Shareholder Derivative Litigation

The syetem of Shareholder' s derivative suit, as a generally applicable system of company litigation law used in almost all the major countries in Anglo-American legal system and Continental legal system, the establishment and improvement of such system will be of great importance in China. The introduction of provision of Shareholder' s derivative suit in the revised edition of "Company law" indicates the formal establishment of this system in China. At the same time, we should keep in mind that the establishment of Shareholder' s derivative suit in China is just a first step in a long journey, because Shareholder' s derivative suit is firstly established in "Company law", with no relevant supporting legal system and under no condition of "stare decisis" which is a case-law tradition, its effect have to be inspection by legal practice. However, one thing is clear, without further improvement of legislation and legal practice for this system; we really wonder whether Shareholder' s derivative suit, as an imdispensable content in company system of law-governed society, can really establish in China' s legal system. Therefore, the timely improvement of the system of Shareholder' s derivative suit, right at the time of its establishment, deserves great attention; the author recognizes that the establishment and improvement of this system in our country, will not only improve our company law system, what' s more, it can also strengthen the protection for small shareholders in companies especially listed companies, and can help to further advance the corporate governance structure.The aim of this thesis, is to sum up the legal philosophy of Shareholder' s derivative suit, on the basis of which conclude the general principle and function of Shareholder' s derivative suit, through explaining the origin, development and advancement of Shareholder' s derivative suit, through comparing the difference between Shareholder' s derivative suit and Shareholder' s directive suit, the relationship between Shareholder' s derivative suit and joined litigation, representative litigation and group litigation. On this basis, the thesis puts forward the procedural design for Shareholder' s derivative suit that adapts to the legal practice of our country, by way of studying on the experience of western developed countries and Taiwan region of our country, together with substantial research on Shareholder' s derivative suit practice of our country. The last part of this thesis proposes suggestions for the establishment and improvement of other related systems that should be given the attention when carrying out the Shareholder' s derivative suit system.As a new company litigation law system in our country, Shareholder' s derivative suit system differs not only from ordinary civil litigation, but also from Shareholder' s direct suit system. Shareholder' s derivative suit differs from Shareholder' s direct suit in the following aspects: first, the difference in the designing purpose of the two litigation systems, while Shareholder' s direct suit is designed to protect interest of individual shareholders, Shareholder' s derivative suit is designed to provide vast small shareholders with equal opportunities to protect their interest as shareholders. Second, the difference in the scope of subject that can bring the litigation, while all the shareholder have the right to bring the Shareholder' s direct suit, under Shareholder' s derivative suit system, not all shareholders can necessarily become representatives in the sense of Shareholder' s derivative suit. Only those that satisfy the particular conditions and procedures stipulated by law qualify. Third, the difference in status of litigants, which manifests in the different roles company performs in different litigations. Besides, there are also differences in the cause of litigation, the nature of the litigation, the direct purpose of the litigation, the scope of the litigation, the form of the litigation, the additional condition for the persistence of the litigation, the assumption of litigation fee, withdrawal of litigation, reconciliation, and compensation or indemnity resulting from the litigation. On the other hand, Shareholder' s derivative suit also has some connections with joined litigation, representative litigation and group litigation.This thesis sums up the legal philosophical basis of Shareholder' s derivative suit system in the following aspects: first, from the aspect of right and remedy. As to the nature of Shareholder' s derivative suit, after comparing and analyzing different views, the author holds that, in nature, Shareholder' s derivative suit falls into the category of shareholder rights, Shareholder' s derivative suit results from the suitable application of shareholder rights; viewing from the nature of right for bringing the Shareholder' s derivative suit, it' s a collective right instead of personal right, as a result, it promotes the protection of small shareholders, it promotes the remedy when small shareholders' right have been infringed. Second, from the aspect of balance of power of the company, analyze the current legislative provisions and defects thereof for corporate governance structure, point out the principles and measures to improve corporate governance structure, conclude that the establishment and improvement of Shareholder' s derivative suit promotes the improvement of corporate governance structure of our country. Third, from the relationship of law and economy, analyze the establishment of Shareholder' s derivative suit accords with economic efficiency theory and game theory, helps to realize the shareholder profit maximization. Forth, from the aspect of civil liability in company law and security law, analyze the provisions to strengthen the civil liability in company law and security law promotes the establishment of excellent credit system for listed companies, and conclude that Shareholder' s derivative suit, as a system helping to realize the civil liability in company law and security law, will also promotes the improvement of credit system in security market of our country.In this thesis, The author sums up the general principles in Shareholder' s derivative suit, including inter alia, the principle of shareholder holding the shares, the principle of bona fide, the principle of director management judgment, the principle of company internal remedy exhaustion and the principle of abusive litigation forbidden. The principle of shareholder holding the shares is a principle that restricts the qualification of plaintiff in bringing the Shareholder' s derivative suit, in particular with respect to the holding of share. The principle of bona fide means the plaintiff shareholder should be capable of representing the company' s interest in a just and sufficient way, the plaintiff shareholder should bring the Shareholder' s derivative suit bona fide, with no means of enlisting private interest through Shareholder' s derivative suit. The principle of director management judgment means, in Shareholder' s derivative suit, on condition that the director of the company or any advanced managers make the decision according to reasonable business rules and for the company' s interest, the court can reject the accusation from the shareholder. The principle of company internal remedy exhaustion means, before shareholder brings the derivative suit, he should first bring formal request in written form, to the director board of the company, to shareholder meeting or general shareholder meeting and to supervisory board, claiming for company' s action towards the persecutor, or approval, recognition of the persecutor' s action, or litigation to fix the persecutor' s legal liability. Only when the company fails to take action within a period of time after the request, can the shareholder bring the derivative suit. The principle of abusive litigation forbidden means, Shareholder's derivative suit should prevent mala fide litigation, should prevent low efficient litigation that can't result in right protection but waste legal resource.The establishment of the Shareholder' s derivative suit results from its function. The author here sums up the three major functions of Shareholder' s derivative suit. First, Shareholder' s derivative suit promotes the protection of small shareholder interest, which is also a necessary requirement for shareholder equality, an important guarantee for the stable coordination and healthy development of the company; second, Shareholder' s derivative suit promotes the well being of the company internal governance structure. Through the restrictions imposed on by Shareholder's derivative suit, directors and advanced managers will perform their task in a reasonable way, improving the company internal governance structure effectively. Third, Shareholder' s derivative suit promotes the improvement of company law and security law; Shareholder' s derivative suit can strengthen a number of functions of company law and security law, promoting the improvement of the two laws.Based on the summing up of principles and functions of Shareholder's derivative suit, this thesis refers to the legal practice in our country, analyzes some past cases in our country that are similar to Shareholder' s derivative suit. Based on the analysis and explanation of establishment of Shareholder' s derivative suit system, this thesis puts forward the procedural designing scheme for the establishment and improvement of Shareholder' s derivative suit system in our country. This thesis clarifies 15 aspects of Shareholder' s derivative suit, namely subjects (plaintiff, the accused, company and other shareholders), object scope, jurisdiction, re-trial, fees & litigation compensation system, payment security system, limitation of time, reconciliation and withdrawal, counter-claim, testimony liability, power of retroactivity, prior procedure, role of the court, encouraging and restricting system, etc. combined with advanced overseas experience and practical circumstance in our country, it proposes the detailed designing scheme of Shareholder' s derivative suit.As for how to establish relevant systems and measures to adapt to the growing up of Shareholder' s derivative suit in our country, the author also proposes some suggestions. As for how to promote the initiation of Shareholder' s derivative suit from the angle of civil litigation procedural design, the author proposes to establish group litigation system in order to adapt to the further development of Shareholder' s derivative suit. As for how to use external power to impulse the development of Shareholder's derivative suit, the author proposes to strengthen the function of lawyers in Shareholder' s derivative suits. As for how to further promote the protection of small shareholders, the author proposes to further improve the share purchase system of minority shareholders. As for how to guarantee the decision making and management function of directors and advanced managers under the system of Shareholder' s derivative suit, the author proposes to establish management indemnity insurance in our country so as to provide protection for directors and advanced managers to make reasonable and legal decisions and management.The research object of this thesis combines company law and civil law of procedure; study Shareholder' s derivative suit system from the angle of both substantial law and procedural law. It not only points out how to improve the content and method of Shareholder' s derivative suit from the substantial aspect of company law, but also points out how to realize the aim of Shareholder' s derivative suit in civil law of procedure.Through the research of Shareholder' s derivative suit, this thesis attempts to sum up the experience of legislation and application of law for Shareholder' s derivative suit in other countries and regions, sum up the current theoretical fruits in Shareholder' s derivative suit. Besides, based on the idea of theory instructs practice, it proposes author's own suggestions and viewpoints on how to improve Shareholder' s derivative suit in our country. Although Shareholder' s derivative suit system is a newborn company litigation law system in our country, concomitant with the advancement of legal construction process and the improvement of security market, it will of no doubt demonstrates its particular function in improving corporate governance and some other aspects, and promotes the improvement of company law, security law, civil law of procedure and some other laws and regulations, in system and in content.