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Legal Regulation Of Controlling Shareholder Abuse Of Control Behavior

Posted on:2009-12-06Degree:DoctorType:Dissertation
Country:ChinaCandidate:S Q FanFull Text:PDF
GTID:1116360272983862Subject:Economic Law
Abstract/Summary:PDF Full Text Request
The dissertation is based on such a fundamental proposition that the legal regimes regarding controlling shareholders' liability should include principle rules and concrete norms.Firstly,the principle of good faith rather than fiduciary duty should be adopted as the general principle relevant to controlling shareholders' liabilities.Secondly,specific rules should be established according to China's current situation in order to restrict controlling shareholders' behavior which is unfavorable to minority shareholders.The special characters of controlling shareholders in China should be considered,and the research concerning to whom controlling shareholder's duty is owned as well as the amalgamation of direct action and derivative action should be carried on.Furthermore, relieves for minority shareholders against breach of majority shareholder's liabilities should be stipulated.In the first place,to establish an advanced legal regime regarding controlling shareholders' obligations,State must demonstrably enact the principle of good faith.Currently,most Chinese scholars insist that the principle of controlling shareholders'fiduciary duty should be adopted to regulate controlling shareholders'liabilities,and emphasize that this principle is particularly an effective prescription for resolving the issue of behavior of abuse by controlling shareholders of listed corporations,some scholars even claim that it is regretful that there is no rule of controlling shareholders' fiduciary duty under the Securities Act of 2005.However,I opposes to this opinion.Generally,there are all together six legislative models in the world concerning principle of controlling shareholders' liability,namely the following ones——the principle of fiduciary duty under common law in the US,the principle of shareholder oppression under statute law in the US,the principle of unfair prejudice under statute law of the United Kingdom,rule of just and equitable winding up under statute law of the United Kingdom,the exceptions to the rule set up in Foss v.Harbottle under statute law of the United Kingdom,and the principle of good faith under statute law in Germany.China should choose among all these principles the best suitable one to transplant after considering the circumstances.In the United States,the regulations of shareholder oppression for restricting controlling shareholder's behavior was transplanted from the Great Kingdom.Fiduciary duty was introduced by judges of the states which did not have the rule of shareholder oppression to relieve those minority shareholders having been infringed by controlling shareholders' behavior,thus was relief-oriented when then fiduciary duty was spreading fast and becoming a fashionable vocabulary. In essence,fiduciary duty does not suit the relationship of shareholders, so the opinion that the relationship of shareholders in a close corporation is similar to that of a partnership is not accurate.In fact,there are more differences than similarities between these two kinds of enterprises, which demonstrated by the development of rule of controlling shareholder's fiduciary duty.Nowadays,the US judges equate the principle of controlling shareholder's fiduciary duty to that of shareholder oppression when applying it,thus the principle of controlling shareholder's fiduciary duty has been exuviated to be a mere shell without any practical contents.The reason why the US judges stick to this term is mostly because of path dependence and custom in expression. Except fiduciary duty,other rules,such as rule of shareholder oppression in the US,rule of unfair prejudice in the United Kingdom,rule of just and equitable winding up in the United Kingdom,rule of exceptions to the rule in Foss v.Harbottle in the United Kingdom,rule of good faith in Germany are all statutory rules,and can be the object for China to transplant from.But,due to less attention to consistency of legal system, rule of shareholder oppression in the US,rule of unfair prejudice in the United Kingdom,rule of just and equitable winding up in the United Kingdom,rule of exceptions to the rule in Foss v.Harbottle in the United Kingdom are competing principles except the principle of good faith which is an solo one.Moreover,China has been adhering to the statutory law system,and principle of good faith has already been adopted under General Principles of Civil Law.Therefore,this term is both familiar to jurists and convenient to apply.To sum up,I firmly proposes that the principle of good faith should be adopted under The Corporation Law.In the second place,during the process of putting paper rules into action,the state should do its best to embody rules as specific as possible on controlling shareholder's acts,so as to improve the application of legal rules and to restrict the discretion of judges in verdicting actions about controlling shareholder's abusing of rights.In my opinion,the aforementioned typical types of controlling shareholder's infringing minority shareholder include dismissing minority shareholder from being director or officer,related transaction,combination to squeeze out(or freeze out)minority shareholder,diversification of voting rights,rejecting to declare surplus,pushing corporation into the situation of bankruptcy, voluntary dissolution and so on.In the third place,the special characters of controlling shareholders in China should be considered.China is a socialist country with national economy occupying dominant status,thus the issue of the duties of controlling shareholders of state-owned companies should be taken into consideration.In this dissertation,I want to analyze whether there are any differences between the duties of controlling shareholder of sate-owned corporations and those of private-owned corporations.I endeavor to say that in corporate groups,we should accept the group's separate interests from its members corporations to improve the whole group's economic profit.Thus,to some extent,it can be considered as reasonable if the controlling shareholder' behavior,which damages the interests of the subsidiary companies,is to seek the whole group's interest.As far as concerning controlling shareholder of state-owned corporations,they can be exempted from duties if their behavior is for pursuing profit maximization and seeking maximization of the public interest.They can also be exempted from duties in certain circumstances in related transactions.Finally,the state must definitely constitute rules about forms of action, namely direct action or derivative action,and regulate the amalgamation of action forms as well as relief ways.Generally,where the controlling shareholder damages the interest of the corporation directly,the corporation is the appropriate plaintiff,while where the controlling shareholder damages the minority shareholder directly,the minority shareholder is the appropriate plaintiff.However,in the case of a closely held corporation,the court in its discretion may consider an action raising derivative claims as a direct action,exempt it from those restrictions and defenses applicable only to derivative actions,and order an individual recovery,if it finds that to do so will not(ⅰ) unfairly expose the corporation or the defendants to a multiplicity of actions(multiple actions),(ⅱ) materially prejudice the interests of creditors of the corporation,or(ⅲ) interfere with a fair distribution of the recovery among all interested persons.As for the behavior of controlling shareholder's abusing of rights,the court can grant any relief that it thinks fit,including but not being limited to dissolution of corporations, expulsion,buy-out,to appoint a custodian,to appoint a provisional director,or to order a sale of one shareholder's stock to the other shareholders to declare dividend and grant compensation.As far as all above concerned,the article is arranged as followings:This dissertation is composed of five chapters besides the prolegomenon and the conclusion.The first chapter is mainly about the legal regime regarding controlling shareholder's liability in China.In this chapter,I firstly introduce the current situation of the behavior of abuse by controlling shareholders and analyze current rules concerning controlling sharehoders'behavior.Then,I conclude which frame China should establish in legal system of controlling shareholders' liability on the basis of above analysis.From the second chapter on,I recommend specifically the particular issues of legal system about controlling shareholders' liability.The general principle is discussed in the second and the third chapter,and the specific rules is discussed in the forth chapter.In the fifth chapter,the method of actions and relief modes will be discussed.All these five chapters constitute the complete legal structure of controlling shareholders' behavior.
Keywords/Search Tags:controlling shareholder, fiduciary duty, duty of good faith, direct action, derivative action
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