The Analysis Of Xiongmao V. Hengsheng Case

As the development of economy and the professionalization of corporation continues, a growing number of shareholders are turning to simply owners. Shareholders seek the maximum of benefits. However the maximum benefits of shareholders are not always the maximum of the directors. Thus the conflicts between shareholders and directors are inevitable. The interests of shareholders can be sacrificed when it conflicts with the directors’. Hence, a high efficient mechanism is strongly necessary. As a important part in this mechanism, the inspection rightallows investors to check the basic background information as well as the condition of the company. Through the realization of the supervising management, the inspection right helps shareholders to protect their own interests. The Chinese Company Law Art.34 also includes the Shareholder Inspection Right, specifying five unconditional circumstances for ordinary information and one conditional circumstance for special ones. However, this simple stipulation is often criticized for its vague definition and poor applicability, which can hardly adapts to various complex situations in judaical practice.In the case of Xiongmao v Hengsheng, the defects of the Company Law are very obvious. Xiongmao is the one of the two shareholders of Hengsheng holding 50% of the shares. However, Xiongmao doesn’t participate in the daily business. The requests of inspecting the accounting information were refused by Hengsheng. Hengsheng claimed that Xiongmao had an improper purpose.Hengsheng claimed that there is no relevant clause in the Company Law so that the requests of inspecting other relevant information were also refused. Therefore Xiongmao began to seek justice. There are two main aspects of this case. One of them is to evaluate whether the purpose of Xiongmao is proper. The other one is the definition of the scope of the Inspection Right. These two are also the two main arguments of the Art.34. Vagueness in legislation lead to the conservatism of Beijing intermediate people’s court in the specific application which caused the injustice to Xiongmao. The purpose of legislation failed due to the imbalance of interests.Therefore, through the comprehensive analysis of the nature and legislative value of the inspection right of books and records, as well as the specific details of this case, the conclusion comes that the request of inspecting the accounting information is proper and should be supported and the request of inspecting financial statement reports should be partly supported.