Research On Legal Issues Concerning Remedies To Corporate Deadlock

Corporate deadlock refers to the breakdown of the decision and management mechanism in a corporation arisen from the disabling of shareholders meeting or board of directors due to irreconcilable conflicts between shareholders or directors. Corporate deadlock would cause severe damages to the interests of the corporation, shareholders, creditors and other stakeholders, which shall be liable for remedies.The channels for seeking remedies for corporate deadlock include self-help remedies, mediation, arbitration, litigation, and so on. The measures for remedies include but not limit to, corporation dissolution and alternative remedies such as advance arrangements in articles of association, custodians, the assignment of provisional directors, forced buyout. However, dissolution will terminate the legal-person status of the existing corporation, which does not favor the interests of relevant parties, thus should be applied under strict restriction. From the overview of the statute and judicial practice of the countries both of continental and common law system, the courts tend to take alternative measures in dealing with corporate deadlock cases, but to be much more cautious on the dissolution. Article 183 of the PRC Company Law revised on 27 October 2005 provides that"where there are serious difficulties in the operation and management of the company and the continual existence would cause major losses to the rights and interests of the shareholders, and the matter cannot be resolved through other means, shareholders representing 10% or more of the voting rights of all shareholders of the company may petition to the people's court for dissolution of the company". It is for the first time the company law put one eye on the issue of corporate deadlock. However, it just grants the shareholders the right to dissolve the corporation, while does not cover alternative remedies. The legal system for remedies to corporate deadlock is to be further supplemented to the company law.In this thesis, chapter 1 gives a brief introduction on fundamental issues with regard to corporate deadlock to clarify its concept, characteristics, types, reasons and damages. Chapter 2 is dedicated to discuss the underlying theory for remedies to corporate deadlock, the author is of the opinion that the establishment and operation of the corporation are a nexus of contracts, the long-term and immaturity may give rise to corporate deadlock, which will frustrate the reasonable expectations of shareholders. Chapter 3 explores the channels and measures for the remedies, the advantage and necessity of alternative remedies, and legal issues in relation to forced buyout and the other measures. Chapter 4 presents an overview on current legislation and practice of China on corporate deadlock, then puts forward some suggestions for supplement the corporate deadlock remedies system. applied for dealing with corporate deadlock. Courts shall take forced buyout or the other alternative measures in the trial and decision for corporate deadlock cases to offer exit for shareholders in the deadlocked corporation, thus would not only protect the interests of shareholders, also avoiding the dissolution of the corporation to benefit relevant parties.