Association Of Directors Of Listed Companies Traded Company Law

In a director's conflicting interest transaction, a director or a related person is a partyto the transaction or has a beneficial financial interest in or so closely linked to the transactionthat the interest would reasonably be expected to exert an influence on the director'sjudgment if he were called upon to vote on the transaction effected or proposed to be effectedby the corporation. Considered the influence a director has in the corporation as well asthe conflicting interests between them, the corporation may not be at an arm's lengthin the transaction, that's why this kind of transaction need special regulation of thelaw. Regulation on director's conflicting interest transaction does not merely refer toprovisions directly deal with this kind of transaction, but also rules on directors'responsibilities and liabilities, and on the balance of power inside the corporation aswell. The article discusses the regulation on director's conflicting interest transactionfrom three angles—directors' duty of loyalty, balance of power inside a corporation,and directors' liabilities. Duty of loyalty is an essential duty of each director,according to the special relationship between directors and the corporation and to theprovisions of the law. Since the compliance with the specific provisions on theconflicting interest transaction always means the fulfillment of the duty of loyalty,compared with the safe harbor principle in the United States, China's specificprovisions on directors' conflicting interest transaction are discussed in this part. Asan integral part of corporation governance, the balance of power concerns theallocation of authorities and the mutual restraint among the organs of the corporation.The director who disobeys the duty of loyalty should undertake the relevant liabilities,which is also a way to avoid the reappearance of the same kind of unfair transactionsand to improve the governance structure. These three aspects constitute an integralframework of the regulation on directors' conflicting interest transaction.