Theoretical And Practical Research On Share Repurchases

On October 26,2018,the sixth meeting of the Standing Committee of the 13th National People passed "Amendment(Draft)to the Company Law".The main content of the amendment is to amend and perfect the Article 142(share repurchase clause)of the company law from three aspects:first,to supplement and perfect the situation of allowing share repurchase;second,to simplify the decision-making procedure of share repurchase,to raise the upper limit of the amount of shares held by the company and to extend the period of holding the shares repurchased by the company;third,to supplement the standard requirements of share repurchase of listed companies.The academic discussion of share repurchase can be traced back to the 1990s,and the discussion mostly advocates that China's company law should take a more positive attitude towards share repurchase.After the amendment was issued,rumors said its purpose was to save the market.This paper chooses the modification of share repurchase clause as the starting point,and finds that the change behind the modification is actually the change of the company's capital concept:it is a change that the used capital credit concept is transforming to the asset credit concept,because the latter is more efficient.The relaxation of the prohibition of share repurchase reflects the relaxation of the doctrine of capital maintenance.However,compared with foreign countries,China is careful to expand the situation of allowing share repurchase:only adding "stable operation",but not introducing the defensive repurchase commonly used in the U.S.market.Because of the two-sides characteristics of share repurchase,China should develop the useful points of share repurchase and avoid its negative points.As the information asymmetry in open market share repurchase would cause market manipulation and securities fraud,it is a worldwide problem to supervise share repurchase.Currently,"safe harbor" is an effective model with the standards of timing,price,quantities and conduct mode.Aside these four aspects,China's stock exchanges set up strict disclosure system,prohibition period system and other means to protect investors and corporate creditors.This paper also finds that under the concept of asset credit,the introduction of "solvency test" is a reasonable and objective way to protect the interests of creditors.Finally,in order to study the judicial practice of share repurchase clause,370 effective documents are selected from 617 judicial documents collected,and three typical cases are summarized.First,in the case of repurchase of limited liability company,share repurchase clause is applied for judgment.This is obviously an error to application.This paper analyzes and points out that some errors are existed in the share buyback provisions of the Supreme People's Court on Several Issues concerning the application of the company law(?).Second,whether the "Valuation Adjustment Mechanism" is invalid due to the violation of share repurchase clause.This paper points out that the "solvency test" should also be used to protect the interests of creditors in this case.Third,whether the company has the right to buy back its shares when the employees leave the company.this paper points out that ESOP itself has a kind nature of welfare,and according to the purpose of its establishment,the company's repurchase right should be affirmed.