Research on Shareholder Litigation from the Perspective of Corporate Governance

Author: Liu Guiqing
Publisher:
Publish Date: 2005-07-01
Features: Shareholders are the foundation of a company and its primary stakeholders. Protecting shareholder rights is a fundamental task of company law. Shareholder litigation, as an important aspect of company law, primarily serves to resolve company disputes and provide relief for shareholder rights. However, the significance of shareholder litigation extends far beyond this. Since shareholder litigation occurs among shareholders, directors, managers, and the company—internal stakeholders—the process of initiating and conducting shareholder litigation is also the process of judicial intervention in corporate governance. Therefore, as an external mechanism involving state judicial power, it also plays other corporate governance roles, such as ensuring the effective operation of the company's internal corporate governance structure and regulating corporate operations. It can even be said that shareholder litigation and judicial intervention in corporate governance are two aspects of the same issue. Shareholder litigation highlights its role as a dispute resolution mechanism, while judicial intervention in corporate governance emphasizes the role of judicial power as an external force in promoting improvements in corporate governance. Currently, there is a prevalence of research on shareholder litigation from the perspective of dispute resolution mechanisms, whereas studies on the positive role of judicial intervention in corporate governance are relatively scarce. This book conducts research on shareholder litigation and related issues from a multi-faceted perspective of corporate governance.
It should be noted that litigation related to companies, known as corporate litigation, encompasses multiple stakeholders initiating lawsuits in different legal relationships against various targets, making its content complex. However, shareholders are the primary stakeholders in such litigation, and shareholder litigation is undoubtedly the most important aspect of corporate litigation. Therefore, the study of the role of judicial intervention in corporate governance in this book primarily focuses on shareholder litigation as the entry point and analytical subject.
Chapter 1: Basic Theories of Shareholder Litigation
This chapter first argues that shareholder litigation should have three basic types: direct shareholder litigation, derivative shareholder litigation, and shareholder litigation under special procedures. Since the initiation and conduct of shareholder litigation must be based on the existence of shareholder rights of action, the chapter then examines the basic connotation of shareholder rights of action, the issue of shareholder rights of action in derivative litigation, the issue of shareholder rights of action in shareholder litigation under special procedures, and the nature of shareholder rights of action. This book holds that shareholder rights of action are not an inherent part of shareholder rights. Shareholder rights are inalienable "original rights," while shareholder rights of action are secondary "relief rights" that protect shareholder rights. The two operate on different levels. This distinction holds significant theoretical and practical importance. If shareholder rights of action are considered part of shareholder rights, shareholder rights are claims directed at the company and other shareholders under private law, and such claims cannot initiate litigation procedures. However, if shareholder rights of action are regarded as claims directed at judicial authorities under public law, then the rights of action possess the power to bring civil matters into civil litigation. Corresponding to statutory claims of citizens, courts are obligated to refuse to reject adjudication, i.e., "a complaint must be accepted." Therefore, courts cannot simply reject cases on the grounds of the lack of legal norms for shareholder litigation under company law and related laws, otherwise, they would bear responsibility.
Chapter 2: Positioning and Qualitative Analysis of the Corporate Governance Role of Shareholder Litigation
Shareholder litigation is an important component of corporate governance mechanisms. It ensures the functioning of internal corporate governance structures and serves as an effective measure to address the two major challenges of modern corporate governance. Overall, the corporate governance functions of shareholder litigation are manifested in the relief of shareholder rights, the supervision and control of the abuse of power by shareholders, directors, and other management personnel, the removal of obstacles to corporate operations and the coordination of corporate activities, as well as the creation of a favorable external environment for corporate development. However, when considered separately, the corporate governance functions of the three types of shareholder litigation each have their own emphases. For example, while derivative litigation initiated by shareholders is also motivated by indirect harm to their own interests, it demonstrates a strong concern for the overall interests of the company. This concern requires the scrutiny of corporate power by state public power through litigation, highlighting its function of power supervision. In shareholder litigation under special procedures, the direct purpose of the shareholder's lawsuit is to realize certain rights. However, in the process of realizing these rights, judicial power adopts a unique direct intervention method to promote the improvement of corporate governance, and the significance of the latter cannot be overlooked. As for direct litigation by shareholders, the lawsuit is initiated because of direct harm to their interests, but it also includes the supervision of corporate affairs by judicial power. However, its primary significance still lies in the system of rights relief.
Essentially, shareholder litigation reflects the regulation and intervention of state judicial power in corporate autonomous affairs. Of course, this is a different form of regulation from administrative regulation. If this regulation is moderate and reasonable, it will play a positive role in promoting the efficient and sustainable development of the company. Conversely, if it is excessive or overly widespread, it may disrupt the normal operations of the company and hinder its development. Therefore, it is crucial to scientifically balance the relationship between corporate autonomy and judicial regulation and reasonably delineate the boundaries between the two.
Chapter 3: Research on Direct Shareholder Litigation from the Perspective of Rights Relief
Based on the defendant, direct shareholder litigation is primarily divided into lawsuits initiated by shareholders against the company and lawsuits initiated by shareholders against directors and controlling shareholders. In a company, when certain rights are harmed, shareholders can directly file lawsuits according to the Civil Procedure Law. This means that the substantive rights of shareholders are protected through civil litigation procedures. However, for some rights that are infringed upon, the special provisions made by the Company Law are particularly prominent. Shareholders initiating lawsuits must not only follow the general rules of civil litigation but also adhere to the special provisions of the Company Law, such as lawsuits for the invalidation or revocation of resolutions of shareholders' meetings, lawsuits for the suspension of resolutions of the board of directors, and lawsuits for the dissolution of the company. This chapter examines these issues. Regarding lawsuits initiated directly by shareholders against directors and controlling shareholders, the theoretical basis lies in the fiduciary duties of directors to shareholders and controlling shareholders to other shareholders. This chapter analyzes the legal basis of this duty and its main manifestations. Meanwhile, this book argues that the unfair harm to the interests of minority shareholders in countries is essentially a direct lawsuit initiated by shareholders against directors and controlling shareholders.
In modern companies, especially listed companies, it is often the case that multiple shareholders suffer harm to their rights. In such situations, a litigation resolution system under collective dispute conditions is necessary. This chapter analyzes the application of representative litigation and collective litigation in the corporate field.
Chapter 4: Research on Derivative Shareholder Litigation from the Perspective of Power Supervision
Derivative litigation is a distinctive litigation system in company law, though not exclusive to it, it primarily exists within the realm of company law. This chapter first distinguishes derivative litigation from other related litigation systems and analyzes the issues of the parties involved in derivative litigation, the status of the company in litigation, and the status of other shareholders in litigation. This book holds that, in its long development, shareholder derivative litigation has demonstrated characteristics such as increasing emphasis on its supervisory function, lowering restrictions on thresholds, and flexible handling in relation to direct litigation. Summarizing these development patterns of derivative litigation is the foundation for successfully learning from the experience of other countries. The second part of this chapter studies derivative litigation from the perspective of judicial review. Derivative litigation is a legal system where state judicial power examines and supervises corporate power. This section first discusses the theoretical foundation of derivative litigation as a judicial review system. The operational and control power of directors, managers, and controlling shareholders is primarily a form of power, and all power must be supervised. Although corporate power is a form of social power, it is no exception. Through derivative litigation, using judicial power to supervise corporate power will not involve any degradation, humiliation, or even the use of "power" to bully "weakness." We advocate the separation of powers and checks and balances, not only in the division of state power but also in the division of power between the state and society. Social power can supervise state power, and state power should safeguard the basic rights and powers of social organizations, as well as guide and constrain social power. This chapter then discusses the principles, scope, and standards of judicial review in derivative litigation. The third part outlines the design of relevant systems in China.
The fourth part explores several issues related to dual derivative litigation. Dual derivative litigation refers to derivative litigation initiated by shareholders who control a company for the benefit of a subsidiary company. Regarding its theoretical foundation, academia has proposed theories such as the trustee theory, the theory of piercing the corporate veil, the general control theory of the wrongdoer, and the functional theory. Compared to single-layer derivative litigation systems, dual derivative litigation should have special provisions in terms of preliminary procedures and the qualifications of plaintiff shareholders.
Chapter 5: A Unique Way of Judicial Power Directly Intervening in Corporate Governance: Shareholder Litigation under Special Procedures
This chapter discusses the general theory of special procedures in civil litigation. The procedures used by courts to resolve civil cases that do not involve disputes over rights or are clearly disputed are known as special procedures. Civil cases tried under special procedures are referred to as special procedure civil cases. Special procedures are characterized by administrativeism, monism of parties, and non-publicity, and they exhibit clear command and management functions. In the commercial field, all litigation cases under special procedures are related to companies, among which cases initiated by shareholders are referred to as shareholder litigation under special procedures in this article. From a nature perspective, the activities of courts in trying special procedure cases remain judicial in nature. Since these cases still fall within the realm of private autonomy, judicial authorities are more suitable for handling them than administrative agencies.
The second section lists and elaborates on several common types of shareholder litigation under special procedures in company law, namely, judicial appointments and removals of directors, judicial appraisals in the exercise of minority shareholders' rights to demand share buybacks, judicial convening of shareholders' meetings, judicial relief of shareholder rights to information, and judicial supervision of corporate restructuring.
The third section analyzes the corporate governance significance of shareholder litigation under special procedures. This book holds that the company still belongs to the realm of private autonomy but is not absolute private autonomy. The state needs to intervene in corporate affairs from the outside. The activities of administrative agencies are aimed at maintaining public power and are not suitable for directly commanding or managing internal corporate affairs. Judicial power, on the other hand, has a natural close connection with the private rights domain. Moreover, the court's intervention in corporate affairs through special procedures reflects a clear focus on efficiency values, which aligns with the requirements of convenience in commercial activities. With the development of the company system, judicial power intervening in corporate governance through special procedures has become an inevitable trend and is a common practice in civil law systems. In common law systems, although there is no distinction between ordinary and special procedures, the practice of judicial power intervening in the internal operations of companies to improve corporate governance is common. Currently, from the perspective of the development of Chinese companies, there is a call for the establishment of such a judicial intervention system.