The Constraint Mechanism Of Shareholder's Derivative Suit

Shareholder derivative action, also known as shareholder representative litigation, means shareholders could be in their own name for the interests of the company to sue if the company does not initiate proceedings against a person who hurt the interests of the company. In all kinds of methods of protecting the shareholders' interest, derivative litigation is the most important one. It is used firstly by those common-law countries in order to protect the individual property And in the common-law countries, Shareholder derivative litigation still play an important role, but as derivative litigation have unique advantages in the prevention of conflict of interest, particularly the protection of minority shareholders, therefore, since its birth, it went out of those countries into the worldShareholder derivative litigation gives shareholders the right to start a lawsuit against the company managers, even the company. Absolute power is bound to lead to corruption, and the right will be abused if not binding. Derivative litigation will be abused if no binding. Practice has proven that the history of the derivative litigation being abused is as long as the derivative litigation itself. Some shareholders might be like to sue. Some may start litigation at the base of inadequate information. Derivative lawsuit may be in pursuit of their own interests sued improper, or even instigated by lawyers for the pursuit of high expenses.How to ensure that the derivative litigation is not abused and how to establish the binding mechanism of the derivative litigation which is two problems legislators must consider.Referring foreign advanced legislative experience .in the 2005 revision of the Company Law, we introduced the shareholder derivative litigation system. However, it is very simple and the only rule is not scientific. The provisions about the derivative litigation are inadequate. In order to give derivative litigation better conditions to play the role of preventing to the conflict of interest and the protection of shareholders right, especially minority shareholder. It is necessary to study deeply the restraint mechanism of derivative litigation. Referring to foreign advanced legislative and judicial practice and in light of China's actual situation the author will study the advantages and disadvantages about the binding mechanism of shareholder derivative litigation. The author hopes that the shareholder derivative litigation plays an important role in our country.This paper is divided into five parts:Part I: birth of shareholder derivative litigation and its significance Study the birth of shareholder derivative litigation is to solve two major problems. First, when a natural people's rights and interests have been infringed upon, the law does not allow others to sue bad man to protect interests of the victims but allows shareholders to initiate proceedings to protect the interest of company. Secondly, what are the problems that shareholders derivative litigation need to solve? The author draw the conclusion that, because the separation in interest between the company and natural persons who constitute the company authority is likely to lead to the violation of the interests of the company and no one would protect the interests of the company.By studying the meaning of Shareholder derivative litigation, the author aims to show that the shareholder derivative litigation system is positive, and restraint does not contain refusing and its aim is to protect.The author derived from the general significance of the proceedings, and the comparative advantages and its special significance in our country.Part II: analysis of the necessity of constituting the binding mechanism of shareholder derivative litigationThe author talks about the necessity mainly from two aspects. The first perspective is the limited functionality of derivative litigation .First of all, compared to the market and administration, shareholder derivative litigation have some disadvantages. So the derivative litigation should exercise restraint and give other mechanisms of preventing conflicts of interest enough space. Then, in accordance with China's reality, the author explores the validity of derivative litigation in our country.Binding, in accordance with the "Modern Chinese Dictionary" means process and the interaction among the system of work organization or part. As to derivative litigation, the establishment of the binding mechanism of derivative action the author imitates the system of checks and balances by separation of powers .It is necessary to gives all people the right obligations and responsibilities in the proceedings, which will reach in the interactive constraint and the purpose of checks and balancesPart III: binding on the plaintiffFirstly, we should abandon those illogical and harmful restraint standards. Through the review whether the plaintiff represented fairly and adequately the interests of the company or not, the court decide whether or not to allow prosecution of the plaintiff's rights. Secondly, the cost of compensation to the plaintiff should impose restrictions, in any case, not allowing plaintiffs and lawyers to additional benefits through litigation. Thirdly, should make it clear that under certain conditions, the plaintiff should shoulder the responsibility for the defendant and the company. Finally, the defendant has the right to request the plaintiff to provide guarantees, if eligible.Part IV: the defense from companyFirst of all, I fully affirmed China's "Company Law" provisions of the absolute principle of the request. At the same time, I believe that the request should first appeal to the Board, rather than to the board of supervisors. Secondly, I believe that our country should introduce the commercial judgment principle to protect company's directors and other management staff. Give the company the right to request the court reject derivative litigation. To the complaint, the court review by different standards. Its purpose is to strengthen the balance from company under the review of the court.PART V: control from the court on derivative litigationFirstly, the courts play an important role in the derivative litigation. Secondly the Court focused on the review the settlement agreement approved by plaintiff and defendant. By the supervision of the courts, it is to prevent the settlement agreement become a defendant responsibility haven.