Corporate Matters

Announcement of the Supreme People's Court on Soliciting Public Opinions on the "Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the Company Law of the People's Republic of China (IV)" (Draft for Comments)

 

In order to accurately apply the Company Law of the People's Republic of China, the Supreme People's Court has promulgated the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the "Company Law of the People's Republic of China" (I), (II) and (III) and solved some issues concerning the application of the Company Law in trial of civil and commercial cases by the people's courts. With a view to further meeting the demand of economic development and judicial practices and addressing the issues of application of laws in corporate governance and protection of shareholders' rights and interests, the Supreme People's Court has drafted the Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the "Company Law of the People's Republic of China" (IV) (Draft for Comments). For the purposes of further refining such draft of judicial interpretation, improving the quality of judicial interpretation, accurately implementing the legislative intention, further prudentially addressing the practical issues concerning the application of the Company Law, effectively protecting the lawful rights and interests of companies, shareholders and other entities, and promoting the social and economic development, public opinions are hereby solicited through relevant media. Persons from all sectors of society are welcome to provide valuable comments. The schools and departments of law of colleges and universities and all scientific research institutes of law are in particular welcome to organize discussions and present opinions collectively. The feedback on specific revisions, together with reasons therefor, may be sent in writing by post or email. The written opinions may be sent to Yang Ting of the Civil Adjudication Tribunal No. 2 of the Supreme People's Court at No. 2, Dong Jiao Min Xiang, Dongcheng District, Beijing, Postal code: 100745 or emailed to gsfjss_yang@163.com. The deadline for providing feedback is May 13, 2016.

 

This Announcement is hereby given!

 

Supreme People's Court of the People's Republic of China

 

April 12, 2016

 

Provisions of the Supreme People's Court on Certain Issues Concerning the Application of the "Company Law of the People's Republic of China" (IV) (Draft for Comments)

 

In order to accurately apply the Company Law of the People's Republic of China and based on the actuality of adjudication work of the people's courts, the issues concerning the application of relevant clauses are hereby interpreted as follows:

 

I. Cases involving the effectiveness of the resolutions of the meetings or general meetings of shareholders and board of directors

 

Article 1      (Plaintiffs to the actions for confirmation)

 

Where companies' shareholders, directors, supervisors as well as the senior executives, employees and creditors, etc. that have direct interests in the content of the resolutions of meetings or general meetings of shareholders and board of directors file actions in accordance with Paragraph 1 of Article 22 of the Company Law requesting the confirmation of the resolutions as invalid or valid, such actions shall be accepted in accordance with the law.

 

Article 2      (Plaintiffs to the actions for revocation)

 

The plaintiffs that file actions in accordance with Paragraph 2 of Article 22 of the Company Law requesting the revocation of the resolutions of meetings or general meetings of shareholders and board of directors shall have shareholder status at the time when the actions are filed. Where a plaintiff ceases to be a shareholder after the case is accepted, the action shall be dismissed.

 

Article 3      (Litigation status of the parties concerned)

 

In the cases filed by plaintiffs for confirming the non-existence of a resolution as prescribed in Article 4 hereof, failure to form a valid resolution as prescribed in Article 5 hereof and the invalidity, validity or revocation of resolutions, companies shall be listed as defendants.

 

Where another person applies for participating in the litigation with the claims same as those made by the plaintiff prior to the end of the court debate in the first instance and is eligible to be a party to the litigation as required under the Civil Procedure Law and the Company Law, such person shall be listed as co-plaintiff.

 

Article 4      (Non-existence of resolutions)

 

If a plaintiff specified in Article 1 hereof presents evidence showing that the disputed resolution falls under any of the following circumstances and claims for confirming the non-existence of the resolution, the claim of the plaintiff shall be upheld:

 

(1) Where the company fails to convene a meeting or general meeting of shareholders or a meeting of the board of directors, unless the company renders the decision directly without convening the meeting or general meeting of shareholders as prescribed in Paragraph 2 of Article 37 of the Company Law or the company's articles of association and the written decision is sighed or sealed by all shareholders; and

 

(2) Where the company convenes a meeting or general meeting of shareholder or a meeting of the board of directors but fails to vote on the resolution.

 

Article 5      (Failure to form valid resolutions)

 

Where the company convenes a meeting or general meeting of shareholders or the meeting of the board of directors and renders a resolution, but a plaintiff specified in Article 1 hereof presents evidence showing the existence of any of the following circumstances and claims for confirming the failure to form a valid resolution, the claim of the plaintiff shall be upheld:

 

(1) Where the number of the people present at the meeting or the voting rights held by shareholders fail to conform to the provisions of the company's articles of association;

 

(2) Where the proportion of the votes for adoption of the resolution fails to conform to the provisions of the Company Law or the company's articles of association;

 

(3) Some of the signatures on the resolution are falsified and are not accepted by the shareholders or directors whose signatures are falsified; and

 

Another opinion: Some of the signatures on the resolution are falsified and are not accepted by the shareholders or directors whose signatures are falsified and the proportion of the votes for adoption of the resolution fails to conform to the provisions of the Company Law or the company's articles of association after removal of the falsified signatures; and

 

(4) The content of the resolution exceeds the authority of the meeting or general meeting of shareholders or the board of directors.

 

Article 6      (Causes for invalidity of resolutions)

 

A resolution of the meeting or general meeting of shareholders or the meeting of board of directors that falls under any of the following circumstances shall be determined to be invalid:

 

(1) Where the shareholders abuse the rights of shareholders and impair the interests of the company or other shareholders through the resolution;

 

(2) Where the resolution provides for excessive distribution of profits, major improper affiliated transactions or other arrangements, causing harm to the interests of the company's creditors; and

 

(3) Other circumstances where the content of the resolution violates the compulsory provisions of laws and administrative regulations.

 

Article 7      (Causes for revocation of resolutions)

 

For the purpose of Paragraph 2 of Article 22 of the Company Law, "convening procedures" and "voting methods" include the matters such as notices for the meetings or general meetings of shareholders and the meetings of the board of directors, equity registration, determination of proposals and agendas, presiding over such meetings, voting, count of votes, announcement of voting results, formation of resolutions, meeting minutes, and the signing of the meeting minutes.

 

A valid resolution for revising the company's articles of association does not fall under the circumstances where "the content of a resolution violates the company's articles of association" as prescribed in Paragraph 2 of Article 22 of the Company Law.

 

Article 8      (Ex post consent to resolutions)

 

Where a shareholder files an action requesting the revocation of a resolution of the meeting or general meeting of shareholders or the meeting of board of directors and the company presents evidence showing the existence of any of the following circumstances, the action shall be dismissed:

 

(1) Where the shareholder expressly consents to the content of the resolution after it is made;

 

(2) Where the shareholder expressly indicates through its actions the acceptance of the content of the resolution after it is made; and

 

(3) Where new resolution is made to substantially recognize the content of the litigious claims of the shareholder.

 

Article 9      (Direct affirmation of the effectiveness of resolutions)

 

Where the plaintiff files an action for confirming that a resolution of the meeting or general meeting of shareholders or the meeting of board of directors fails to exist or form a valid resolution or is invalid or revoked, which is inconsistent with the decision rendered by the people's court based on the facts of the case, judgment shall be made directly.

 

Another opinion: Where the plaintiff files an action for confirming a resolution of the meeting or general meeting of shareholders or the meeting of board of directors fails to exist or form a valid resolution or is invalid or revoked, which is inconsistent with the decision on the effectiveness of the resolution as rendered by the people's court based on the facts of the case and in accordance with the law, the plaintiff shall be notified that the litigious claims may be modified. If the plaintiff fails to make the modification, the action shall be dismissed.

 

Article 10      (Preservation of acts)

 

Where a resolution of the meeting or general meeting of shareholders or the meeting of board of directors involves the circumstances where its implementation will make the restoration of the original condition impossible or cause irremediable harm to the lawful rights and interests of the parties concerned or the interested parties, the implementation of the resolution may be prohibited upon the application by the plaintiff.

 

Where the people's court adopts the measure of preservation of acts prescribed in the preceding paragraph, it may order the plaintiff to provide appropriate security upon application by the company or ex officio. If the plaintiff provides appropriate security, the implementation of relevant resolution shall be prohibited.

 

If the people's court, upon examination, finds that the application of the plaintiff involves the circumstance of maliciously disturbing or delaying the implementation of the resolution, it shall dismiss the application.

 

Article 11      (Retrospective effect of judgments)

 

Where the people's court rules that a resolution of the meeting or general meeting of shareholders or the meeting of board of directors fails to exist or form a valid resolution or is invalid or revoked, such resolution shall not be legally binding ab initio.

 

Article 12      (Application by reference)

 

In the trial of the cases involving the disputes over the effectiveness of the decisions made by one-person limited liability companies in accordance with Article 61 of the Company Law or the decisions made by the State-owned assets supervision and administration departments by exercising rights of shareholders in accordance with Article 66 of the Company Law, the people's courts may apply relevant provisions of Article 1 through Article 11 hereof as reference.

 

II. Cases involving shareholders' rights to be informed

 

Article 13      (Shareholder status required for exercising the rights to be informed)

 

Where a shareholder, in accordance with Article 33 or Article 97 of the Company Law, files a lawsuit against the company requesting the inspection or duplication of the documents and materials of the company, such action shall be accepted in accordance with the law.

 

If the company provides evidence showing that the plaintiff has ceased to possess shareholder status at the time of filing the lawsuit or during the litigation, the lawsuit shall be dismissed.

 

Article 14      (Inherent rights)

 

Where the company makes defense on the grounds of the existence of any of the following circumstances, rejecting the inspection or duplication of the company's documents and materials by the shareholder in accordance with Article 33 or Article 97 of the Company Law or the provisions of relevant judicial interpretations, the defense of the company shall not be upheld.

 

(1) The capital contribution by the shareholder has defects;

 

(2) The company's articles of association restricts the inspection or duplication of company's documents and materials by shareholders; and

 

(3) The agreement among shareholders stipulates the restriction of inspection or duplication of company's documents and materials by shareholders.

 

Article 15      (Text of judgments and exercise of rights to be informed by proxy)

 

Where the people's court, upon examination, finds that the litigious claims of the plaintiff comply with the provisions of the Company Law, it shall render a judgment under which the company shall make relevant documents and materials available for inspection or duplication by the shareholder at the specified time and at the place of domicile of the company or any other place determined by the plaintiff and the company through consultation. The shareholder may inspect or duplicate the documents and materials of the company by proxy.

 

Article 16      (Inspection of original vouchers)

 

Where a shareholder of a limited liability company files a lawsuit for inspection of the company's accounting books and the bookkeeping vouchers, original vouchers or other materials relating to the information recorded in the accounting books, the lawsuit shall be accepted in accordance with the laws.

 

If the company presents evidence showing that the inspection of the materials such as bookkeeping vouchers or original vouchers by the shareholder is for improper purposes and may impair the lawful interests of the company, the litigious claims shall be rejected.

 

Article 17      (Improper purposes)

 

Where the limited liability company presents evidence showing the existence of any of the following circumstances, the shareholder shall be deemed to have improper purposes in accordance with Paragraph 2 of Article 33 of the Company Law:

 

(1) Where the shareholder operates for himself or herself or for others the business that is substantially competing with the main business of the company;

 

(2) Where the shareholder intends to notify a third party of the facts obtained so as to gain benefits;

 

(3) Where the shareholder has inspected or duplicated the documents and materials of the company and notified a third party of the facts obtained to gain benefits in the past two years; and

 

(4) Where there are other facts that can prove the shareholder is for the purpose of hindering the business operation of the company or impairing the interests of the company or the common interests of shareholders.

 

Article 18      (Liability for compensation in case inspection is impossible)

 

Where the company fails to prepare and keep the company's documents and materials prescribed in Article 33 or Article 97 of the Company Law and the shareholder files a lawsuit requiring the directors and senior executives of the company to bear civil compensation liability, such request shall be upheld.

 

III. Cases involving right of claim for distribution of profits

 

Article 19      (Litigation status of parties concerned)

 

In a case where a shareholder requests the company to distribute profits, the company shall be listed as defendant.

 

Any other shareholder that applies for participating in the litigation with the claims same as those made by the plaintiff prior to the end of the court debate in the first instance shall be listed as co-plaintiff; the shareholders that disagree to the distribution of profits may be listed as third parties.

 

Article 20      (Distribution plans under resolutions of the meetings or general meeting of shareholders)

 

Where a shareholder submits the valid resolution of the meeting or general meeting of shareholders specifying the distribution plan and thereby files a lawsuit requesting the company to distribute profits, judgment shall be made for the company to pay dividends to the shareholder within a specified time limit according to the plan determined in the resolution. The judgment shall be legally binding on the shareholders that fail to participate in the litigation but have the right of claim for distribution of profits.

 

Where a shareholder files an lawsuit requesting the company to distribute profits but fails to submit the resolution of the meeting or general meeting of shareholders specifying the distribution plan, the litigious claims shall be rejected, unless a shareholder of a limited liability company presents evidence showing that the abuse of shareholder rights by any other shareholders or the fraud committed by any directors or senior executives has resulted in the failure of the company to distribute profits.

 

Article 21      (Right of the shareholders without participating in litigation to apply for enforcement)

 

Where, after the people's court has rejected the litigious claim of the shareholder for distribution of profits by the company, any shareholder that has not participated in the litigation files a lawsuit separately with the same claim, facts and reasons, such lawsuit shall not be accepted.

 

After the people's court has rendered the judgment for the company to distribute profits, the shareholders that have not participated in the litigation but have the right of claim for the distribution of profits may apply for enforcement based on the judgment.

 

IV. Cases involving preemptive right

 

Article 22      (Circumstance where preemptive right is not applicable)

 

When there is change to a shareholder of a limited liability company due to reasons such as inheritance or legacy, the claim of any other shareholder for preemption of the equity concerned shall not be upheld, unless otherwise provided for by the company's articles of association.

 

Article 23      (No claim of preemptive right in the transfer of equity between shareholders)

 

Where a shareholder claims preemptive right in the transfer of all or part of equity between other shareholders of a limited liability company, such claim shall not be upheld, unless otherwise provided for by the company's articles of association.

 

Article 24      (Meaning of equal terms)

 

For the purpose of Paragraph 3 of Article 71 of the Company Law, "equal terms" shall be determined by the factors such as the equity transfer price, payment method and payment period on comprehensively basis.

 

Where a shareholder of a limited liability company transfers equity to a person other than a shareholder, the claim of any other shareholder for preemption of part of the equity shall not be upheld, unless otherwise provided for by the company's articles of association.

 

Article 25      (Content of written notice or the period for exercise of preemptive right)

 

Where a shareholder of a limited liability company transfers equity to a person other than a shareholder and notifies other shareholders thereof in writing with the notice containing the main content of the equity transfer contract such as the name of the transferee, type and quantity of the transferred equity, price for the transfer, as well as the period and method of performance, such other shareholders shall, upon receiving the notice, claim the preemptive right within the exercise period prescribed by the company's articles of association; where it is not prescribed or not clearly prescribed in the company's articles of association, it shall be determined according to the following circumstances:

 

(1) Where the exercise period is specified in the notice, such period shall prevail; and

 

(2) Where the exercise period is not specified in the notice or the exercise period as specified is shorter than 30 days from the date of the service of the notice, the exercise period shall be 30 days.

 

Where other shareholders fail to claim preemptive right during the exercise period prescribed in the preceding paragraph or claims preemptive right but the claim fails to conform to the equal terms specified in the Company Law and judicial interpretations, they shall be deemed as consenting to the transfer and waiving the preemptive right.

 

Article 26      (Withdrawal of transfer by shareholders)

 

In respect of the transfer of equity by a shareholder of a limited liability company to a person other than a shareholder, if other shareholders claim preemptive right but the shareholder expressly indicates the withdrawal of the transfer, the claim of other shareholders shall not be upheld, unless both parties have reached the equity transfer agreement or it is otherwise provided for under the company's articles of association.

 

The shareholder that expressly indicates the withdrawal of transfer during litigation shall bear court costs.

 

Article 27      (Effectiveness of contracts impairing preemptive right)

 

Where a shareholder of a limited liability company transfers equity to a person other than a shareholder, which falls under any of the following circumstances impairing the preemptive right of other shareholders, the claim of other shareholders for confirming the transfer contract invalid shall be upheld:

 

(1) Where the equity transfer contract is entered into without performing the procedures prescribed by the Company Law and judicial interpretations;

 

(2) Where the shareholder, after other shareholders have waived preemptive rights, transfers the equity to a person other than a shareholder by adopting such measures as reducing transfer price to substantially change the equal terms prescribed by the Company Law and judicial interpretations;

 

(3) Where a shareholder engages in malicious collusion with a person other than a shareholder and violates the provisions on equal terms under the Company Law and judicial interpretations by such means as falsely offering a high price, which results in the waiver of preemptive right by other shareholders, while the actual transaction terms between both parties are lower than the terms in the written notice.

 

When the transfer contract is determined to be invalid, the claim made simultaneously by other shareholders for purchasing such equity based on the actual transaction terms shall be upheld. If the transferee is in good faith and has no fault in transaction, the request of such transferee for the shareholder to bear compensation liability shall be upheld.

 

Article 28      (Special provisions on transfer of State-owned equity)

 

When the "written notice" and "equal terms" prescribed in Paragraph 2 and Paragraph 3 of Article 71 of the Company Law is applied to the transfer of State-owned equity on the property exchanges established in accordance with the laws and administrative regulations on the administration of State-owned assets, the trading rules of the property exchanges shall be taken as reference.

 

Article 29      (Effectiveness of the clauses of the articles of association restricting equity transfer)

 

Where the clauses of the articles of association of a limited liability company excessively restricts the equity transfer by shareholders, resulting in the impossibility of the transfer of equity in essence, the request of shareholders for confirming such clauses as invalid shall be upheld.

 

V. Lawsuits filed directly and lawsuits filed by shareholder representative

 

Article 30      Litigation status

 

Where the board of supervisors, any supervisor, the board of directors or the executive director files a lawsuit in accordance with Paragraph 1 of Article 151 of the Company Law, the company shall be the plaintiff and the person in charge of the board of supervisors, the supervisor, the chairman of the board of directors or the executive director shall act as the litigation representative.

 

The people's court shall, after accepting a case filed by a shareholder in accordance with Paragraph 2 or Paragraph 3 of Article 151 of the Company Law, notify the company to participate in the litigation as a third party.

 

Article 31      (Meanings of directors, senior executive, board of supervisors, supervisors and others)

 

For the purpose of Paragraph 1 and Paragraph 2 of Article 151 of the Company Law, "directors, senior executives", "board of supervisors" and "supervisors" shall include the directors, senior executives, board of supervisors and supervisors of wholly-owned subsidiaries.

 

For the purpose of Paragraph 3 of Article 151 of the Company Law, "others" shall refer to the persons other than the directors, supervisors and senior executives of the company or the wholly-owned subsidiaries thereof.

 

Article 32      (Participation of other shareholders in litigation)

 

When the people's court conducts trial of a case filed by a shareholder in accordance with Paragraph 2 or Paragraph 3 of Article 151 of the Company Law, any other shareholder that applies for participating in the litigation on the ground of the same claims prior to the end of the court debate in the first instance shall be listed as co-plaintiff. The legal proceedings already completed shall be legally binding on such other shareholder participating in the litigation. The judgment shall have legal force and effect on the shareholders not participating in the litigation.

 

Article 33      (Replacement of the shareholder by the company as the plaintiff)

 

Where the company applies for replacing the shareholder in the lawsuit filed by the shareholder in accordance with Paragraph 2 or Paragraph 3 of the Article 151 of the Company Law after the people's court has tried the case, the consent of the shareholder shall be obtained. If the shareholder consents to the replacement, the litigation acts already performed thereby shall be valid; if a lawsuit is filed separately, the people's court shall refuse to accept or dismiss the lawsuit.

 

Article 34      (Mediation in the litigation)

 

Where the parties concerned reach a mediation agreement in the trial of a case filed by a shareholder in accordance with Paragraph 2 or Paragraph 3 of Article 151 of the Company Law, the resolution of the meeting or general meeting of shareholders for approving the mediation agreement shall be submitted. If no resolution of the meeting of shareholders is submitted in the case of a limited liability company, all shareholders shall sign or seal the mediation agreement or issue to the people's court the written opinions for consent to the mediation agreement.

 

Article 35      (Disposal of benefits in case of wining)

 

Where the shareholder requests the defendant to directly bear civil liability thereto in accordance with Paragraph 2 or Paragraph 3 of Article 151 of the Company Law, such request shall not be upheld.

 

Where a shareholder, on the grounds that the interests of a wholly-owned subsidiary of the company is impaired, files a lawsuit in accordance with Article 151 of the Company Law requesting the defendant to bear civil liability towards the wholly-owned subsidiary, such request shall be upheld; if the shareholder requests the defendant to bear civil liability towards the company, such request shall not be upheld.

 

Where the shareholder, after winning the case, requests the company to bear reasonable attorney's fees as well as the reasonable expenses paid for the litigation such as investigation fees, evaluation fees and notarial fees, such request shall be upheld.

 

Article 36      (Time for implementation and effectiveness)

 

These Provisions shall be implemented as of ________.

 

These Provisions shall apply to the first-instance cases accepted by the people's courts after the implementation hereof.

 

These Provisions shall not apply to the first-instance and second-instance cases accepted by the people's courts before the implementation hereof but not yet concluded after the implementation hereof and the cases for which final judgments have been rendered before the implementation hereof but of which retrial is applied by the party concerned or decided according to trial supervision procedures.