A Study On Legal Issues Of Increasing Shareholding In Violation Of Disclosure Rules

In order to improve market transparency and prevent market manipulation,article 63 of the newly revised Securities Law of China stipulates the obligation to disclose changes in large shareholdings.It has revised the previous rules to a greater extent and sets up limitation of information disclosure and buying and selling shares in open market transactions.The amendment solves some previous issues,such as strengthening the administrative penalties for violating the rule and legally regulating the obligation to notify 1% of changes in shareholding that was implemented previously.The biggest change among them is to add the clause of restricting the voting rights to the disclosure rule.This move will undoubtedly provide a legal basis for civil subjects such as the original controller of a listed company to petition the court to restrict the voting rights of the offenders and it may solve some problems in judicial practice.However,it should still be recognized that the current revision of the disclosure rules for large shareholding changes is not perfect and there are still some unsolved issues and new disputes.Therefore,from the mentioned issues,this article is to improve the block-holder disclosure rule and to promote the legal compliance of corporate transactions and the protection of the interests of participants.The topic will be discussed in the paper from the following four parts.Chapter one raises problems with the existing block-holder disclosure.Firstly,we introduce the block-holder disclosure rule under the new Securities Law and its legal liability.Secondly,we summarize the characteristic of the current illegal behavior in China's capital market and the regulatory direction of the authorities from law enforcement and judicial practice.It can be seen that problems that arise in practice are closely related to the provision of block-holder disclosure.Therefore,the shortcomings of our existing rule are summarized,which includes legislative deficiencies of the rule,theoretical disputes over civil liability for illegally increasing shareholdings and inconsistent methods and ideas for dealing with it.These three issues will be discussed in the following three chapters.Chapter two discussed how to improve the existing block-holder disclosure rule.Two major problems of the rule are put forward: First,it is necessary to clearly distinguish between large-scale stock holdings and acquisitions,and to point out the shortcomings of the block-holder disclosure rule as a subsidiary of the acquisition system.The second one is that China has its unique rule which restricts the purchase of stocks by investors who hold 5% or its multiples of shares.Based on certain historical conditions,this rule no longer applies to the current Chinese securities market environment.It raises the cost of equity disclosure and even restrict the development of acquisitions in China's open market.On this basis,it points out how block-holder disclosure rule should be structured.Firstly,a new section on “disclosure of changes in shareholding information” should be set up in the “Information Disclosure” chapter of the Securities Law to maintain its independent value.Secondly,we should set up a block-holder disclosure rule with the core of controlling goal and cooling-off period.Lastly,rather than being retained and extended,the restriction period should be gradually eliminated in conjunction with the development of the securities market.Chapter Three explores the choice of civil regulation paths for illegally increasing shareholdings.The administrative responsibility has been strengthened,while the civil regulation path is very controversial.Regarding of the connotation of civil liability,it should include the effect of buying stocks in violation of the obligation on disclosure,the rights of those shareholders who violate the rules and the civil liability of compensation.There is no dispute over the effectiveness of the illegal purchase of stocks and based on the special nature of the commercial transaction rule,they are basically supported as valid.On whether the rights of illegal shareholders should be restricted or not,the new Securities Law gives a decision to restrict voting rights,which will be analyzed in detail in Chapter Four of this article.Some people believe that civil compensation liability borne by those who violate the rules can learn from the path of insider trading prohibition rules,while others think it should apply the regulatory path of false statements.This article believes that from the perspective of form and content,the behavior conforms to the falsehood statement,but based on the particularity of the rule and the deficiency of the causality theory of the falsehood statement,it is not appropriate to stipulate its civil liability.Therefore,it needs a different supervision.Chapter Four proposes to construct disclosure rules for block-holders under different institutional frameworks,and to set up a punishment method led by restrictions on shareholders' voting rights for illegal bidding in acquisition.Firstly,it puts forward the legitimacy of giving priority to administrative punishment and restricting shareholders' voting rights as a supplementation,excluding the application of criminal liability.Secondly,in context of non-controversial administrative responsibility,it points out the current four controversial points of restricting voting rights,including dispute over the nature of restricting voting rights,whether the scope of application is too wide,whether other rights in equity need to be restricted and whether mandatory sale of shares is necessary.On the one hand,it is necessary to clarify the scope of application of the limitation of voting rights and the shortcomings of the current content.On the other hand,it is necessary to determine the nature of the responsibility and the implementation mechanism of the limitation of voting rights,in order to safeguard the right of civil subjects to apply and the rationality of public power intervention in the current context.