Beijing, Monday 28 August 2017, the Supreme People’s Court issued a new interpretation of corporate law (Company Law of the People’s Republic of China). This interpretation extends the rights of shareholders within the company and among shareholders.
Article 22 of the Company Law regulates the invalidity of the resolutions of the main organs of a company taken in violation of the law, of administrative regulations or of the articles of association of the company. Thanks to the new interpretation, in the event of an invalid resolution, the shareholders, the directors and the Board of Supervisors will have the possibility of initiating a “non-existence” procedure of the resolution. Furthermore, the right of shareholders to access accounting records can no longer be denied by the articles of association or by any other type of agreement between the shareholders, thus increasing the guarantees of minority shareholders, who are not actively involved in the company’s operations, a common situation for the non-Chinese partner of a Joint Venture. Obviously, there are still some cases in which such right cannot be exercised, as in the case of a shareholder who conducts a business, for himself or herself, in competition with the main activity of the concerned company.
Also according to the new interpretation, shareholders may file an application for distribution of profits with the Court: both if there is a valid and approved decision by the shareholders regarding the distribution plan, and also in the absence thereof, if the applicant succeeds in demonstrating an abuse of power by the other shareholders. Such abuse must, however, be related to the inability of the company to distribute the profits.
Also the shareholders who have not participated in the dispute regarding the distribution of profits will now have the power to intervene in the lawsuit without having to initiate separate proceedings.
Other changes made by the new interpretation concern the provisions governing the rights of shareholders in cases where a pre-emptive right can be exercised and the provisions governing the institution of a lawsuit within the company between shareholders, directors and / or supervisors.
This interpretation came into effect on 1 September 2017, removing many obstacles in internal corporate affairs and ensuring greater protection to shareholders, especially to minority ones.
(Shanghai Office – Luigi Zunarelli – 0086 2151501952)
