Study On Juristic Problems Of China's MBO

Management Buyout (MBO) is a kind of juristic act that management staffs of the target company purchase the company's shares by their own assets and a great deal of loans in order to change the company's structure of proprietor and gain control of the company. It appeared in UK on 60s to 70s of 20c, and then spread to USA, the mainland of Europe and other nations in a short time. However, nations carry out MBO for different reasons. For instance, the appearance and development of MBO in UK results from its SOE's privatization which is promoted by UK government. Nevertheless, American enterprises carry out MBO in order to achieve strategic acquisition and strip non-core business off. But the reason that MBO appears in China is that it plays an important role in the property right reform of China's SOE. Since management staffs gain control of the target company as the new shareholders of the company after MBO, it helps to resolve the problem of no distinction between the duties of governments and that of SOE, and the problem of unclearly identified property rights. Though MBO only appears in China about 10 years, many enterprises carry it out. However, MBO encounters many setbacks that have a negative influence on its development in China due to the imperfection of legal system and the lag development of financing system and property rights market. Therefore, the thesis analyses juristic setbacks and difficulties that MBO encounters in China and presents relative legal advices in order to help the development of China's MBO.The first part of the thesis observes fundamental juristic theories of MBO. First of all, it introduces some representative concepts of MBO which are defined by scholars from home and abroad. Then, based on the analysis of MBO's characters, the author defines MBO. After that, the thesis introduces theoretical foundations of MBO, which could be divided into two different schools, namely "value creation school" and "wealth transfer school". Moreover, the thesis introduces three theories that belong to "value creation school", those are: "agency cost theory", "property right incentive theory", and "shared economy theory". Based on the fore-mentioned analysis, the thesis concludes that the reason for performance improvement in target enterprises after MBO lies in value creation or wealth transfer or both of them.The second part of the thesis observes general developing situation of MBO and laws that regulate MBO in different nations. Specifically, the thesis chooses UK, USA and Russia as representatives to interpret this issue. Furthermore, as the thesis mainly focuses on China's MBO, it specifically introduces the situation and laws regulating MBO in China. The process of China's MBO could be divided into three phrases. Namely, initial phrase(1999—2000), fast developing phrase(2001—2003) and corrective and remedial phrase(up to the present). And laws regulating MBO include "the Corporation Law of China", "the Securities Law of China", "Administration of the Takeover of Listed Companies' Procedures", "the Interim Provisions on the Transfer of State-owned Property Rights of Enterprises to the Management Staff" and so on and so forth.The third part of the thesis elaborates juristic problems that MBO encounters in China, which include juristic problems concerning purchasing subject, financing and transferring state-owned property rights of enterprises.Firstly, main forms of China's MBO subject include committee of shareholding employees as purchasing subject, natural persons as purchasing subject and Paper Company as purchasing subject. But all of fore-mentioned forms have their own juristic problems.Secondly, the thesis introduces financing methods of foreign countries and our nation. Specifically, financing methods of foreign countries include debt financing and equity financing. However, financing methods of China's MBO include management staffs' own assets and personal credit private financing, committee of shareholding employees, shareholders' rights mortgage, financing by trust and government favorable policies. But all of fore-mentioned financing methods have their own juristic problems.Thirdly, juristic problems of transferring state-owned property rights of enterprises include pricing mechanism and information disclosure system and laws that prohibit MBO in the way of trust, etc.In the fourth part of the thesis, the author presents some legal advices to improve China's MBO. The first advice is that legislations concerning MBO should abide to the principle of "justice, justness and publicity" and the principle of "balanced interests". Moreover, the fourth part also provides some reasonable legal advices respectively to solve the fore-mentioned subject problems, financing problems and problems of transferring state-owned property rights of enterprises. Specifically, the thesis suggest to set up a special committee to lead evaluating and pricing of state-owned property transfer and to establish open bidding as uniform procedure in agreement transfer of state-owned property.