Study Of Exceptions To Corporate Financial Assistance

As a financing tool for M&A transactions,the financial assistance system itself has a long history and has eventually developed a regulatory philosophy of "prohibiting in principle but allowing by exception".The current draft of the Company Law(Amendment)introduces the financial assistance system and sets up an exception clause.However,there are still gaps in the application of the exception clause for financial assistance,which is reflected in the fact that the regulation of "for the benefit of the company" is not effective,and the validity of the shareholders’ capital contribution in violation of the financial assistance is not effectively connected with the existing company law.There are also many difficulties in the application of the exception clause and the completeness of the type of regulation,or the lack of thorough legislative consideration.In order to analyze the lack of exception clauses in the Draft Revised Company Law,it is necessary to review the meaning and types of the financial assistance system and understand its functional advantages and possible risks as a tool for M&A transactions.The jurisprudential analysis of the application of the exception clause for financial assistance can be approached from several perspectives.On the one hand,from the perspective of capital changes in a company,as a system to assist shareholders in making capital contributions to the company,financial assistance in violation of the exception clause can be considered as a defective shareholder’s capital contribution,and the shareholder who violates the capital contribution should be held responsible for making up the capital contribution and restricting the rights,and the directors should also be held responsible;while from the perspective of capital outflow from the company,financial assistance can be considered as a kind of capital reimbursement from the company’s assets to the shareholders.Under the perspective of capital outflow company,financial assistance can be regarded as a kind of capital rewarding behavior of the company’s assets to the shareholders,so it needs to be strictly limited by the principle of maintaining the company’s capital.On the other hand,the financial support system may give rise to three types of agency costs in the process of corporate financing,which may affect the actual financing cost of the company.The change in attitude of foreign company law toward the financial support system comes from the high transaction and regulatory costs associated with financial support regulation,and the image of "barbarians at the door" of M&A transactions in the academic community has been changed with the deepening of the understanding of M&A transactions.In addition,the concept of "grand distribution" and the solvency test rules developed by the U.S.Standard Commercial Companies Act can also provide a mirror to the regulation of the financial assistance exception.Based on the current call for revision of the company law,under the framework of the system construction of autonomous company law,we focus on the incorporation and absorption of similar financial assistance systems arising from the induced institutional changes,and reasonably understand the financial assistance exception clause under the view of value relativism,which can help clarify the "soil" of application of the current company law in China In this regard,it will help to clarify the direction of improvement and updating that is needed to effectively perform the institutional function of financial assistance and its exception clause in the current "soil" of our company law.To effectively play the function of the financial assistance system to optimize the company’s capital financing,the first should focus on the legislative level to clarify the boundary of the core concept of "for the benefit of the company",and appropriately broaden the types of financial assistance application.Secondly,the restrictions on the application procedures of the exception clause should be improved,including the restriction on the source of funds for financial assistance based on the principle of maintaining the company’s capital,and the disclosure of matters related to financial assistance to protect the right to information of minority shareholders and creditors.Finally,special regulations should be imposed on the controlling shareholder’s act of changing the control of the company through the financial assistance system,and the rights and responsibilities of directors’ fiduciary duties in relation to the financial assistance exception should be further confirmed.