On Judicial Review In Shareholder’s Derivative Action Settlement

The PRC Company Law regulates the shareholder derivative action, and Article 149、Article 151 and Article 152 in the law provides the plaintiff qualification and preceding procedure. However, there are no express provisions on the settlement or judicial review in this law. Countries around the world all regulate the judicial review in shareholder derivative action settlement and accumulate abundant experience. It’s worth for us to learn from them. Based on the legislation of other countries and practice experience, the author analyzed the concept of shareholder’s derivative action settlement, legal theory and its characteristics. The author discussed the legitimacy of judicial review and criteria. The settlement in this paper refers to the course of proceeding and plaintiff and defendant expect the corporation. On the other hand, the corporation has the right to know and object about the settlement. This paper is composed of four parts as follows except the introduction and epilogue:The First part is the system of shareholders representative litigation settlement basis. This paper introduces the shareholder’s derivation action settlement. The author discussed the concepts of settlement before and in the lawsuits and limited in the “settlement in lawsuit”. Then the author analyzed the basis on procedural law and company law of settlement, following the legal characteristic of the said settlement, including support of disposition rule in civil law, the restriction on party’s right of disposition from court, support of the principles of equity and efficiency; at the same time, the author analyzed the protection of order and reputation of the company, the balancing about the interests of the various parties in the corporation is the basis for the company law. After that, the author proposed some characteristics compared to the general settlement, including conciliation rights restriction, the consequences of a settlement belonging to the company in the company as well as the multiple constraints on the effectiveness of the settlement agreement in three aspects.The second part is the justification of judicial review in the shareholder lawsuit settlement analysis. From the shareholder lawsuit settlement with the object of judicial review, the complexity of shareholder’s derivative action reconciliation of interests, legal restraints on the abuse of shareholder’s derivative action reconciliation to discuss the legitimacy of judicial review of the reconciliation of the Court. It’s not impossible for the court to review all the corporate disputes. The court’s object in reviewing is special. The shareholder derivative action can be subject to judicial review so as to the settlement. Conflict of interests exists between the parties in the process of shareholder derivative action, such as the conflict between shareholder and manager, shareholders, creditors and manager. After examination and approval of the Court, the agreement has the force of law. And one party may not the same facts or reasons to access to the Courts in general. Shareholder derivative action settlement could be easily abused by the plaintiff, defendant or lawyers. It ’s necessary for the court to review the shareholder derivative action settlement if the company couldn’t manage well.The third part includes the proper standards of the settlement system of shareholder’s derivation action. In this part, the author made a comprehensive introduction on the legislation on judicial oversight in shareholder’s derivation action especially the United States. The United States has accumulated a wealth of experience in practice especially in judicial review. The court in the American could use different standards on the adequacy and reasonableness of the settlement agreement. The United States of the principles of corporate governance of the 7.14(b) provides that if the settlement to balance the various interests and in line with public policy, the settlement should be approval by the Court. At the same time, the courts should review whether the company can obtain a net benefit, including pecuniary and non-pecuniary interests. After that, the author proposed that the court should use these criteria when review the shareholder’s derivative action settlement: whether the parties are willing to settle, whether the corporation can get net benefits from the settlement, whether it is the company that will obtain the money compensation, and whether the amount of compensation in settlement is correlated to the money which corporation could obtain from the judgment.The last part brings forward the rights’ protection of other shareholders. There are complex relationship between the plaintiff, defendant and creditor. While it’s not true all of them could attend the settlement. In the author’s opinion, although the company and other shareholders haven’t the right to make a settlement with the defendant in the shareholder’s derivative suit, they could take part in the settlement as stakeholders who have a close relationship with the lawsuit. In the process of judicial review, the court should send out a notice to the company and other shareholders to let them know the settlement and the rights to object. It’s the court’s responsibility to inform them and the ways are different. The notification to the corporation shall be made in writing and the shareholders of the listed company announcements can be used for notification. The corporation and other shareholders have the rights to appeal against the settlement and provide evidence to prove their opinion. The court plays a neutral role in the hearing.