A Study On The Legal Regulation Of Anti-takeover Provisions In The Articles Of Listed Companies In China

After the lasting economic prosperity in China,the expansion pattern mainly of endogenous growth has sank into a bottleneck period.Corporate mergers and acquisitions enable modern corporations to expand outwardly,enlarge corporate scale rapidly and enhance enterprise competitiveness.In the mid-year of 2015,the stock market of China plummeted,leaving the stock value of target companies in a widespread low.Worse still,abundant capital for mergers and acquisitions flooded the capital market in recent years where a large amount of “tide riders” emerged in the waves of hostile mergers and acquisitions,continuously making new highs in terms of the scope and quantity of hostile mergers and acquisitions.However,wherever there is an attack,there is a defense.Since July of 2016,many domestic listed companies has been holding high the “Anti-takeover Shield with corporate articles” in response to the advent of the great era of merger and acquisition.It is preferred by listed companies to lay down anti-takeover provisions by amending corporate articles in that the high flexibility of anti-takeover provisions in corporate articles in keeping pace with the times,the convenience of modification,the perspectiveness in withstanding the risk of acquisition and the low cost offer listed companies the edge to produce rapid response to changes in takeover markets.Such amendment also plays an important role in coordinating internal and external corporate governance mechanisms and balancing the interests of all stakeholders.The formulation of anti-takeover provisions included in the articles of listed companies in China has evolved from the “onefold pattern” and “tentative style” lacking defense in the beginning of 1990 s to the “diverse forms” and “net type” with excessive defense after “the Vanke-Baoneng Saga”,which are copied by more corporate articles of listed companies in snowball speed.Because effective institutional norms and supervisory measures have not been available in relevant laws,the judicial and supervisory authorities in China have been incapacitated for regulatory moves.The regulation of anti-takeover provisions in the articles of listed companies involves the games among stakeholders of multiple parties in which balancing the interests of all parties is the top priority.By probing from the point of conflicts of interests and focusing on legal regulation,the anti-takeover provisions in the articles of listed companies totaling 1663 in the main-board markets in Shanghai and Shenzhen Cities have been reviewed through empirical analysis with a view to pinpointing the real problems in the anti-takeover provisions in the articles of listed companies in China and seeking a regulation approach that is foreseeable,explicitly lawful and cost-effective.First of all,in terms of the composition idea and logic clue,the regulation field and its background development of anti-takeover provisions in the articles of listed companies in China have been introduced.The study on the regulation of anti-takeover provisions in the articles of listed companies focuses on analyzing the definition,classification and value of such provisions on the basis of defining the concepts of acquisition,anti-takeover and hostile takeover.A thorough research of anti-takeover provisions in corporate articles is indispensable from longitudinal extension.Reviewing the development of anti-takeover provisions in the articles of listed companies from historically observational perspective is conducive to improve the comprehensiveness of the regulation of such provisions.In the second place,the overall regulation concept of the necessity and principle for regulating the anti-takeover provisions in the articles of listed companies in China is brought forward.In the multiple interest patterns involved in such anti-takeover provisions,it is because of severe conflicts of interests among all parities in anti-takeovers that entail the guided regulation for anti-takeover provisions in the articles of listed companies in China.The concept of interest balance should serve as a principle for the overall regulation of anti-takeover provisions in the articles of listed companies.Nonetheless,interest balance is not the equalized protection for all interest bodies.Instead,the specific shareholding structures of listed companies should be weighed and targeted emphasis should be placed on the interests of different parties.In this connection,it is suggested that close attention should be paid to the interests of minority shareholders in vulnerable positions,the control power of controlling shareholders should be regulated,the decision-making freedom and fiduciary duty of board of directors should be balanced and a fair share of consideration should be given to the vital interests of employees,creditors and other stakeholders so that the level playing field can be established for takeover markets to work effectively.Furthermore,given that the theoretical principle for the regulation of anti-takeover provisions in the articles of listed companies in China can never catch up with the development of business practices,the macroscopic interest hierarchy is not universally applicable for the detailed regulation on anti-takeover provisions.Therefore,the approach of empirical study becomes necessary for specifically exploring the regulation approaches for anti-takeover provisions in the articles of listed companies in China.According to the difference of objects,the anti-takeover provisions in the articles of listed companies in China are classified into the anti-takeover provisions of corporate articles “centering around limiting shareholders' rights” and those “centering around controlling board of directors”.Then,differentiated regulation approaches are presented through dissecting the classification.For the anti-takeover provisions not covered herein and rarely laid down in the articles of listed companies,corresponding classified regulations can also be applied according to their classifications.In the first classification of anti-takeover provisions in the articles of listed companies “centering around limiting shareholders' rights”,there are three kinds of anti-takeover provisions which are widely favored in articles of listed companies: Super-majority Provision,Limitation of Shareholders' Proposal and Report and Announcement Provision.The effects of of these three kinds of provisions in corporate articles have been reviewed one by one,after which the governance lists for each provision are presented.In terms of the effect of anti-takeover provisions aiming at “limiting shareholders' rights ”,above all,the fiduciary duty of shareholders should be considered.Corporate controlling shareholders and actual controllers bear the fiduciary duty for the corporation and other shareholders and they are not permitted to take the advantage of their controlling positions to subdue the minority shareholders.Secondly,the attributes of the rights limited by anti-takeover provisions in corporate articles should be taken into consideration.The articles are in no position to deprive nor limit the inherent rights enjoyed by shareholders.Finally,the information disclosure and reminder obligation to anti-takeover provisions in corporate articles should be emphasized as well.The control power of acquirers over corporations,in the final analysis,has to be realized by controlling board of directors because of the separation of ownership and control power in modern corporations.In the second classification of anti-takeover provisions in the articles of listed companies “centering around controlling board of directors”,after the empirical analysis of the provisions of Staggered Board Provision,Golden Parachutes as well as Limitation of Director's Qualifications Provisions which are preferred by corporate articles,the effects of the three provisions are evaluated respectively and the model text lists are presented.The research has discovered that the effect of anti-takeover provisions centering around controlling board of directors,in summary,is to attend to the fiduciary duty of directors.Although the anti-takeover provisions in each kind of corporate articles stress different aspects of duty of loyalty and duty of care from directors,they,without exception,demand directors to make acquisition-defensive policies in good faith for shareholders' interests on the basis of full information.Moreover,the Equity Structure,Law System and Corporate Governance exert more or less influence on the regulation of anti-takeover provisions in the articles of listed companies in China.Consequently,full consideration should be given to these three factors in shaping the regulation approaches for such provisions.Both dispersed equity structure and concentrated equity structure result in the diverged internal agency issues: in the former,conflicts frequently happen between shareholders and directors;in the latter,conflicts mainly emerge between majority shareholders and minority shareholders.As a result,it has been naturally revealed that the regulatory approaches for anti-takeover provisions in corporate articles characterized by “Shareholder Primacy” differ from those for anti-takeover provisions in corporate articles featuring “Director Primacy”.In the context of the three variables in analysis,full consideration must be lent to the three factors of the Equity Structure,Law System and Corporate Governance when laying down anti-takeover provisions in the articles of listed companies in China.It is suggested that,on the basis of adhering to focusing on shareholders' meeting,the ownership of decision power over anti-takeovers should be gradually oriented to board of directors with the dispersion of equity structure.Finally,the legal regulation approaches for anti-takeover provisions in the articles of listed companies have clearly emerged after the systematic research.In business practices,listed companies can design defensive provisions in advance pursuant to the customized model texts for six classifications of detailed anti-takeover provisions preferred by corporate articles as constructed herein.Explicit effect standards will be available afterwards to regulate the defensive provisions included in corporate articles.Considering the autonomous feature of corporate articles,to regulate them by mandatory rules of law will inevitably result in the contraction of their autonomy.Therefore,it is suggested that highly explicit,feasible and lawful model lists should be included in Guidelines on the Articles of Association of Listed Companies and Administrative Rules on Acquisition of Listed Companies as enabling rules for the reference of listed companies in laying down anti-takeover provisions in their corporate articles.In this regard,pilot projects can be established to develop into full swing.Progressive reforms should be carried out from the lower level to higher levels on regulation approaches by following the order of legal hierarchy.