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On Directors’ Duty Of Care

Posted on:2010-05-10Degree:DoctorType:Dissertation
Country:ChinaCandidate:Q LiFull Text:PDF
GTID:1226330332485538Subject:Civil and Commercial Law
Abstract/Summary:PDF Full Text Request
At present, Common Law and Civil Law has recognized that there’re Directors’ Duty of Loyalty and Directors’Duty of Care in the major legislations and theories. Duty of Loyalty forbid the directors to abuse the power for their own interests and Duty of Care forbid the directors to use the power lazily and carelessly or ignore the company’s affairs. There are significant differences between two types of duties and their functions also have different emphasis. They controll the directors’behaviors collectively and can not be neglected seperately. In October 2005, our country’s Directors’Duty of Care was first prescribed clearly in the section 148 of Company Law. However, this amendment produced two comparisons in Chinese current company legislations on Directors’Duty of Care. First one is the comparison between Directors’Duty of Loyalty classified specifically by section 149 of Company Law and Directors’Duty of Care prescribed abstract by section 148. Second one is the comparison between Directors’Duty of Care in the general sense prescribed by section 148 and Duty of Care of Listed Company’s directors which has been already classified by article 98 of Guidelines for Articles of Listed Company, etc.These comparisons initiates a series of questions. What’s the meaning of Directors’Duty of Care? How did it generate and develop? What is the theoretical basis of Directors’Duty of Care? Why would the moral restraint in the subjective to the directors upgrade to the statutory duty? Why can Company Law classify Directors’Duty of Loyalty, but only prescribes Directors’Duty of Care on principle? Can Directors’Duty of Care be classified? What is its reasons? How to classify? How to regulate Directors’Duty of Care in our country’s legislations? How to introduce business judgment rule and judging criteria into our country? This thesis has put forward the answers reasonably and logically to these questions.The thesis consists of introduction, conclusion and five chapters, and more than 172,000 words.IntroductionThe value of the thesis is to improve the power system of checks and balances of the corporate governance structure from the perspective of duty. Its significances include the omissions of legislation, the errors of theory and the need of practice. Introduction describes some aspects of the current situation of theoretical research, such as the relationship between directors and the company, the theoretical basis of Directors’Duty of Care, and the judging criteria. Introduction also lists and compares the major legislations in Common Law, Civil Law and our country. By doing so, we can see the differences between two genealogies of law and legislative deficiencies relating to our country as well as other countries or regions with gaps. Finally, in the absence of the practices and experiences of Directors’Duty of Care in our country, the thesis analyzes the cases mainly from Britain and the United States empiricaly and adopts the methods based on pracitces and cases. In the course of analyzing and referring, the thesis takes the characteristics of Anglo-American corporation governance structure and Case Law into account.I The Basic Theory of Directors’ Duty of CareThis Chapter has laid down the theoretical basis for the thesis. In order to solve the ambiguities and controversies in the legislations and theories, Chapter I focuses on the four basic theoretical issues as following.A. Compared with the existing expressions mainly drawn from Anglo-American Law, the paper argues that we should pay attention to Directors’Duty of Care itself to understand its specific meaning in the context of Company Law, that is the necessity which directors should care about the company’s affairs and do or undo something in accordance with the requirements of the law in order to realizing the maximum company’s interests in the process of performing their responsiblities. Then author analyzes the concepts similar to the conecpt "Directors’Duty of Care" which are used regularly in the theory, such as "good adminstrators’duyt of care", "duty of diligence", "duty of care" and "fiduciary duty". After this, author demonstrates the differences between Directors’Duty of Care and Directors’Duty of Loyalty or duty of care in Tort Law in detail.B. Faced with 11 kinds of different doctrines in theory, the thesis regards the relationship between directors and the company as quasi-appointment. According to the relevant theories and legislations, the so-called "quasi-appointment" only recognizes the great similarity of the appointment and the relationship between directors and the company, rather than the appointment itself. It is not taken for granted to resolve the relationship according to the appointment, but first apply the special provisions in Company Law, then apply by analogy to the appointment in Civil Code without special provisions. In this way, the relationship between directors and the company still maintains its own nature without having to succumb to the other relationships. In addition, the thesis also demonstrates or describes how to understand the relationship between directors and the company from the perspective of the theory of consistency about the authority and duty and principal-agent theory in economics.C. It is a moral restraint in the subjective for directors to manage the company carefully and diligently. But, with the development of company’s forms and the separation of property and management, the original general type of directors has developped gradually into a group of professional managers. Compared with the decentralization of the shareholders, directors has grabbed more and more managing power. Therefore, in addition to be faithful to the company, the legislation raised concerns about requesting directors to care about the company’s affairs and realize the maximum interests of the company. Thus Directors’Duty of Care has developped from the moral duty into the statutory duty.D. Although with the different degrees of care, there are not only the directors who undertake duty of care in the company, but also supervisors, senior managements, controlling shareholders, as well as the initiators in the specfic circumstances, the insolvency administrators. Directors bear duty of care not only to the company, but also to the shareholders, creditors and employees etc. in the specific circumstances.ⅡThe Significances and Methods of Classification of Directors’Duty of CareChapterⅡ,ⅢandⅣis the focus of the thesis. Classifying thoughts is very important to the legal studies. And it is fit to the current situation in our country which Directors’Duty of Care is too abstract and lack of specificity. Classifying Directors’Duty of Care can make up for the lack of judging criteria. That is to summarize Directors’Duty of Care for the different types of specific acts, and regard them as the act criteria to judge the status of directors’ fulfilling their duties of care.First of all, author classifies Directors’Duty of Care into the type of positive act and the type of negative act according to the exteranl form of the conducts. Then, by combing the historical development of Directors’Duty of Care in Case law, author selects, discovers, translates and compilates the classic cases on Directors’ Duty of Care in Case Law. Because of the lengthy and complex of these cases, including directors and other executives’ various behaviors and duty of care, duty of loyalty, business judgment rule and shareholder derivative litigations, the thesis put its emphasis on the acts of directors’ violating their duties on the basis of the simplified facts of the cases. Then author comprises the research sample with 100 cases by puttign the cases above and other countries’cases together. Finally, with the help of experience type and norm type, the thesis summarizes the company cases mainly from Anglo-American Law, and analyzes 100 cases mainly from the perspective of the contents of directors’ behaviors so as to classifies further the above-mentioned two types of duty of care respectively. As a result, the former is divided into eight types, the latter four types.ⅢThe Classification of Directors’Duty of Care (A):Positive ActAccording to the empirical analysis of ChapterⅡ, there’re attending the board meetings, keeping noticed about business and management situation, investigating reasonably and making business judgment prudently, acquiring the appropriate skills, providing informations and not misleading, supervising and treating all shareholders fairly, making sure of enough time and energy to perform the duties in the positive act of Directors’Duty of Care. Following the logical procedures of analyzing the cases, introducing the relevant legislations and explaining the theories, this chapter analyzes and demonstrates the cases of each type in details under the guidance of the foregoing basic theory. Specifically, according to the number of the cases in each type, author permutes and relates the cases of each type in accordance with different standards. For example, author relates and analyzes the similar cases in the United Kingdom or the United States in the order of history so as to clarify the developping trend of Directors’Duty of Care. And Author classifies the directors’different conducts in the cases and clarify their similarities. Author also associates with the different types of Directors’Duty of Care through the empirical analysis of ChapterⅡand clarify the connection and interdependent in them. In this process, the thesis pays special attention to the legal principles and rules established by authoritative cases, focusing on the demands from the plaintiff, the defendant’s plea, the judge’s decision and the truth of the facts. By doing so, author abstracts the common features and core contents of each type of cases or directors’behaviors. Then author introduces and remarks the relevant legislations supportting the type of Directors’ Duty of Care, and clarifies the theory which make it into one type seperately.IV The Classification of Directors’Duty of Care (B):Negative ActAccording to the empirical analysis of ChapterⅡ, there’re abiding by laws and regulations and complying with the Articles of Association, not being controlled by others, not wasting corporate’s assets and not leaking company’s secrets in the negative act of Directors’ Duty of Care. This chapter has the same research methods and process as Chapter III.V The Improvement of Our Country’s Legal System of Directors’Duty of CareAt present, there are the problems of the unadequacy of theoretical preparation and the imperfect legislation in the legal system of Directors’Duty of Care in our country, especially the lack of judging criteria. To solve these problems, this chapter has attemptted to eliminate the impact of Case Law on the business judgment rule and judging criteria, then introduces them in the form of clauses into our country’s statute in order to enhance the operability of the system. We can reduce the broad range of business decisions in Anglo-American Law in order to limit the discretion while applying business judgment rule. And we also can combine the specfic standard of conduct in the form of classifications with the abstract combining standard of subjective and objective. Finally, the thesis puts forward the specfic legislative advices to build up the legal system of Directors’Duty of Care from three levels, including:(1) general provision, classification provisions, judging criteria provision and responsibility provision on the level of Company Law; (2) business judgment rule provision and supplementary provision of judging criteria on the level of the administrative regulations or the judicial interpretation;(3) other specific modifications of other relevant laws and regulations.
Keywords/Search Tags:Directors’ Duty of Care, Duty of Loyalty, classification, Business Judgment Rule, judging criteria
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