He Took Over Four Gyms for Nothing. Members Paid RMB 750,000.

The card bought a week before the doors closed

Start with something that runs backwards: some gym memberships go on sale only after the shop has already decided to close.

Not a clearance sale. Not a cash-flow squeeze.

On January 29 this year, the Hongkou District People’s Court in Shanghai found that the defendant, a man surnamed Tao, had “repeatedly taken over poorly performing fitness businesses without paying any consideration for them” — and that he did so “knowing that the fitness businesses he took over would close within a short period,” using delayed business-registration changes and paying others to serve as legal representative and shareholder, in an attempt to sidestep the liabilities that closing would create.

What came after the handover is a separate finding: he “used methods such as promising to pay rent, water and electricity and other property fees, and paying part of the staff wages, to delay the closure, and before closing aggressively promoted gym cards and personal-training packages at prices clearly below market rates, signing membership contracts with members.”

Read those two findings in order and the sequence is this: first know the place is closing, then discount the annual cards to clearly below market.

The court found he had taken RMB 750,000-plus in membership fees.

In an April 28 report on CCTV’s Legal Report, Shanghai police summarised the whole operation in one line: not running a business, just collecting money.

Per the police account in that report: between October 2023 and September 2024 — under a year — four gyms, across the Putuo, Minhang, Baoshan and Jiading districts, and more than 200 consumers. Each location survived two or three months at the short end, five at the long end. Some people had paid their fees a week before the doors closed.

On January 29, 2026, the Hongkou court convicted Tao of contract fraud, sentencing him to five years and a fine of RMB 100,000. No appeal, no protest by the prosecution. The judgment is final.

Note what he was convicted of. Not “failing in business” — fraud.

What the court looked at was not the discount itself, but what the whole set of actions added up to: from the moment he signed those contracts, he had no intention of delivering the service.

Put back into that set, the discount stops being a promotion. It is a step in the closing procedure.

One day to change the legal representative, two weeks to deregister

Now a timeline.

September 13, 2023: the original shareholder of a Beijing yoga studio, surnamed Liu, signs a share transfer agreement with a man surnamed Xue.

September 14: Xue becomes the legal representative and sole shareholder.

Late September: the company applies to deregister.

October: a member surnamed Wang finds the studio closed.

From signing to changing the legal representative, one day. From signing to applying for deregistration, two weeks.

The studio had around 200 members. Wang had topped up and bought packages repeatedly, tens of thousands of yuan in total, with more than RMB 8,000 left unused.

What Xue filed with the registration authority was a liquidation report stating that “all claims and debts have been fully settled.” The Fengtai District People’s Court in Beijing found — in a civil judgment — that he had obtained the company’s deregistration by filing a liquidation report that falsely stated the debts were settled, and that this left Wang unable to declare her claim in any lawful liquidation process.

April 3, 2024: Xue was ordered to return the RMB 8,260 remaining on Wang’s card. Court fee: RMB 10.

That was a finding of civil liability, not a criminal conviction: Xue was not charged with any crime in this case.

The case later entered the national court case database. When the People’s Court Daily ran a commentary on it, republished on the Supreme People’s Court website, it called this the first case in China in which a “professional closer” was held liable for civil compensation.

A liquidation report gets a formal review: if the paperwork is complete and in order, the registration goes through. Once a company is deregistered, its legal personality is extinguished, and the money on your membership card stops being “a debt the company owes you” and becomes a debt with no debtor. And the newly installed legal representative usually owns nothing.

Those three things — formal review, limited liability, deregistration — are not loopholes. They are what lets tens of millions of small companies open cheaply and close cheaply, and the overwhelming majority of people using them are running ordinary businesses.

What the professional closers do is take that design and sell it.

One persona sold to the owner, two names sold to the system

Xinhua published an investigation on May 12 (reporters Cheng Siqi and Lan Tianming) into a new type of case cracked by Shanghai police.

To the original owner, the people taking over looked like seasoned operators — “experienced, well connected,” with a résumé to show. One of them was a big online influencer who could drive traffic to the business.

The report is clear about who that influencer actually was: a man with bad credit and no steady income, hired for the part, with the traffic-pulling ability invented for the owner’s benefit.

The people who actually went to the registration window and put their names down as legal representative were two others — what Xinhua described as two “professional debt-bearers” with no ability to repay.

One assembly line, two products.

What the influencer sold the original owner was the illusion of strength: look, these people have resources, the place is in good hands.

What the two debt-bearers sold the system was a name — every future debt, lawsuit and enforcement order would point at it, and there would be nothing behind it to collect.

This is where the causation gets reversed.

The owner assumed: these people are strong, so they are willing to take this on.

What actually happened: someone had no ability to repay, so he was put at the front to sign.

On this assembly line, “no ability to repay” is not a weakness. It is a job qualification.

Worth saying: those two names were recruited too.

The only thing that had to be manufactured was the persona. Everything else was already there — the registration process, the deregistration procedure, limited liability, all sitting on the shelf.

The original owner paid twice for this arrangement. According to the case details published by the Procuratorate Daily on June 9, one former operator paid RMB 200,000 as compensation for transferring students’ prepaid course obligations, plus an RMB 8,800 agency fee. What he was buying was a dignified exit.

And at the other end of the same assembly line, parents were renewing.

Running the place into the ground is also part of the job

The old-style professional closer took the money and ran. This one is described as a fraud running in both directions: cheat the original owner into transferring out, and harvest tuition from the students.

The methods described by the Procuratorate Daily: after taking over, the money went not into the business but into personal spending; wages went unpaid and social insurance contributions stopped, pushing teaching staff to resign; cheap courses were pushed regardless of cost, with tuition routed into personal accounts; rent and property fees were deliberately left unpaid — manufacturing the appearance of a broken cash chain, departing teachers and a business grinding to a halt.

The prosecution’s case is that the place did not close because it could no longer hold on: the closure was decided first, and then the place was made to look like it could no longer hold on.

Prosecutors say the sharpest evidence is a gap in time: Gu contacted a course-transfer operator back in April 2025, saying he was about to take over institution B and would need help placing students when it shut down. They did not actually take over institution B until June 2025.

The closure was being planned two months before the takeover.

During those two months, parents were paying.

One parent renewed a child’s art course for RMB 15,880 in March 2025; the institution closed in June. He had asked about the change in staff, and was told it was normal personnel turnover.

The Xinhua investigation has another parent, surnamed Xiao. Her child’s art school shut down abruptly — and she had just paid RMB 21,250 for 150 sessions.

That number is worth a moment. A 2021 notice from the Ministry of Education and five other ministries on prepaid-fee supervision at private tutoring institutions says fees may not be collected in one payment, or through top-ups or session cards, covering a span longer than three months or 60 class hours.

Buying 150 sessions in one go is 2.5 times that ceiling. (The ministry’s notice counts in “class hours” and the reporting counts in “sessions”; neither gives a conversion, so treat the multiple as rough.)

The rule had been on the books for four years. The 150 sessions were sold anyway.

This case: three tutoring institutions in six months, more than 600 consumers. Prosecutors’ audit puts the total taken at over RMB 1.4 million — a figure that includes both the former owners’ transfer payments and students’ tuition. Investigators also found that more than 70% of the money went to paying off the group members’ own debts and funding their spending.

Of several hundred affected students, the families of more than a hundred eventually accepted a “course transfer” — which turned out to be scattered free trial lessons.

On March 25, 2026, the Pudong New Area People’s Procuratorate charged the pair with contract fraud. At first instance on May 26, 2026, Gu was sentenced to 11 years and fined RMB 200,000; Han to 10 years and 6 months and fined RMB 200,000. Han has appealed, so that judgment is not yet final.

The gaps are closing

Three tracks are moving at once. To be clear about what is changing: the design itself has not changed — what is changing is what happens when it is abused.

Administrative and registration. On October 22, 2024, Beijing’s market regulator announced the country’s first such case: two closed businesses, three debt-bearer agencies and two closers placed under investigation, with fines and confiscations totalling RMB 655,800; separately, nine individuals were identified as directly responsible for false registration and barred from applying to register a market entity for three years.

The Measures for the Implementation of Company Registration, in force since February 10, 2025, read in Article 20 almost as though written for this assembly line: where there is evidence that an applicant is clearly abusing the independent status of the company as a legal person and the limited liability of shareholders — through changing the legal representative or shareholders, or deregistering the company, to maliciously transfer assets or evade debts — and this may harm the public interest, the registration authority shall not process the relevant registration, and shall revoke it where it has already been processed.

Changing the legal representative. Deregistering the company. The core moves in both of the cases above sit inside that one sentence.

Civil. The Supreme People’s Court’s interpretation on prepaid-consumption disputes took effect on May 1, 2025, in 27 articles. Article 14 gives offline consumers a right they did not have before:

“Where a consumer requests the operator to return the principal of a prepayment within seven days from the date of payment, the people’s court shall support it.”

But the same article carries an exception: not where, at the time of signing, the consumer had already received the same goods or services from that operator, or from another operator.

Which means this seven-day right is mainly for people buying for the first time.

The parent who renewed for RMB 15,880 was not signing his first contract — that exception points straight at him. And he paid in March, with the collapse coming in June; the seven-day window had long since shut.

Two doors, both closed.

The right is a real one. It covers the seven days after you were talked into a card on the spot. It does not cover a shop that disappears half a year later. For that there is another route: restitution ordered in the criminal case.

Article 9 of the same interpretation handles something else: clauses excluding the right to refunds, clauses saying a lost registered card will not be replaced, clauses unreasonably restricting transfer of the contract claim — all void. “No refunds once sold.” “Lost cards not replaced.” “Non-transferable.” Those lines of small print stopped counting on May 1, 2025.

One more lands this October 1. Guangdong’s consumer protection regulation, passed on July 31, 2026 and in force from October 1, requires in Article 16 that prepayments be covered by a written contract setting out how the money is supervised and refunded; that consumers be given a fast, convenient way to check their balance and transaction records at any time; and that an operator deciding to close or relocate notify consumers thirty days in advance.

Thirty days.

This applies only in Guangdong, and only from October 1 — none of the cases above would be covered. But it writes “when you must be told” as a specific number. Shanghai has written it that way since 2019 — thirty days. Guangdong is another.

The contrast makes it clearer: Beijing’s regulation says an operator shall “promptly” inform consumers.

“Promptly” is a word that can always fail to arrive.

The same obligation, written as thirty days in one place and as “promptly” in another. That gap has been there for seven years.

Finally, the scale. In September 2024, Economic Daily published a piece citing a Ministry of Commerce estimate: roughly 19 million issuers of single-purpose prepaid cards nationwide, 75% of all commercial prepaid cards, issuing more than RMB 15 trillion a year.

That is a second-hand estimate and the original gives no reference year, so the arithmetic below is only about order of magnitude: RMB 15 trillion spread across the 31,536,000 seconds in a year is about RMB 476,000 every second, moving into somebody else’s account. It is annual issuance, not the balance sitting on merchants’ books at any one moment.

Your money is somewhere inside that 15 trillion.

The question is whether you can say how much of it is left.

On your ledger, that card is not money you have spent

(Conflict of interest, up front: we make an expense-tracking app, and the method below came out of building it. It does not depend on our product — any ledger app, or a spreadsheet, will do.)

The moment you top up, the money leaves your account. But it has not become spending.

It has become a loan you made to a merchant — no interest, no collateral, no agreed repayment date — and you usually sit well down the queue of creditors.

A lawful liquidation is supposed to notify creditors. The reason the members of that Beijing yoga studio never got the chance to declare their claims is that the liquidation report was false. That is precisely why the court ordered Xue to pay.

Most ledgers make the same mistake here: top up RMB 5,000, record RMB 5,000 of spending, done. Then nothing gets recorded on the way back out. On paper you spent it all long ago, while in reality half of it is still parked with someone else — and you cannot say how much.

Change the bookkeeping in two steps. On the day you top up, record it as a transfer between accounts: money moves from your bank card to an account called “gym balance,” and your total assets do not change. Then each class, or each haircut, takes an actual expense out of that account.

That way you can answer one question at any time: how much of my money is currently in someone else’s hands.

(The app we make is called Cenno.)

Knowing that number will not keep a shop from closing. It guarantees one thing only: on the day it does, you can state the exact amount, instead of “a few thousand, I think.”

Back to that membership card.

The next time a shop offers you a discount that seems too good, it is probably just a promotion.

Do not treat “a discount” as the dividing line. What the judgment describes is not just a discount — taking over without paying, stalling the registration change, paying someone to front as legal representative, promising to cover rent and utilities to delay the closure, and only then the heavily discounted cards sold on the way out. What makes it fraud is the whole set, not any one move in it.

Discounting is not illegal. A shop that really is going under is free to clear its stock.

And the whole set and the single move look exactly alike at the moment you sign.