On The Legitimacy Standard Of Related Transaction In Corporation Law

The first paragraph of Article 1 of the Provisions V of the Supreme People's Court on Several Issues concerning the Application of the Company Law of the People's Republic of China conveys clear valuable orientation,i.e.the court shall examine the legitimacy of related transaction of the company taking into account the substantive fairness standards.However,the standards for judicial review of substantial fairness of related-party transactions are unclear and concrete,and the requirements for application of such standards in the judicial review of related-party transactions are not clear.In terms of standards for substantial fairness of related transaction,considering that it is difficult to master the review rules for substantial fairness of related transaction,the guiding role of application principles with a high degree of abstractness shall be attached great importance.Such review shall be conducted under the guidance of the three application principles of substantial fairness standards of related transaction including matching profits and losses of the company,the transaction in line with the corporate purposes and the comprehensive judgment based on procedural rules.Specifically,such review shall be conducted in terms of transaction price,transaction motivation,transaction results and other transaction conditions.In particular,the standards for transaction prices shall be defined in threeaspects,i.e.the general review standards,the mechanism for enhancing the fairness of transaction prices,and the pricing methods.First of all,the general review criteria refers to that the transaction price shall not be significantly higher or lower than the reasonable reference price,and then the parties to the transaction shall appropriately set up a mechanism to enhance the fairness of the transaction price,which includes the responsibility mechanism of the relevant parties after the transaction price is significantly higher or lower than the reference price and the necessary procedures set up according to the fair concept in the transaction process,as well as the automatic procedures to set price fluctuation limits when necessary,and incorporate the transaction price into the company's internal control by technical means.Finally,we need to pay attention to the positive legal effect of different pricing methods such as cost plus method and comparable uncontrolled price method in the process of judicial review.In terms of definition of transaction motive and transaction result,the transaction matter shall have commercial necessity,and the company shall not suffer from interest losses not based on normal commercial risks due to the affiliated transaction involved in the case.With regard to other conditions for related transaction,"compliance with commercial logic and economic laws" shall be taken as the standard for judicial review of substantive fairness.On the basis of the requirements of applying the standard of substantial fairness to the judicial review of the fairness of related-party transactions and the existing provisions of the Judicial Interpretations of the Company Law V,the current situation of the situation that major parts of China's closed companies are still occupied shall be fully considered.On the one hand,for the purpose of maximizing cost-benefit ratio,the review of the procedural legitimacy of related-party transactions is taken as the premise for courts to conduct substantive fair judicial review.Only related-party transactions that meet the criteria for procedural legitimacy can be entered into the steps of substantive fair judicial review and the substantive fair judicial review shall be treated as mandatory requirements.On the other hand,the degree of substantive fair review also needs to be different due to the different results of due process;thecourt also needs to specifically consider the degree of control of the shareholders of the parties,nature of transaction,type of transaction and other factors to determine whether it is necessary to adopt the substantive fair standards for the judicial review of the substantive fair of the related transactions involved.The higher the degree of control of the shareholders over the company is,the related transactions involved are exclusive and have ownership changes,the more likely the court to adopt the substantive fair standards for judicial review.