Research On Legislative Regulation On The Duties Of Directors In Company Groups

As the development of economy, the situation of group companies has becomemore and more common. The role and status of it is getting more important butactually it comes a series of legal problems. One key problem is how to protect theinterest of subsidiary companies, minority shareholders and creditors in groupcompanies. The author has held the post of legal counsel in a large listed groupcompanies. The author finds that the group companies always implement generalstrategies by a series of internal transactions among subsidiary companies where theboard of directors put it into practice by resolution. The author always receivesconsulting from subsidiary companies about whether they could implement thestrategies of parent company by resolution and whether it violates the legal duty ofdirectors. The directors are afraid that once the parent company asks, it will makeinterest lost of subsidiary companies. And finally it will be the lost of minorityshareholders and creditors. This is the problem which has puzzled author for a longtime.Therefore, the key problem to be solved is that when the directors of group areperforming duties, how to keep balance under the situation that once there is a conflictbetween the overall interest of group and individual interest of subsidiary companies.On the one hand, as the representative of shareholders, directors should reflectshareholders’ will and do what shareholders require. But on the other hand, directorshave the fiduciary duty and should follow the principle of serving the company interest and shouldn’t violate it.To the author’s point of view, when the directors are making a decision, theyshould firstly consider the position of subsidiary companies and ensure their interest.And on the basis of that, directors can appropriately consider the interest of parentcompany or the group companies. Here, there is general understanding about theinterest of subsidiary companies, which includes direct interest and indirect interest.The author demonstrates it according to the fiduciary duty of directors, independentontology of subsidiary companies, some legal precedents and cases of statutory law.The author tries to establish a judging standard for directors’ behavior which canidentify the rang of safe execution of duty and in what kind of situation the directorswill be called to account.There is frequency of connected transactions in group. To eliminate directors’embarrassment and to diminish directors’ responsibility, author thinks that it can beavoided by directors-related challenge system. And this system is the easiest and themost efficient way of solving the duties of directors in group. Because of thelimitation of this system, it should be gone with the judging standard for directors’behavior.In addition, the author thinks that apart from the responsibility that the directorstake, there should establish accountability system for controlling shareholders. Fromthe view of controlling shareholders, once the convey of connected transactioninterest is restricted, directors have right to refuse. Because controlling shareholdersdon’t have the proof of requiring directors. Moreover, the responsibility thatcontrolling shareholders take is more than director himself, and minority shareholdersor creditors are more willing to call to account from controlling shareholders, fromwhich the possibility of getting compensation is increased.This paper includes4chapters. The first chapter is the definition of groupcompanies, the description of legal features, which tells the conception of groupcompanies and introduces the current situation of legislation of group companies indifferent countries. The second chapter is the introduction of duties of directors, whichincludes duty of loyalty, duty of diligence, duty of executing power favorably, duty of preventing bankruptcy trading, duty of information disclosure, and special duty whenthe belonging company has become the acquisition target company. The third chapterrefers to the key point of duties of directors in group companies. It introduces twodifferent solving strategies, and related legislation and judicial precedents. And on thebasis of it, it introduces the author’s opinion and related suggestions. The last chapterrefers to the current legislation about group companies and duties of directors, and theauthor’s suggestions.