Research On Fundamental Problems Of Appraisal Actions Of JSLC In M&A

Appraisal right,or appraisal remedy,refers to the statutory right or statutory option of dissenting shareholders to withdraw from the enterprise and receive fair value for their shares whenever the majority shareholders changed the fundamental nature of the enterprise,inter alias,mergers,consolidations or other fundamental corporate actions.Viewing from the evolution of the appraisal mechanism in both the US and Japan,appraisal litigation is now on appraisal's function as a check on managerial and controlling shareholder's conduct — much of it involving listed companies.The US and Japanese success with appraisal proves that appraisal can play a critical role in modern corporate law and governance—at least within Merger and Acquisition(hereinafter M&A).In contrast,though originally an American transplant,appraisal in Joint Stock Limited Company(hereinafter JSLC)has not yet taken root and blossomed in China.Other than mentioned as “developing the appraisal mechanism in China” in SEC's Guideline on Delisting(2014),there is little academic interest or practice on the same subject in listed companies or JSLC's context.Obviously,appraisal right is best-suited in Limited Liability Company(hereinafter LLC)now,which functioned as “fair exit or liquidity purposes”,however,the same mechanism is ill-suited in the JSLC settings.As such,through lens of comparative corporate law,this Dissertation mainly focuses on the fundamental problem on perfecting the appraisal litigation in China,and the “non-contentious”litigation procedures will also be described at some length to fill a gap in the literature,hoping to achieve the purpose of protecting the legitimate expectation of shareholder who object to a merger and to fully compensate shareholders for any loss they may suffer as a result of a merger.Through Auction Theory and Game Theory,Chapter 1 proved that the appraisal right shall be the type of minority shareholder remedy of utmost significance,which protects minorities in compulsory buy-out or other type of forced-out transactions in listed companies;meanwhile,it sets the de facto reservation price for the acquirer,forcing them to offer a higher price upfront,and threaten the unfair transactions on the outset.As a result,agency cost otherwise has therein may be significantly reduced.On the other,through fair and accurate judicial appraisal ex post,the minorities' expectation of investment would be better protected.Having considered the inefficiency and manipulation of the price-discovering mechanism of the stock market,it would be necessary for the judiciary to intervened in these type of cases.The rest part of the Chapter also proves that the non-contentious proceedings,which is common in civil law system but has not been developed in China until now,are most-suited for appraisal act.Therefore,this part analyzes the necessity for developing the non-contentious lawsuits,for shortening the period of the dispute resolution and allowing the discretion for the judge.Chapter 2 focused on the problem of the parties in appraisal actions,and the procedural requirements and relevant issues under the Companies Act would be analyzed.On one hand,to perfect his appraisal right,the dissenting shareholder must give notice of his intention to dissent in the proposed M&A transactions to the corporation,and do so before the shareholder meeting at which the shareholder resolution on the appraisal-triggering corporate change would be vote upon.He might vote against the resolution in the meeting,and serve a demand for appraisal on the corporation during the appropriate period,and with this demand the corporation becomes legally bound to repurchase the shares tendered.This part proves that these procedural requirements shall be devised in a way as simple and clear as possible,and the court shall be allowed has discretion to review the fulfillment of the requirementsas he deemed fair,easing the burdens for dissenters who otherwise would be rather reluctant to invoking their rights.Chapter 3 then analyze the standard by which the fair price in appraisal actions is determined.Only after Weinberger v.UOP.Inc.in 1983,the Delaware Chancery Court starts to develop ‘fair value' case by case,and employs the appraisal methods‘generally recognized by the financial communities',unleashing a torrent of litigations.Thus this part argues that legislator in China shall adopted the modern appraisal method in the future reform as well and and the court shall try to understand the characteristics M&A and try to find the best-suited type of the appraisal method it deemed fair and accurate.The last Chapter then focuses on cost-sharing rules,rules on prepayment of share price and interest payment.With regard to rules on prepayment of share price,this part argues that such rule shall be compulsory since it may benefit the company and easing the financial burden for the dissenting shareholders,who might otherwise get“budget locked-in” during the proceedings.Then,having considering the fact that interest payment might have great impact on dissenters' incentive to launch the lawsuits in advance and prevent the company from unjustly enrichment,such rules shall be devised as fair as possible,and fixing the interest rate at the prime rate might be the workable solution.Not least,cost-sharing rules shall leave the discretional power for the court,and allow them to decide the way of distribution in each case and the in a way they deem fair.