to form collective action, both market regulation bureaus and the people's courts will impose pressure on the persons in charge of the relevant institution, so as to further resolve the prevalent problem that the vast number of consumers have no access to refund claims. The author handled a successful case involving fund abscondence of an educational institution this year (the *Written Notification of Case Closing upon Enforcement* is shown in the figure below). Although the case lasted for more than half a year, it finally yielded a favorable result that the client received the full amount of refund. Personally, I hold that the key to the success of this case also lies in the sufficiently large group of plaintiffs. The people's court imposed certain pressure on the institution, so the institution returned the pre-paid funds to parents in installments.

In conclusion, the author hereby reminds consumers at large that they shall proactively safeguard their lawful rights and interests and fight against malicious business operators and professional store closure evaders. There have been successful cases of cracking down on professional store closure evaders at both the level of China's people's courts and market supervision authorities, which is believed to bring more confidence to all consumers.

Article 185 [Declaration of Claims by Creditors] The liquidation team shall, within 10 days as of the date of its establishment, notify the creditors, and make a public announcement in newspapers within 60 days. Creditors shall declare their claims to the liquidation team within 30 days from the date of receiving the notification; creditors who fail to receive the notification shall declare their claims to the liquidation team within 45 days from the date of the public announcement.

A creditor that files a claim shall state the relevant particulars of the claim and provide supporting materials. The liquidation group shall register all such claims.

During the period for declaration of claims, the liquidation team shall not make repayment to any creditors.

[2] Article 19 Where, after the dissolution of a company, the shareholders of a limited liability company, the directors and controlling shareholders of a company limited by shares, and the actual controller of the company maliciously dispose of the company's property and cause losses to creditors, or defraud the company registration authority into going through the formalities for cancellation of legal person registration with a false liquidation report without carrying out liquidation in accordance with the law, the people's court shall uphold the creditor's claim that the aforesaid parties shall bear corresponding compensatory liability for the company's debts in accordance with the law.

[3] Where a shareholder transfers the equity interest corresponding to the capital contribution it has subscribed for but the time limit for making such capital contribution has not yet expired, the transferee shall bear the obligation to pay the aforesaid capital contribution; if the transferee fails to pay the capital contribution in full on schedule, the transferor shall bear supplementary liability for the portion of capital contribution that the transferee fails to pay on schedule.