The Analysis On Director’s Duty Of Target Company In Merger And Acquisition

In recent years, with the fast development of our capital market, Mergers andAcquisitions (hereinafter referred to as “M&A”) have being used more and morefrequently. M&A between companies will not only promote the reorganization ofresources, but also create a healthy and lively market.However, when we focus on the advantages brought by M&A, we shall also payattention to the risks, upon which we easily look down. If the relative subjects,especially the directors of Target Company, fail to fulfill their obligations ruled bylaws and regulations, then it may result in heavy losses of Target Company andshareholders. What’s more, the existing provisions on the duty of directors in M&Aare too general to regulate their behaviors. Even if directors of Target Company havetaken some measures, which are harmful to the development of Target Company andthe benefits of shareholders, there aren’t any specific standards and rules to judgewhether what they have done is legal or illegal. Therefore, it’s necessary andimportant for our country to build up the legal system, to control directors’ behaviorsin the process of M&A.The main content of this paper can be divided into three parts, which follow theline, from detecting the problem, analyzing the problem to resolving the problem.Part One, starting from the analysis of legal basis, firstly introduces the latestM&A data, and analyze the development tendency of M&A. Then, it points out that, basic on the influence brought by directors of Target Company. If M&A is successful,directors of Target Company may lose their jobs, which will damage the directors’fundamental benefits. Therefore, there is necessity for us to regulate directors’behaviors.Part Two, starting from the analysis of the existing laws and provisions ondirectors’ duties in M&A, mainly discuss about basic loopholes of our legal system.And then, it point out that, due to aforementioned loopholes, directors’ behaviorswhich should have been controlled, haven’t been regulated effectively, and we shallformulate specific rules.Part Three, starting from the analysis of British and American classic cases,discuss about how to build the perfect legal system on directors’ duties of TargetCompany. Directors’ duty, include Duty of Loyalty and Duty of Care. In the processof M&A, apart from the general rules on directors’ duty, directors of Target Companyshall comply with the following ones. As for Duty of Loyalty, directors shall putforward anti-takeover measures cautiously. Besides, we shall set up avoidancemechanism to figure out conflict of interests in management buy-out (MBO). As forDuty of Care, directors shall make necessary due diligence and disclose M&Ainformation to shareholders. Besides, they shall fight for the optimal takeoverconditions for shareholders, when M&A may be inevitable.