| Stockholder's Derivative Action implies that where the company neglects to bring a lawsuit to claim damages after the legal interests of the company are violated, the shareholders of the company will bring such a lawsuit in their own names with the judged damages turned in to the company. With the constant economic development in our country, the problems in the management of companies are becoming increasingly obvious. Since some senior management personnel such as the director, the supervisor, or the manager violate the interests of the company, even the interests of some minor shareholders, the interests of the company and the minor shareholders are in urgent need of the protection of law. Although the newly revised Corporation Law, for the first time, embraces the provision on the Stockholder's Derivative Action, providing a legal basis to the minority shareholders to protect their legal rights and interests through Stockholder's Derivative Action, the legal provisions are not perfect at all with many problems to be solved. This paper, from the point view of the procedural law, does a thorough, systematic, in-depth as well as detailed research on the issues involved in the system of Stockholder's Derivative Action, hoping to provide enlightenment and help to the construction and improvement of the system of Stockholder's Derivative Action in our country.This paper is divided into seven chapters. They are as follows:Chapter One A Survey of Stockholder's Derivative Action This chapter focuses on some fundamental issues involved in the system of Stockholder's Derivative Action, including some concepts and their features, functions, origins and development; the relationship between Stockholder's Derivative Action and actions brought by shareholders directly; the relationship between Stockholder's Derivative Action and action brought by representatives or action of subrogation of creditors; the principles for the establishment of Stockholder's Derivative Action, and so on.(1) This paper indicates that Stockholder's Derivative Action implies that where the company neglects to bring a lawsuit to claim damages after the legal interests of the company are violated, the shareholders of the company will bring such a lawsuit in their own names with the judged damages turned in to the company. Such litigation has the following features: it is the litigation based on the identity of the shareholders; the plaintiff shareholders subrogate the company to exercise its litigious right; the shareholders bring the action in their own names; the independent personality of the company is neglected; the majority rule does not apply in such cases; it is only applicable to the limited liability company and the company limited by shares.(2) The functions of Stockholder's Derivative Action are as follows: to protect the legal rights and interests of the minority shareholders; to guarantee the normal operation of the company's management system; to maintain the security market in a sound operation.(3) The origin and development of Stockholder's Derivative Action: Such a system was created by the British common law and greatly developed in the United States. This paper, with the United States and Japan as the principal examples, introduces the process of the development of Stockholder's Derivative Action. It also points out that the system of Stockholder's Derivative Action experienced its rudiment and its establishment through legislation.(4) Stockholder's Derivative Action and actions brought by shareholders directly are different from each other, but at the same time interchangeable with each other. Stockholder's Derivative Action, actions brought by representatives and actions of subrogation of creditors have both similarities and important differences.(5) The establishment of the system of Stockholder's Derivative Action should conform to the following principles: the principle of protecting the legal rights and interests of the minor shareholders; the principle of combining the autonomy of the company with the interference of the state; the principle of encouraging justifiable litigation and preventing speculation in litigation.Chapter Two Theoretical Basis for the System of Stockholder's Derivative ActionThe research on the theoretical basis is the premise on which all litigation systems are established. This paper's view is that the theoretical basis for the system of Stockholder's Derivative Action is the theory of equal protection of rights and that of the expansion of the scope of parties to actions.(1) Since the minor shareholders are usually in a weak position in the company, to make the theory of equal protection of rights the theoretical basis for Stockholder's Derivative Action is to protect the interests of the minor shareholders so as to guarantee their reliance on the company and willingness to invest in the company. The basis for the equal protection of rights is the shareholder's right of action in substance because such operation form is the result of the separation of the ownership and the management, and the ultimate owner is still the shareholder. The law grants the independent personality to the company and imposes limitations on the shareholders'power of management and policy-making only because shareholders want to share limited liability and consequently reduce the risk in their investment. In this sense, the shareholders'ownership does not extinguish. Instead, it exists in the form of the right of shareholders. The right of shareholders is a kind of right lying between the ownership and the right to benefits. Therefore, theoretically, infringing the interests of the company will inevitably infringe the right of shareholders. As a result, shareholders are entitled to claim damages against the infringer based on the fact that the right of shareholders is infringed.(2) To make the expansion of the scope of parties to actions is because there is a defect in the traditional theory of parties to actions, which denies the party's right of action in procedure and consequently excludes the possibility, under some special circumstances, for the one who does not have immediate interests in the case to bring the lawsuit to the court. To make the expansion of the scope of parties to actions the theoretical basis for Stockholder's Derivative Action confirms the identity of the procedural party to actions and legalizes the shareholders'right to initiate an action of subrogation.Chapter Three Plaintiff in the Stockholder's Derivative ActionAn action of subrogation must be brought by a plaintiff with standing. In order to prevent vexatious actions and to keep the balance among the shareholders of the company and the balance between the shareholders and the company, all the countries in the world, in their relevant laws, make restrictive provisions on the standing of the plaintiff in the Stockholder's Derivative Action. This paper agrees that there should be proper restrictions on the standing of the plaintiff in the Stockholder's Derivative Action in order to prevent vexatious actions, but such restrictions cannot be over strict to inhibit the system of Stockholder's Derivative Action from playing its role. The restrictions provided in our Corporation Law on the standing of the plaintiff in the Stockholder's Derivative Action are over strict. As a result, they are less applicable and need improvement. This paper represents three suggestions on the issue of the shareholders'standing to bring actions of subrogation: (1) the plaintiff must have the identity of shareholder when the wrongful act occurs; (2) the plaintiff must have the identity of shareholder at the time when he brings the action and during the suit; (3) the plaintiff should be able to justly and fully represent the interests of the company and other shareholders. Besides, in judicial practice, particular problems under special circumstances should be regulated particularly through legislation or appropriate adaptations in order to protect the right of the shareholders in good faith to bring an action of subrogation in accordance with law in special conditions.Chapter Four The Defendant, the status of the Company and Other Shareholders in Stockholder's Derivative Action(1) The defendant in a Stockholder's Derivative Action refers to the one who does wrongful act to the company and therefore takes civil liability to the company. The legal provisions in our country on the defendant in the Stockholder's Derivative Action have the following two problems: one is that the subject scope of the defendants is over broad; the other is the object scope of the defendant is over narrow. This paper indicates that the Corporate Law of our country should be revised. The defendant in the Stockholder's Derivative Action should be limited to the director, the supervisor and the senior management personnel of the company, excluding the third person outside the company. At the same time, the duty of diligence of the director, the supervisor and the senior management personnel should be specifically provided.(2) The status of the company in the Stockholder's Derivative Action is complicated. No matter whether as the plaintiff, the defendant or the third person to the action, the company is not a party in its full sense. Instead, it only partly has the status of the party to the action with some features of multiple parties. It is not proper to classify the company as any type of litigious parties provided in the existing civil procedure law. This paper points out that what is both practical and in conformity with the theory of the civil procedure law is to identify the company as a participant with its own characteristics in the Stockholder's Derivative Action. That is to say, in the Stockholder's Derivative Action, the company is in a neutral position, and has no right to make a stand for one party and defend against the other. However, it can, according to the law and the fact, file pleadings in order to protect the interests of the company. The judgment rendered by the court is binding on the company. This paper also suggests that provisions on such participants in civil actions should be added when the Civil Procedure Law is revised.(3) As far as the status of other shareholders in the Stockholder's Derivative Action is concerned, we can draw references from the legal provisions of foreign countries and take into consideration the practice in our country to allow other shareholders to participate the action, but to impose restraints on their participation at the same time. Where only a small number of other shareholders participate the action, they can be treated as joint plaintiffs; where a large number of other shareholders participate the action, the applicable rules should be similar to the rules applicable to the action involving a large number of representatives. Chapter Five Mechanism of Encouraging Stockholder's Derivative ActionIn order to avoid such situation where the company refuses or neglects to bring an action and the shareholders of the company also neglect to bring an action, and in order to encourage the shareholders to subrogate the company to bring the action, we must reinforce the shareholders'own initiative and the function of the mechanism of the encouragement. This paper, based on the experience of legislation and judicial practice in foreign countries, indicates that the legislation should conform three incentive measures: first, the litigation fee for the Stockholder's Derivative Action should be a fixed sum of money for each case; second, the plaintiff in the Stockholder's Derivative Action should be compensated for his litigation fee; third, plaintiff shareholders should be indemnified individually in proportion.Chapter Six Mechanism of Restriction on Stockholder's Derivative ActionIn order to prevent shareholders from bringing unjustifiable actions, the mechanism of restriction should be established. The main measures taken are to set up the prerequisite proceedings in the Stockholder's Derivative Action and to establish the security system of the litigation fee. The prerequisite proceedings in the Stockholder's Derivative Action implies that if the shareholders think that the interests of the company are infringed, before they subrogate the company in accordance with law to bring the action, they should ask the company to bring an action against the infringer so as to protect the interests of the company. The shareholders can subrogate the company to bring the action only if the company refuses or neglects to bring the action. The security system of the litigation fee implies that after the plaintiff shareholders bring the action to the court, upon the request of the defendant, the court has the authority to order the plaintiff in good financial conditions to provide security of certain amount of money to guarantee that the defendant will be able to obtain compensation for his litigation fee out of the sum of security provided by the plaintiff. Chapter Seven Special Problems Involved in the Proceedings of Stockholder's Derivative ActionThe special problems involved in the proceedings of Stockholder's Derivative Action include: (1) jurisdiction and notification of action; (2) jointer of claims, counter-claim and burden of prove; (3) self-incrimination, abandonment and conciliation; (4) suspension of litigation, dismissal of claims and statute of limitations; (5) res judicata and retrial of cases; and so on.In the end, based on analyzing the above-mentioned problems, this paper puts forward some specific suggestions to the legislation for perfecting the system of the Stockholder's Derivative Action. |
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