Viewpoint... The determination and analysis of the validity of the resolution of the controlling shareholder's related transaction-taking the classic case of the Supreme Court as an example.
Published:
2024-07-29
This paper clearly determines the basic points of the validity of the controlling shareholder's resolution on related transactions by analyzing a classic case of the Supreme Court judgment (Case No.:(2017) Supreme Court Civil Final No. 416).
The introduction of the new company law has made changes and innovations in many aspects of the system to improve the company system and governance structure, strengthen the protection of shareholders' rights, and strengthen the responsibility of controlling shareholders, actual controllers and directors and supervisors. It further provides for related transactions and constructs rules for related transactions centered on Articles 22, 182, 185 and 186. In judicial practice, the validity of the controlling shareholder's related transactions is not directly denied, and it still needs to be analyzed by combining other provisions. Here, by analyzing a classic case of the Supreme Court's judgment (Case No.:(2017) Supreme Court Civil Final No. 416), the basic points for determining the validity of the controlling shareholder's resolution on connected transactions are clearly identified.
Basic facts of the case:Yankuang Company, Yongfeng Company, Jinmost Company and Hengsheng Company jointly invested in the establishment of Dongsheng Company with a registered capital of 0.2 billion yuan. The capital contribution and equity ratio of each shareholder are respectively: Jinmost Company contributed 90 million yuan, with an equity ratio of 45%; Yankuang Company contributed 80 million yuan, with an equity ratio of 40%; Hengsheng Company contributed 20 million yuan, with an equity ratio of 10%; Yongfeng Company contributed 10 million yuan, equity ratio 5%. The registered capital of Dongsheng Company has been paid in full at the time of the establishment of the company.
On December 1, 2013, the board of directors of Dongsheng Company issued the notice of the meeting of the board of directors. On December 23, 2013, Dongsheng Company made the "Resolution of the First Second Board of Directors", in which the third item of the resolution is "Review and approve the" Proposal on the Acquisition of Guizhou Hailong Mining Investment Co., Ltd. "submitted by the directors"; The sixth item is "It is unanimously agreed that XX, the legal representative of the company, is responsible for organizing the acquisition of Guizhou Hailong Mining Investment Co., Ltd. and signing a series of acquisition documents with related parties on behalf of Dongsheng". On the same day, the chairman of the board of directors presided over an interim shareholders' meeting of Dongsheng Company, and made a "resolution of the interim shareholders' meeting": all shareholders unanimously agreed to Dongsheng Company's acquisition of Hailong Company ...... shareholder representatives signed the resolution. On the same day, Jinshi Company (Party A), Dongtao Company (Party B), Dongsheng Company (Party C) and Hailong Company jointly signed the Equity Transfer Agreement, which stated that: Hailong Company has a registered capital of 100 million yuan, Jinshi Company holds 65% of Hailong Company, Dongtao Company holds 35% of Hailong Company, and as of November 23, 2013, Hailong Company has a debt of 521.5826 million yuan. Golden Most Company and Dongtao Company intend to transfer their shares in Hailong Company to Dongsheng Company, and Dongsheng Company agrees to the transfer. The equity transfer payment is 100 million yuan, which is a debt-bearing transfer, and the equity transfer deposit is 80 million yuan within 3 working days after the agreement comes into effect. Pay the balance of equity transfer 20 million yuan within 6 months after the agreement comes into effect and be responsible for enabling Hailong Company to have the funds to repay the debt. After the completion of the payment of the equity transfer and the repayment of all its debts by Hailong Company, Jinshi Company and Dongtao Company no longer hold equity in Hailong Company. The transaction amount under the Equity Transfer Agreement is paid to the account of Jin Most Company. The day after the agreement was signed, Dongsheng Company remitted the deposit of 80 million yuan to the account of Jinshi Company.
The plaintiffs Yankuang Company and Yongfeng Company filed a lawsuit request: 1. Request to confirm in accordance with the law that items 3 and 6 of the "Resolution of the First Second Board Meeting" made by the board of directors of Guizhou Dongsheng Hengtai Mining Investment Management Co., Ltd. on December 23, 2013 are invalid. 2. Request to confirm in accordance with the law that the contents of the Resolution of the interim shareholders' meeting made in the name of the shareholders' meeting of Guizhou Dongsheng Hengtai Mining Investment Management Co., Ltd. on December 23, 2013 are invalid. The case has gone through the first instance and the second instance, and the judgment results are completely different. The author intends to summarize the judgment ideas of the first instance and the second instance through deductive reasoning.
Figure 1: Thinking of the Court of First Instance Judgment
Figure 2: Ideas of the Court of Second Instance
To sum up, the main difference of the judgment of the first and second instance lies in the question of whether the controlling shareholder should avoid the resolution of related party transactions: the court of first instance held that the related party transactions in the resolutions of the board of directors and shareholders' meeting of Dongsheng Company involve the personal interests of some shareholders and directors of Dongsheng Company, but the shareholders or directors of Dongsheng Company do not avoid the resolution and use the rights of their shareholders or directors to exercise their voting rights, it violated the prohibitive provisions of the Company Law, while the court of second instance held that although the directors and shareholders' representatives participating in the voting were related to the resolution matters, the law did not restrict their exercise of voting rights, and could not be held to constitute an abuse of shareholders' rights. Combined with the provisions of the new Company Law on the resolution of controlling shareholders involving related transactions. Related transactions, as transactions that transfer resources or obligations between a company and its related parties, do not necessarily harm the interests of the company, so most legal systems do not prohibit related transactions in general. For related transactions related to the controlling shareholder, the new Company Law has only Article 15, paragraphs 2 and 3, to make mandatory provisions on matters on which shareholders should avoid voting, namely: "Where the company provides guarantees for the shareholders or actual controllers of the company, it shall be subject to a resolution of the shareholders' meeting. The shareholders specified in the preceding paragraph or the shareholders controlled by the actual controllers specified in the preceding paragraph shall not participate in the voting on the matters specified in the preceding paragraph." Therefore, the new Company Law does not directly provide for the avoidance of voting system for the related transactions of non-listed companies, but stipulates that the controlling shareholders, actual controllers, directors, supervisors and senior managers of the company shall be liable for compensation if they use the related relationship to damage the interests of the company and cause losses to the company. (Article 22 of the new Company Law)
Therefore, the "Company Law" prohibits the use of related transactions to harm the interests of the company, and does not prohibit the company's controlling shareholders and actual controllers from exercising their voting rights. The effectiveness of shareholders' meetings and resolutions of the controlling shareholder involved in connected transactions shall also be judged in the light of the following legal provisions:
1. Article 21, paragraph 1, of the Company Law: shareholders of a company shall abide by laws, administrative regulations and the articles of association of the company, exercise their rights as shareholders in accordance with the law, and shall not abuse their rights to harm the interests of the company or other shareholders;
2. Article 22, paragraph 1 of the Company Law: the controlling shareholders, actual controllers, directors, supervisors and senior managers of the company shall not use their related relationships to harm the interests of the company;
3. Article 25 of the Company Law: The contents of the resolutions of the shareholders' meeting and the board of directors of the company in violation of laws and administrative regulations shall be invalid.
In summary, it is not only inconsistent with the human characteristics of a limited liability company, but also violates the principle of autonomy, which is not conducive to promoting the development of market economy. Only if the related subject does not abstain from voting to make a company resolution that harms the interests of the company or the interests of other small and medium-sized shareholders, the resolution may be considered invalid. This is also in line with the legislative purpose of the new Company Law to maintain social and economic order and promote the development of the socialist market economy.
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