Research On The Construction Of The Rule Of Direct Compensation To Shareholders

The rule of direct compensation to shareholders is a special rule for distributing the benefits of a successful lawsuit,which applies as an exception in situations where the principle of distributing all benefits of a successful lawsuit to the company cannot achieve fairness and justice.In the specific case that the company cannot achieve fairness and justice by obtaining all the winning interests,the plaintiff shareholders are allowed to obtain compensation from the defendant directly according to their own equity ratio.This paper briefly introduces and compares the two main modes of operation of the shareholder’s direct compensation rule in foreign laws,and proposes that compared with the generally applicable direct compensation right mode,China is more suitable to learn from the mode of obtaining the direct compensation right under specific circumstances.The rule of direct compensation to shareholders is consistent with the basic principles of China’s Company Law,and is conducive to safeguarding the sustained and independent development of companies,as well as protecting the interests of small and medium-sized shareholders and company creditors.At present,China’s company law lacks provisions on the rule of direct compensation for shareholders,which has led to the phenomenon in judicial practice where shareholders with damaged interests mistakenly choose to initiate shareholder direct litigation and demand that the defendant directly compensate themselves.By collecting and analyzing these cases of misuse,it was found that the majority of defendants,while serving as shareholders or even controlling shareholders of the plaintiff company,also held positions as directors and senior management personnel of the company.The current shareholder representative litigation system only allows companies to obtain winning interests,which can lead to defendants being able to become beneficiaries or even controllers of the company’s winning interests even though they are clearly perpetrators of harm to the company’s interests.This clearly violates the basic legal principle that no one can benefit from their own illegal behavior,resulting in unfair judicial decisions and corporate governance challenges.The phenomenon of misuse of shareholder direct litigation and related corporate governance challenges indicate the lack of the shareholder direct compensation rule in China and the necessity of constructing it.Regarding the feasibility of constructing a shareholder direct compensation rule in China,this article,based on practical considerations,believes that constructing a shareholder direct compensation rule can make up for the shortcomings of the current shareholder representative litigation system in limiting the attribution of winning interests to the company,and has unique advantages in improving China’s shareholder representative litigation system.In the face of some negative concerns in the academic community,this article believes that the construction of this rule will not lead to the reduction of defendant’s liability for compensation or damage to the interests of company creditors.As for the issue of constraints on non party shareholders,it can be resolved whether by drawing on American law or under the current legal system in China.To construct the rule of direct compensation to shareholders,first of all,it should be clear that this rule is an exceptional provision on the distribution of the interests of the winning lawsuit under the shareholder representative litigation system,and it cannot be considered as a direct shareholder lawsuit because the defendant directly compensates the shareholders with the interests damaged.Secondly,the application of this rule should be limited to the limited circumstances such as the company involved has been cancelled or cannot be liquidated,the controlling shareholders and directors and other insiders of the company have damaged the interests of the company,and the specific application in the case should depend on the court’s measurement of the interests of all parties and the purpose of achieving fairness and justice.Thirdly,when the rule of direct compensation of shareholders is applicable,the subject of compensation is all the shareholders whose interests are damaged,not only the plaintiff’s shareholders,and the defendant will compensate all the compensation according to the proportion of their respective shareholding in the company.Finally,in order to ensure the innovation and legitimacy of the rule,and to achieve fair justice in the outcome of litigation,it is necessary for judges to carefully consider the balance of interests among the parties involved in the case,such as the company,shareholders,and creditors.