Variation Of Shareholders' Rights In The Reorganization Of Corporation

The bankruptcy reorganization, as a bankruptcy prevention system to save the predicament debtor and promote its revival, has been one of three broad forms of the modern bankruptcy legal system together with bankruptcy liquidation and conciliation system. Due to this emerging system, the value of bankruptcy law shifted from individual-based to community-based standard. After the enactment of "Bankruptcy Law of PRC", many scholars have already carried out studies on the reorganization system. Unfortunately, due to the late introduction of the reorganization system and the lack of practical experience in China, the study on reorganization at this stage is still generally a more broad study of principles. To contrast, in Britain, the United States, Japan, Germany, France and other developed countries, the study on the reorganization system is more in-depth and comprehensive. Furthermore, the relevant bankruptcy law in those countries is enacted earlier and became relatively scientifically sound after several revisions. It is also noteworthy that there is very little systematic theoretical study on the specific reorganization system regarding the legal status of the shareholders and the change of shareholders'rights. What's worse, the rights of shareholders on enacted "Bankruptcy Law" are also scattered throughout. Hence, it is difficult to sort out specific rules for the reorganization system.What kind of impact the reorganization system would bring to shareholders? Whether the rights of shareholders in the"Company Law"would be restricted? What kind of rights the shareholders would enjoy in the reorganization system under"Bankruptcy Law"? Whether there is conflict of interest between shareholders and creditors in the all aspects of reorganization proceedings? How to balance these conflicts? What specialty the rights of shareholders demonstrate in the reorganization system which becomes the best choice for listed companies to bail out in judicial practice? To deal with these questions, the author chooses"Variation of Shareholders' Rights in the Reorganization of Corporation" as his doctoral thesis topic. The key point of this article is: The reorganization system had a profound impact on the status and rights of the shareholders. However, unlike bankruptcy liquidation, shareholders can still participate in the reorganization proceedings to safeguard their own interests. In addition, the interests of creditors have priority over the interests of shareholders. Therefore, it is necessary for the reorganization system to restrict the rights of shareholders. However, balance of interests is the cornerstone of the reorganization. To achieve this goal, we need to re-design a system to balance the interests of shareholders and creditors, thereby effectively protecting the interests of the shareholders. This paper is divided into four chapters, about 180 thousand words.The first chapter explores the reason of variation of the shareholders'right in the reorganization system. From the perspective of comparative law and legal history, the author discusses the origin and development of the reorganization system. The reorganization system is the inevitable product of social and economic development, reflecting the need for the diverse value of bankruptcy legislation. It extends the narrow space of the original structure under the bankruptcy law to protect all stakeholders who may be affected by the negative impact of debtors'bankruptcy, not only the interests of creditors and debtors, so as to maintain the interests of society in the framework of the bankruptcy system. The author describes the definition, characteristics and value of the reorganization system, and recognizes that "justice", "efficiency" and "fair", all these three elements are existed in pursuit of the whole value of the reorganization system and achieved by the adjustment of the legislation in the social life. This chapter also focuses on the balance of interests, the basic principles of the reorganization system. The author analyzes the necessity and feasibility of the balance of interests, and designs specific rules to balance the interests. The balance of interests is in the discretion of Court and bankruptcy administrator. Reorganization plan is concentrated reflection of conflict of interests and final realization of balance of interest. By Comparison of the status of shareholders in the reorganization, before the reorganization and in the bankruptcy liquidation, the author analyzes the specialty of the status of shareholders to explore the underlying reasons for these changes, including three areas: corporate insolvency which shakes the foundation of shareholders'control; changes in the structure of interests which require redistribution of the power; Judicial intervention to the autonomy of shareholdersChapter two deals with the variation of the shareholders'control in the reorganization system. Unlike bankruptcy liquidation, reorganization is not the end of the corporation's existence as a legal entity, but maintains the corporation to continue business through various measures, thereby bailing out the corporation to resume normal operation. Thus, corporation's internal power structure and the mechanism for the separation of such power are essential for the reorganizing corporation. The author reveals the process of change in the corporate internal mechanism of checks and balances, namely, the corporate governance structure from the perspective of change of shareholders control. In order to analyze the checks and balances of power after the reorganization process, one should fully understand the characteristics of normal state corporate governance and distribution of the shareholders control, and then conclude the resulting impact on corporation by comparison. In the first place, the author discusses the shareholder control under normal state. In section II, the author conducts a comprehensive analysis of the distribution of control in the reorganization process, summarizes the basic characteristics of the distribution of control in the reorganization process, and clarifies the distribution and separation of power between newly created meeting of court, administrator and creditors, and corporate existing general meeting of shareholders, board of directors and board of supervisors. Section III deals with who has the operational control in reorganization proceedings. Section IV compares the specific changes of shareholder control between administrator management and debtor management. As to the different subject of operational control in different management styles and the difference of the relationship among administrator, creditor and shareholders, the distribution of control under these two kinds of management can also reflect the different position and changes of power in different management styles. In section V, the author discusses special problems about control of company in the implementation period under reorganization plan.Under Chapter Three, the author analyzes the variation of the game between the right of shareholders and the right of creditors. In the corporation reorganization process, there is conflict of interests among multi-stakeholders, especially intense between shareholders and creditors. Shareholders and creditors are the most important subject of interests and also play vital roles in the reorganization. The author believes that it is necessary to conduct a systematic analysis regarding with the conflict and balance of interests between shareholders and creditors. In section I, the author proposes that corporation reorganization is a game of interests between shareholders and creditors. Even before the reorganization, shareholders and creditors have already been in a game relationship, continuously generating conflict of interests and balancing the conflicts during the corporation's operation. Meanwhile, shareholders and creditors in the process of corporation reorganization are not isolated, but closely related, as a relationship of conflict and balance, namely, the game of interests. When a corporation is near bankruptcy, its resource is so limited that not all of the stakeholders would get repayment; the conflicts of interest would become more intense. Conflicts of interests between shareholders and creditors have many causes, but the consistency of overall interest and the unique design of the reorganization system make it possible to reconcile the conflicts. The following sections in this chapter are"the dispute of interests to initiate reorgainzation","the dispute of interests in the proposed reorganization plan"and"the dispute of voting rights for the reorganization plan". The author analyzes the conflicts of interests between shareholders and creditors in the most important parts of the reorganization process, hoping to make some reasonable, fair and efficient proposals to balance the interests between shareholders and creditors.Chapter Four studies the special variation regarding the right of shareholders in listed companies under reorganization system. As to the characteristics of listed companies, bankruptcy liquidation of listed companies will produce a series of chain actions and exert a profound influence on society. Therefore, how to effectively save the listed company becomes a serious problem. It has been proven that reorganization system is an effective means to save the crisis of listed companies. Due to the large number of shareholders and complex ownership structure, the reorganization system for listed companies is certain unique. The author in this chapter conduct an empirical analysis of special problems in the reorganization system for listed companies in China, combined with the practical experience of China's listed companies'reorganization. Firstly, the author compares the status of shareholders in listed companies'restructuring and reorganization, and studies the change of shareholders'status in reorganization. In order to effectively protect the shareholder right to know in the reorganization, section II discusses the necessity and significance of information disclosure about reorganization, describes the main contents of the information disclosure system, the determination of the obligor of information disclosure in different modes, the basic content and requirements of the information disclosure at different stages, and suggests listed companies to focus on information which should be provided before the vote by shareholders. The adjustment of shareholders'equity in listed companies, as most concern of shareholders, is directly related to their own interest. Section III discusses several major methods of shareholders' equity adjustment, such as transfer of treasury stock, capital reduction (shrink), capital accumulation fund, issuance of new shares, debt and etc. The author introduces the concrete application of aforementioned methods in judicial practice and analyzes relevant legal issues and disputes. Section IV deals with the special problems of exercising voting rights in the listed companies'reorganization. Does the internet voting have any effect on the reorganization plan? Whether shareholders should have the right to vote? Whether the enhancement of shareholders voting right would shake the principle of the priority interest of creditors? The author conducts an empirical analysis of the only three internet voting cases in current practice. This section also discusses the scope of voting in the investor conference and the situation where the investors did not approve a reorganization plan, the court ruled to force the approval of a reorganization plan. Section V is concerned about the litigation right of shareholders in listed companies'reorganization. The reorganization system allows shareholders to propose new actions, but when it comes to pending lawsuits, the suspension is required in accordance with relevant laws and regulations. With relevant foreign legislation and practical experience, whether the right to request compensation should be treated as bad debt or general debt is still in dispute. Finally, the author analyzes the impact of shareholder litigation on listed companies'reorganization and restructuring through practical cases and also discusses effective ways to deal with shareholder litigation and compensation claim, not affecting the goal of reorganization, but also fully protecting the interest of shareholder.