Construction Of A Comprehensive System Of Remedies To Corporate Deadlock

Corporate deadlock refers to breakdown of the effective operational mechanism of a company resulting from the conflict of interest of and contradiction between shareholders and senior management personnel of the company, under which the company's shareholders or senior management personnel are divided into two parties who opposes to each other. As a consequence, no proposal from either party can be accepted by the other. Even shareholders' meeting or meeting of the board of directors can not be held, no proposal can be passed and the whole company is put under paralysis. Because of the breakdown of the decision-making mechanism and the effective implementation system of the company, corporate deadlock seriously impairs the operations and business of the company and the interests and benefits of the company's shareholders, directors, supervisors and employees. Even benefits of a third party may also be severely influenced in an direct way, and finally the entire society will suffer from the corporate deadlock. Because of some traditional company principles, such 'the doctrine of overwhelming majority capital' and "Three principals of company capital", corporate deadlock is somewhat inevitable. The characteristics of the limited liability company, that is, the personal nature and close characteristics of a limited liability company, make it much easier for corporate deadlock to be constituted in limited liability companies.Currently, in China, the system of remedies to corporate deadlock is far away from being perfect. From the overview of the legislation, although the Article 183 of the New Company Law changes the long-standing silence on remedies to corporate deadlock by granting shareholders the right to require the people's court to dissolve the company, the Article 183 itself is still problematic, for example, the conditions for the application made under the Article 183 are not clearly specified. Besides, the solution the New Company Law provided for corporate deadlock is too limited. Compared with foreign developed countries, whose company law have specific chapter for corporate deadlock, China has failed to pay sufficient attention to solutions for corporate deadlock. On the other hand, from the perspective of judicial practices, the people's courts in China have, for a very long period of time, held a conservative attitude to their acceptance of cases involving corporate deadlock.Considering the serious damages caused by corporate deadlock and the defects with the current system of remedies to corporate deadlock in China, it is suggested in this thesis that China should pay much more attention to the corporate deadlock and constructed a comprehensive system of remedies to corporate deadlock step by step.Firstly, Chapterâ… of this thesis specifies the fundamental connotation of corporate deadlock by giving a brief introduction on its definition, characteristics, classification and side effects caused by it, followed by analysis on main causes of corporate deadlock. Chapterâ…¡analyzes the current system of remedies in China for breaking the corporate deadlock from both the legislative and judicial perspectives, pointing out that China failed to pay enough attention to corporate deadlock and remedies provided for breaking corporate deadlock is very limited. Chapterâ…¢is the core part of this thesis, which suggesting that China should construct a comprehensive system of remedies to corporate deadlock, which constitutes of both pre-arrangement and after remedies, of both self-help remedies by the company and judicial remedies by people's court. Pre-arrangement and self-help remedy means that shareholders should foresee the possibility of potential corporate deadlock during the establishment of the company and make corresponding arrangement, through negotiation among shareholders on solutions of corporate deadlock in the Articles of Association, Shareholders' Agreement or other constitutional documents of the company. Such pre-arrangement includes arbitration, mediation by interim director, share transfer, and volunteer dissolution of the company. Judicial remedies constitutes of forced buy-out, judicial dissolution, appointment of interim director, mandatory third-party receiver, forced company de-merger, and direct management by people's court.