Exploration On The Prevention Of Misappropriation Of Derivative Litigation System In China

The Derivative Litigation Mechanism, which was first introduced in the revised Corporation Law in 2005, has further improved corporation governance in China. Although the progress has been made in legislation, we should clearly realize the deficiency in the mechanism from the perspective of practice.The current legislation adopts the model encouraging litigation while considers little on the control of litigation abusing. The Corporation Law only stipulates a relative simple pre-procedure.It is inferred that the procedure may entitle rights for the minority shareholders to protect their interests from infringement. However, if there is no limitation on the rights, we are likely to undergo the miserable experiences on the abusing of Shareholders'Derivative Litigation Mechanism in developed countries such as United States, Britain and Japan. It is better to avoid such occurrence through establishing prevention system to make sure such mechanism appropriately used in the practice of corporation governance in China.In terms of litigation causes, the present legislation provides an over-broad category, including any improper behavior of corporation managers. Shareholders are also entitled to the similar authorities as Board of Supervisors. Such an arrangement not only overlaps the function of corporation's inside-control systems, but wastes the limited judicial resources as well. Therefore, it is suggested that the category of litigation causes should be limited by reference of business judgment rule to exempt some ordinary management behaviors.In terms of plaintiff's qualification, it is suggested that we can learn from contemporaneous ownership principle and clean-hand principle in United States in order to guarantee the typical representatives for plaintiff.Although the current Corporation Law stipulates related pre-procedure, it is only an examination from procedure. The examination body lacks high independence in constitution as well as the essential power to prevent litigation. Therefore, it is expected to increase the independence of the examination body meanwhile lead the proper participation of judicial power.As a relative effective measure taken by United States and Japan to control abusing of litigation, the guaranty of Shareholders'Derivative Litigation is a brand new concept in China. It is suggested that we can use the California Model and Japan Model to perfect the guaranty of litigation. To illustrate, shareholders probably in bad faith are required to provide guaranty and shareholders who lost the suit are expected to make adequate compensationLast but not the least, judicial intervention on reconciliation of litigation prevents endangering other shareholders'interests if shareholders as plaintiff make reconciliation with corporation managers secretly. Thus, Derivative Litigation guarantees the interests of corporation and shareholders as a whole. Therefore, corporation legislation in China should establish a system preventing the abusing of derivative litigation by reference of measures taken by United States and European countries so as to guarantee litigation rights of minority shareholders operate in a smooth way.Satisfactory achievements have been made in corporation governance with the development of market economy in China. We should not only witness the progress but also treat shortcomings in reasonably. The legislation in corporation is expected to further perfect so as to promote the overall strength of corporations in China.