Research On Civil Liability Of Independent Directors In Securities Misrepresentation Cases

In 2021,five independent directors of Kangmei Pharmaceutical Co.,Ltd.were found by the court to have been at fault for not fulfilling their due diligence obligations in a securities fraud case and were ordered to pay up to one billion yuan in compensation.The ruling triggered a wave of resignations among independent directors in China and drew widespread attention from all walks of life.Currently,the civil liability of independent directors in securities fraud cases in China is disproportionately heavy,which contrasts sharply with the higher success rate and low out-of-pocket compensation rate for independent directors in the United States.Therefore,it is necessary to review and reconstruct the civil liability of independent directors in securities fraud cases in China.This article found that the main reasons for the predicament of independent directors in civil liability include: the unreasonable positioning of the institutional role,the design of fault presumption responsibility and the difficulty of proof,the difficulty of defending diligence,and the generalization of joint liability.Firstly,this article analyzes the limitations of independent directors in China from both subjective and objective aspects,which prevent them from fulfilling the institutional positioning of being "internal spies" for the company.Meanwhile,through the method of case analysis,the article analyzes the positioning of independent directors by the legislative and judicial institutions in the United States,and combines the national conditions of China to clarify that the correct positioning of independent directors in China should be "part-time supervisors with limited supervisory effects" rather than "internal spies" for the company.Based on this positioning,expectations of and accountability for independent directors should be reduced.Secondly,this article uses comparative research methods to compare the differences in attribution principles applicable to independent directors in China and the United States.It finds that the design of attribution principles should not simply emphasize the protection of investors’ interests but should comprehensively consider the correct role and function of the responsible parties in the information disclosure process and the balance of interests between the plaintiff and the defendant.Thirdly,the article uses the method of case analysis to sort out relevant judicial precedents in the United States and summarizes the factors considered by American courts in determining the diligence of independent directors,including "noticing ’danger warning information’and taking action" and "daily diligent performance," and further explores the standard of "danger warning information" based on judicial precedents.Finally,the article uses theoretical analysis methods to find that the design of joint liability rules is irrational based on the principle of tort law,and further research shows that the proportionate reduction function of joint liability created in judicial practice is limited,and judges find it difficult to grasp.Although holding independent directors accountable in the short term can win applause from compensatory victims,it violates the professional rules of independent directors and is not conducive to the long-term healthy development of the independent director system and the securities market,ultimately harming the interests of investors.Based on the above analysis and combined with China’s specific national conditions,the revision path for the civil liability determination of independent directors in securities fraud statements is as follows: First,the principle of fault liability should be applied to independent directors;second,the diligence obligation review standard of independent directors should adopt objective standards;third,the diligence performance of independent directors in false statements should be comprehensively judged by considering "noticing ’danger warning information’and taking action" and "daily diligent performance." The revision path of the civil liability type and scope of independent directors in securities fraud statements is as follows: Independent directors with subjective intent should bear joint compensation liability,while independent directors with subjective negligence for failing to fulfill their due diligence obligations should bear limited compensation liability of multiple subsidies.The specific multiple is not discussed in this article.