Legal Regulation Of Share Buybacks For Stabilization By Listed Companies

In 2018,the Company Law was amended to include share buybacks for stabilization in the statutory repurchase situation,allowing listed companies to carry out repurchases "necessary to maintain the value of the company and the rights and interests of shareholders".The introduction of this system has responded to the real demand of the sluggish market,which can revive investors’ confidence and stimulate market vitality,but the design of the legal system must also pay attention to the reasonable regulation of risks.This article summarizes the existing system’s shortcomings and makes suggestions for its improvement.In addition to the introduction and conclusion,this paper is divided into four chapters.The first chapter explains the necessity of the existence and the function of the system of protective repurchase.As far as its necessity is concerned,the basis for its existence is the prevalence of price deviation in the capital market.Price deviations are rooted in the prevalence of short-term speculation and a "collective tendency" among investors to prefer "immediate gratification" and to view relatively recent or short-term stock market fluctuations as signs of a more general and persistent trend,the new crown The market downturn caused by the spread of the epidemic has led to a large number of companies with high profit potential being "wrongly killed",which is further evidence of the need for a protective repurchase system.The theoretical and empirical data support the theoretical and empirical function of the buyback system in boosting stock prices,such as the "earnings per share hypothesis" and the "signaling hypothesis".The second chapter identifies the shortcomings of the current law in regulating the risk of covered buybacks.The first is the unclear boundary between protective repurchases and securities market manipulation,as the Securities Law does not include protective repurchases in the exclusion of manipulation on the one hand,and the Guidelines for the Determination of Manipulation on the other hand exclude all repurchases from the application of manipulation provisions,both of which appear to be too crude legislative techniques.Secondly,there is an omission in the regulation of insiders who reduce their holdings at a high level in the name of protective repurchases,which is not insider trading,specifically,the period of the lock-up period is too short and the legal consequences of insiders’ violation of the plan are not clear in the legislation.Lastly,there are too few restrictions on the financial resources of the protective repurchase,which can easily impair the solvency of the company and may lead to improper consequences of creditors "taking over".The third chapter from the perspective of the substantive law of the regulatory system of the protective repurchase put forward suggestions for improvement.In order to better distinguish protective repurchases from market manipulation,the author believes that a safe harbor system can be established by drawing on overseas experience,whereby repurchases carried out within the safe harbor are exempted from the prohibition of market manipulation,while repurchases carried out outside the safe harbor are judged on a case-by-case basis as to whether they constitute market manipulation.In the case-by-case analysis,it is necessary to clarify that the theoretical basis of manipulation is "fraud",so that the subjective elements of manipulation can be interpreted purposefully,and the subjective elements of "intent to influence the trading price or volume of securities" under the current law can be further interpreted as The purpose of improperly inducing others to buy or sell.As for the insiders’ profit-making behavior through the protection-type buyback,I believe that the lock-up period can be extended to a period of time after the completion of the buyback,and it should be clarified that the insiders’ response to the buyback plan is a "public commitment" as stipulated in the second paragraph of Article 84 of the Securities Law,so as to regulate the breach of trust in the buyback.The fourth chapter proposes the improvement of the regulatory system of protective buybacks from the perspective of procedural law.As far as the resolution authority is concerned,the timeliness of the protective repurchase determines that it is necessary to have the board of directors as the resolution authority,but it is necessary to limit the validity of the authorization of the shareholders’ meeting and restrict the directors’ freedom of resolution in order to minimize the impact of the board of directors as the repurchase resolution authority on the mandatory requirement of the shareholders’ meeting as the statutory dividend resolution authority.In addition,the reverse of the burden of proof under the principle of business judgment may be excluded in the case where the company loses its solvency after the implementation of a protective buyback.In terms of the financial resources limitation of the protective repurchase,the author,through the negation of the asset nature of the company holding its own shares and the limitation of the capital maintenance principle on the effect of creditor protection,concludes that it is inappropriate to extend the creditor protection procedure under the capital reduction to the protective repurchase,and suggests the introduction of a solvency test procedure,empowering the directors to consider the balance sheet and the actual operation of the company to make a decision on the solvency of the protective repurchase.In order to encourage directors to make prudent decisions,the author believes that a short-term no-fault liability combined with a longterm fault-based liability mechanism should be established.