Directors Of Civil Liability Against The Third Study

In modern company, as the core position of Board of Directors is established through the isolation of management from ownership, directors' power continues to expand. In order to protect shareholders', creditors' and other third parties' interests from directors' abuse of power and indolence in carrying out their duties, both common law countries and civil law countries establish the legal rules of Director liability to the Third Parties(DLTP). But there is not such a legal mechanism in Chinese Company Law, which leads to that shareholders, creditors and other third parties' interests are frequently injured yet unavailable to effective relief. And so, through theoretical analysis, based on as much adequate legal data as possible, this paper introduces the legal mechanism of DLTP in the two major legal systems in the world and discusses the components of DLTP. In the end, some legislative suggestions are put forward after an analysis of China's present situation on this issue.The paper is divided into five parts except the Preface and Conclusion:In Part Ⅰ, the author discusses DLTP from three aspects: the necessity to protect the interests of shareholders, creditors and other third parties; the need of effective regulation of director's activities and prevention of directors' abuse of power; the requirement of balancing interests between interests-related parties.In Part Ⅱ, the author introduces the legal mechanism of DLTP in the two major legal systems. According to the traditional theory and judicial precedents of common law, directors' obligation to third parties outside of a company is denied. So directors are usually not held responsible for third parties. But with the development of company' scope and expansion of directors' power, due to the needs to protect third parlies, in common law, judicial precedents began to interpret 'company's interests' in a broader sense: shareholders, creditors and other third parties' Interests are all included into it. And then, directors are obligated to pay enough attention to third parties' interests, or else, they would be held responsible. In continental law countries, both the Japanese and South Korean law provides that directors and company would bear joint liabilities if they carry out their duty with ill will or with major negligence.Part III is the main focus of the paper. The author demonstrates in detail the nature and components of DLTP. As for its nature, judicial practice in common law holds that negligent tort is the basis for DLTP, but in continental law, the nature of DLTP are generally held as statutory responsibility. And the author discusses its components from 3 aspects: subject requisites, subjective requisites and objective requisites.As for the subject requisites, the author lists liable directors as the following: directors with representation, director without representation, outside directors, real directors and shadow directors. Third parries include shareholder, creditors, employees and etc. Besides, third parties are not limited to those who are directly related to the companies where directors hold post, they also include shareholders, creditors and employees from the companies' subsidiaries.As for the subjective requisites, the author holds that directors are liable to third parties only when they are ill willed or when they carry out their duty with major negligence. In addition, there should be a different criterion even for different kinds of directors. For ordinary directors, strict objective criterion should be applied, which means to judge directors' responsibilities according to a prudent common human's common sense; but for independent directors, subjective criterion should be applied, which means to judge whether to mitigate their liability according to their ability, knowledge, experience and etc.As for the objective requisites, the injuries of third parties must be caused at a time when directors are carrying out their duties. Injuries to shareholders must be direct, indirect injuries should be remedied by representative litigation. But for the other third parties, direct and indirect injuries are all covered. Likewise, shareholders are limited to direct causality and other third parties both direct and indirect.In Part IV, the author analyses the current situation on the issue in China. It points out that, in China, directors' authority is not supervised and controlled effectively. There are still handicaps in theory and deficiencies in legislation, which results in the slow development in judicial practice.Some legislative suggestions are put forward in art V. It holds that DLTP should be stipulated in the revised Company Law, so as to protect third parties'interests effectively. Legislation should take a generalizing approach. It should first list some specific situations when directors be liable. At the same time it should also have a general provision that provides that directors and company would bear joint liabilities if directors carry out their duty with ill will or with major negligence. For one thing, such a rule can put some restriction to directors' conducts and offer clear legal base to judges' practice and for another, it can also make up the deficiency of legislation.