The Director’s Duties In The Course Of The Company’s Change Of Control

With the growth of the capital markets, there are more and more M&A transactions in our country. Through the merger and acquisition transactions, companies could get expanded. So it becomes a great choice for those corporations which are faced with financial difficulties. However, complex M&A transactions are filled with game of interests. Especially in the course of the change of control, the deal is still full of variation and conflict of interests.On May 22 rd of 2014, two of Chinese largest entities in real estate market, SUNAC and GREENTOWN, announced that they have signed an agreement, which means SUNAC would acquire 24.313% shares of GREENTOWN. But after half a year, this biggest transaction in real estate market ended with failure. In the transition period of this transaction, the director of boards in GREENTOWN, Song Weiping, removed the management team that SUNAC put into the WFOE of GREENTOWN on behalf of original shareholders. And finally it caused to the termination of the deal and Song got back the management right. This case is not complex, but it reflects the shortage that there is no regulation about the directors’ duties in the course of company’s change of control. Song’s behavior challenged the director’s duties in traditional company law. Because the theory of director’s duties under the traditional company law didn’t cover the transition period and couldn’t explain the disputation in this case. It’s a question that how to apply the traditional company law theory to explain the new situation. Especially those share transfer transaction about the status concurrence of controlling shareholders and directors. We want to know how to definite their duties and boundary of the authority. We also wonder what the director’s duties are for.This thesis takes the conflict of management right in SUNAC acquiring GREENTOWN as the example. By summarizing the definition of director’s duties and the company’s change of control, we try to find the difficulty about director’s duties theory in new era’s background combined with the case. Then according to the summary of the theory and practice of the director’s fiduciary duties in other field of law, we will put forward some constructive suggestions for Chinese deficiencies in practice, especially the legislation, contract drafting and judicial adjudication against the director’s duties in the transition period in company acquisition.The introduction part presents the origin of the topic by sketching the cause, progress and consequence of the case of SUNAC acquiring GREENTOWN. Then it summarized the status and main academic theories at home and abroad. Also, it introduces the main research methods in this paper, such as normative analysis method, comparative method, law and economics research method and so on.The main content of this thesis is divided into four chapters, which follow the line, from detecting the problem, analyzing the problem and resolving the problem.Chapter I, started from the production of what the change of control is and the role of director in this process, including the obligations to convene shareholder’s meetings, obtain government’s approval, maintain the stable operation of the target company and so on. Then through the key point of SUNAC acquiring GREENTOWN, put forward the difficulty of the application of director’s duties and the empty of the regulation of the fiduciary duties of directors who is not only director but also shareholder.Chapter II starts with the analysis of the origin of director’s fiduciary duties, including the trust theory and the agency theory, and the dualism of duty of care and duty of loyalty. Then we introduced the mechanism and practice of director’s fiduciary duties in other countries or regions, such as the U.S, U.K, Germany and Japan. Finally put forward the requirement of director’s fiduciary duties in the course of change of control generally which is the strict care and strict loyalty.Chapter III is analysis about the case of SUNAC acquiring GREENTOWN based on the theory of director’s fiduciary duties. Then we will discuss the principle, range and object of director’s fiduciary duties from a new view. Under the background of company’s change of control, the principle of fiduciary duties of directors should not only apply “form”, but also depend on standard of substantial. The range of fiduciary duties of directors should not only include assets, but also cover the change of personnel. And the object of fiduciary duties of directors should be company not shareholders or other stakeholders.Chapter IV firstly presents the theory of fiduciary duties of directors and the current situation and shortage of the legislation in China. Then it introduces the importance of regulating the director’s fiduciary duties in the course of company’s change of control. Finally we come up with some feasible proposals from the angles of legislation, contract drafting and the judicial adjudication. In legislation, we need to bring in the fiduciary duties of shareholders and expand the explanation of disgorgement. In contract items, we suggest to add the clause of “purchasers’ agreement” and “break-up fee”. In administration of justice, we can apply the Business Judgment Rule and shareholders derivative litigation.