Civil Liability Of Affiliated Directors For Executing Resolutions Of Shareholders’ Meetings

As a relatively widespread transaction phenomenon in the modern commercial market,the regulation of related-party transactions in China’s Company Law and its judicial interpretations is quite simple and inorganized.The relevant disputes are particularly reflected in the status and role of procedural defenses in related-party transactions,and there are unclear expressions and even contradictions in this legislation,different views on judicial adjudication,and different views of scholars.To this end,it is first necessary to clarify that the related-party transaction itself is a neutral transaction that may benefit the company,and only unfair related-party transactions need to be included in the scope of legal adjustment,while the adjustment of director’s related-party transaction focuses on coordinating the conflict of interest between directors as managers of the company and the company.In a connected transaction of a director,a connected director who has fulfilled the information disclosure obligation and the approval obligation(to the shareholders’ meeting)to the company in accordance with the law may still be liable to the company for losses caused by the related party transaction.The reason for this is that,on the one hand,although procedural regulation can also play a role in preventing unfair related party transactions,procedural defense cannot prevent the court from judicial review of the fairness of the transaction;On the other hand,fundamentally speaking,the regulation of related-party transactions focuses on restricting company operators from making profits by improperly influencing the company’s decision-making.Therefore,even if the relevant transaction is decided by the shareholders’ meeting,if the director exerts undue influence on the process and content of the shareholders’ meeting’s resolution,he or she should be liable for the corresponding damages.In terms of internal liability,a connected director may be liable to the company for damages under Article 21 of the Company Law due to unfair related party transactions.The nature of such liability for damages can be explained by deconstructing the relationship between the director and the company into a trust contract relationship,and then adopting the path of claiming damages for breach of contract;It can also be interpreted by finding that the director’s improper trading behavior is a breach of the statutory duty of loyalty,and then taking the path of torting damages claim,and the two may compete.In addition,the right of attribution of a company under article 148,paragraph 2 of the Company Law,as a statutory special means of accountability,can also be exercised optionally with the right to claim damages,and the two complement each other.After certain conditions are met,the connected director may claim an exemption from liability on the grounds that the shareholders’ resolution on the related party transaction can reflect its "true meaning",that is,the resolution procedure and content must be legal and compliant,and the intention of the shareholders participating in the voting is defective and does not unduly affect the outcome of the resolution.In terms of bearing external liabilities,although the relevant judicial interpretations of China’s Company Law only list a few limited circumstances in which directors are liable to the company’s creditors,from the perspective of normative purposes,the circumstances in which directors are liable to the company’s creditors should be open and can accommodate situations in related party transactions.Moreover,in view of the innovation of the "stakeholder theory" in modern company law,as well as the insufficient protection of corporate creditors in the case of related party transactions of directors under the preservation rules of contract law and the corporate capital system of China,it is affirmed that such liability claims are legitimate.As for how a connected director is liable to creditors,first of all,in terms of the nature of liability,no matter what normative model is considered to be adopted by China’s tort law,the director should bear tort liability for infringement of the realization of a third-party claim against the company’s creditors in a related party transaction,and the time when liability can be claimed is after the company enters bankruptcy proceedings or even when the company is de facto bankrupt.The constituent element of this kind of tort liability is that the related party transaction has caused a derogation to the company’s liability property,and such derogation directly or indirectly leads to the company’s near-bankruptcy,and the perpetrator is subjectively intentional.In terms of legal effect,before entering into statutory bankruptcy proceedings,affiliated directors should directly compensate creditors,and once a company enters bankruptcy proceedings,the corresponding compensation should be attributed to the company.The scope of compensation of affiliated directors to creditors is limited to losses directly or indirectly caused by related transactions.