Legal Regulation On Listed Companies’ Share Repurchases In China

Following a specific amendment to the share repurchase regime in the Company Law of the People’s Republic of China in 2018,China’s A-share market has seen a wave of share repurchases.However,the highly controllable nature of share buybacks and the fact that the release of information on share buybacks itself is extremely positive information for the market are two characteristics that lead to share buybacks being closely associated with disruptions to the order of the securities market.In addition,the Company Law of the People’s Republic of China has extended the powers of the board of directors but given them corresponding responsibilities,and the loopholes in the restrictions on the source of funds for share buybacks may lead to share buybacks infringing on the interests of the company and its creditors.Therefore,how to regulate the share repurchase behaviour of listed companies is an urgent issue that we need to address.This paper is mainly divided into five chapters.Chapter 1 draws out the problems in share repurchases through the analysis of the law and the analysis of the cases of share repurchases of listed companies in practice.Firstly,the 2018 amendments to the Companies Act have expanded the powers of the board of directors,which can resolve matters relating to share repurchases by delegation.The Company Law expands the powers of directors without limiting and restricting them,making directors’ responsibilities absent;secondly,as there is no restriction on the source of funds for share repurchases by listed companies under the Company Law and the relevant supporting rules,matters damaging to the company’s creditors are highly likely to occur;furthermore,there is a blurring between the act of share repurchases by listed companies and continuous market manipulation,and there is no recognition and regulation of suspected market manipulation.Finally,the share buyback of listed companies is a good information for listed companies,and the high controllability and inevitability of the share buyback makes some insiders use the share buyback for their own benefit.The second chapter mainly analyses the financial resources restrictions of share buybacks.As there is no restriction on the financial resources of share buybacks in China,some companies with high gearing or those that may face delisting crisis because they no longer meet the listing requirements can still use their own funds or self-financing to carry out share buybacks,which will undoubtedly increase the burden of the company again,and the company’s buyback is suspected of giving priority to shareholders over creditors in the distribution,which will harm the company’s creditors The legitimate rights and interests of the company’s creditors.In this regard,through the analysis and comparison of the relevant experience of foreign law,this paper believes that China can try to introduce the solvency test rules and make corresponding improvements according to China’s national conditions,the system does not affect the normal operation of the company in the case of reasonable protection of the legitimate rights and interests of creditors.The third chapter focuses on the amendment of directors’ liability after share repurchases by listed companies in violation of the law.After the amendment of China’s Company Law,the board of directors is authorised to make resolutions on share buybacks,which gives the board of directors greater rights,and the introduction of the solvency test system also gives the directors the right to judge the company’s financial capacity and the determination of financial indicators to a certain extent,which also increases the directors’ responsibilities.Therefore,the author believes that the directors’ liability can be limited by drawing on the directors’ solvency statement system.Chapter 4 analyses share buybacks that are suspected of market manipulation.The relationship between share repurchases and continuous market manipulation is similar,so the relationship between the two is not strictly constitutive and nonconstitutive,but there is a certain middle ground.By analysing the safe harbour rules in extraterritorial law and the assumption of administrative liability for acts beyond the safe harbour rules,this article proposes that China should improve the safe harbour rules in China through four aspects: entrusted subjects,repurchase time,repurchase amount and repurchase quantity;secondly,the boundary of market manipulation should be clarified,and only acts with clear subjective malicious intent can be considered as market manipulation and punished Secondly,the boundaries of market manipulation should be clarified,so that only acts with malicious intent can be considered as market manipulation and punished;secondly,administrative liability should be imposed for acts that go beyond the safe harbour rule but cannot be proved to have the purpose of market manipulation;and finally,a quarantine period should be imposed for share buybacks for promotional purposes.Chapter 5 focuses on the circumstances in which share buybacks by listed companies constitute insider trading.The release of share buyback information itself may lead to an increase in share price,and despite the release of the share buyback resolution by the listed company,it still has the right to decide whether to actually carry out the share buyback when the buyback conditions are met,and this characteristic leads to the possibility that shareholders and insiders of the company may use the share buyback act to benefit the company or themselves.At this point,we can improve China’s insistence on the segregation period and transaction sensitive period system,for different circumstances of the segregation period system to make clear provisions;should strengthen the company’s information disclosure obligations,for the company’s share repurchase resolution formation process and the statement issued by the directors are published,so that creditors can more easily understand the company’s operating conditions,and in the case of illegal share repurchase of listed companies,when It is also necessary to strengthen the linkage between the industry regulations and the Securities Law.Although the provisions of the Implementation Rules are relatively perfect and detailed,they are not deterrent to listed companies due to their low effectiveness,so the linkage between such industry regulations and the Securities Law should be strengthened.