On The Study Of Judicial Intervention Of Internal Governance In China’s Listed Companies

In the current situation of internal governance, a dominating stock and internal control exist in the listed companies of China, so the monitoring feature of the autonomy system is vacant. Defects of the listed companies’autonomy need an external monitoring mechanism to compensate, so the judicial intervention as an important force of external monitor is an essential element in the system of governance of the listed companies. As an external monitoring mechanism and remedies, the importance of judicial intervention for the internal governance of listed companies is not to be sneezed at. In order to ensure the companies’vitality and creativity so as to avoid excessive intervention of the listed companies’autonomy, the article needs to be addressed in the problem that how to make judicial intervention hold a reasonable limit. But in China’s judicial practices, the judicial proceedings involved in listed companies which are business entities involved in the various interests. In practice, the vast number of retail investment failure to initiate judicial proceedings, the judicial activities encounter dilemma that it’s not indiscriminate but rather hard to involve into disputes of the corporate governance in the listed companies. The article needs to solve another problem that which kind of intervention path we have to choose in order to overcome the dilemma. The article will use three parts to elaborate the problems:The first part has the analysis of the legitimacy of the judicial intervention in internal governance of listed companies. In the current management’s situation of one dominating stock as well as the internal control, the internal control’s function of the listed companies’board of directors, independent directors, and the board of supervisors was unable to give full play to. Compared with other types of companies, monitoring of listed companies’governance has the more urgent need to rely on external force including markets, justice and administration. Compared to the anther external mechanisms including the market monitoring and the administration monitoring, judicial intervention monitoring is more effective for the listed companies in China. This is a listing of legitimacy that the judicial intervention has in the listed companies’internal governance. The other manifestation is that the judicial intervention can provide a relief for participants out of balance of interests. In listed companies, the right of management and ownership are separated. Internal control and the absence of internal control status of governance will certainly bring about the benefits’imbalances between large shareholders and the interests of minority shareholders, managers and owners. The benefits’imbalances of minor shareholders and the owner come from autonomous mechanism of incomplete, so it requires judicial intervention to provide relief.The second part is about the limits of judicial intervention in internal governance of listed companies. Judicial intervention is a limit intervention in order to respect the autonomy of the company, the limit which is "doing all internal remedies" is also a prerequisite for judicial intervention. Confining scope of intervention can apply the rule of business judgment, in principle it only can use the program and avoid the substantive intervention of interfering with normal business decision. The three guidelines of judicial intervention are actually a specific explanation of the procedural intervention. Of course, in the context of internal governance of listed companies, there are exceptions within the scope of the principle. As a typical example of disputes to dividend distribution request, the exception is mainly in the case of that the controlling shareholders of listed companies take advantage of the rule of capital majority to manipulate the company’s decisions which prejudice the legitimate interests of others, and injures have exhausted the internal remedies. In this situation, the justice can make substantive interventions to the unfair business decisions of the listed companies.The third part has analysis on the choice of path for the judicial intervention in internal governance of listed companies. In the judicial practice, compared with other companies the biggest difficulty of judicial intervention of listed companies in China is the lack of dynamic mechanism. This is because the "free riding" mentality of the majority of retail investors. Facing to the imbalances between high costs and uncertainty of litigation they often choose "feet" to vote. Usually the investors tend to rely on administrative organs to solute corporate governance disputes which are mainly in form of securities disputes. Combining with the relevant legislation and practical experience, the scholars recommend learning from group litigation and the introduction of a non-litigation procedure to perfect the path of judicial intervention in the corporate governance. As one of the paths for judicial intervention in listed companies, compared with joint action and non-litigation procedure, the group litigation can partly to overcome the dilemma of judicial intervention because it can control costs and bring out the determine and direct interest. Therefore, as the path of judicial intervention in listed companies, the group litigation is the most optimal selection. Using the path of group litigation can overcome the dilemma of lack of dynamic mechanism, but the indiscriminate lawsuits that are brought by the excessive use of the group litigation should be noted.