An Exploration To The Deadlock Of Sino-Foreign Joint Venture

Corporation deadlock is a problem which not infrequently besets the management of a corporation. When deadlock sets in, management will come to a halt or even become paralysed to the detriment of the benefits to the shareholders, creditors and staff of the corporation. Since, for historical reasons, Sino-foreign joint ventures come under a somewhat specialised application of the law, corporation deadlock would present a different manifestation in their case from that found in limited companies in general. Given that joint ventures constitute an important form of foreign investment in China, research into the causes, prevention and resolution of such corporation deadlock will be the major topic of this thesis.This thesis recites the specialized application of the law in issues of equity transfers involving Sino-foreign joint ventures, using real cases, and puts forward a theory of corporation deadlock that comprises three separate aspects, namely, subject, subjective and objective. Most scholars agree on the "Capital Majority Rule" being the cause of corporation deadlock; the current paper disagrees with that view and suggests that the "Capital Credit" system is the more fundamental cause of deadlock.The following four aspects concerning foreign invested enterprises are analysed: the background legislation; the relationship with Company Law; the principles of the application of the law; and insight into the lawmaking process. By this means, focus is brought to bear on the issue of the specific application of the law for Sino-foreign joint ventures.Central to the thesis is the question of how to prevent or break corporation deadlock in Sino-foreign joint ventures, including the prevention in advance, handling during the occurrence, and resolving the problems afterwards.I. The section on the prevention of corporation deadlock examines the necessity of undertaking prevention, the extent to which it is possible and measures that can be taken. The most important measure concerns the way the share holders set up in advance the rules specified in the articles of association. This thesis proposes three types of situation which result in corporation deadlock: (i) failure to follow the rules for properly convened meetings; (ii) failure to meet the minimum requirement for a quorate owing to the absence of directors; failure to pass a resolution as a result of opposition from non-conforming directors. Based on the analysis of these three types of situation, this paper proposes various possible means of prevention. In the matter of resolving deadlocks resulting from the third situation in particular, the current author proposes capital-withdrawal as the advance procedure in dismiss of corporations.II. Handling during the occurrence principally concerns mediation and arbitration.III. In view of the specific issues of the application of the laws in the context of Sino-foreign joint ventures, the section covering ways to resolve the situation resulting from corporation deadlock not only presents the traditional judicial approach but also suggests an innovatory administrative approach. The author proposes the application of the provisions for the termination of corporate contracts as a foundation for the dissolution of the corporation itself. The thesis examines the key issues to be taken into consideration in cases of corporate dissolution, both in order to ensure adherence to the original purpose of the legislation from a judicial standpoint, and in order to meet with the requirements for corporate dissolution, as well as the exercise of judicial dissolution.