Research On The Limitations Of The Reinstatement Of Voting Rights Of Preferred Shares And Overcome The Limitations

Since the end of 2013, 23 companies have issued preferred shares in our country. And preferred shares pilot program already gets certain effect. The preferred shares has been developed for many years in the United States, Japan and other developed countries. However, it is in the initial stage in our country. At present, to regulate the approval, issuance, and listing of preferred shares, the government is mainly based on the "Company Law" and the "Preferred Stock Pilot Management Approach(Hereinafter referred to as “The Regulations”)" and lacks perfect lawful regulation to protect the interests of preferred shareholders.In the current issued preferred shares in our country, the non-voting preferred shares dominate because preferred shareholders obtain priority in dividend and residual properties at the expense of voting rights. But common shareholders of the company vote to determine dividend policy, in order to avoid the unfair dividend policy, the reinstatement of voting rights of preferred shares is determined in the form of law to protect the interests of preferred shareholders such as in Germany, France, Japan, etc. In our country, while introducing the preferred shares mechanism,the reinstatement of voting rights is also incorporated into "The Regulations". However, at present,only article 11 in “The Regulations” makes provision for the reinstatement of voting rights, which makes the preferred shareholders lack of the protection of the law.Although the voting right could be restored if the company doesn’t distribute dividend intime, the reinstatement of voting rights is not preferred shareholders’ investment purpose. Thus, it is necessary to search other alternative remedy measures to overcome the limitations in this case.Due to the fact that the domestic research on this question exists many blank, the author wants to remedy the loophole of the reinstatement of voting rights via systematically elaboration and analysis to protect the interests of preferred shareholders. In this paper, combining with the foreign relevant legislation and practical experience, and based on the data about preferred shares in our country’s capital market, we make a systematic study about the features and limits of the reinstatement of voting rights by the method of comparative research and empirical research.In the first part of this paper, based on the reinstatement of voting rights of preferred shares,we analyze the legal condition and agreed condition that trigger the reinstatement of voting rights,and also study the conversion provisions in preferred shares voting rights. The mechanism of the reinstatement of voting rights in the legislation and practice and the influence of preferred shares on preferred shareholders’ equity are also researched as the groundwork for following discussion.In the second part, firstly, we make analysis about the features and functions of the reinstatement of voting rights. The reinstatement of voting rights not only benefits interests balancing between different categories of shareholders but also drives the company to pay dividend on schedule.Secondly, the disadvantages and drawbacks of the reinstatement of voting rights are analyzed, the functions of the reinstatement of voting rights are not always in effect. As an "after event remedy mechanism", the delay property of the reinstatement of voting rights, and the weakness voting rights of medium and small shareholders make the interests of preferred shareholders can not be guaranteed. In the thirdly part, combing with the foreign relevant legislation and practical experience, based on the situation of our country legislation, we try to search other remedy measures to overcome the limitations of the reinstatement of voting rights. And the remedy measures which I have searched are as following: the policy of mandatory dividend, cumulative dividend interest measures and judicial remedies of dispute of dividend distribution, and restriction mechanism of fiduciary duties on directors and shareholders. These measures could be used for protecting the interests of preferred shareholders.