Company Litigation Study... The request of the company's litigation rules for the acquisition of shares disputes.

Published:

2021-12-11

Foreword Company shares are the shares held by shareholders in the company after the establishment of the company, which play an important role in proving the identity of shareholders. The dispute over requesting the company to acquire shares is a common dispute between the company and its shareholders (especially small and medium-sized shareholders) in practice. It occurs when the shareholders disapprove of the specific resolution of the shareholders' meeting. The purpose is to make the company evaluate the value of the shares held by the dissenting shareholders and purchase them at a fair price. Through this lawsuit, the dissenting shareholders are guaranteed to withdraw from the company in a reasonable and fair way of share compensation, while the withdrawal of dissenting shareholders also improves the efficiency of the company's decision-making and ensures the effectiveness of management. This article will analyze the dispute over the acquisition of shares by the requesting company from the aspects of legal provisions, litigation overview, dispute issues and decision rules for reference. Relevant provisions (I) related laws 1. the People's Republic of China Civil Procedure Law Article 26 Litigation arising from disputes over the establishment of a company, confirmation of shareholder qualifications, distribution of profits, dissolution, etc., shall be under the jurisdiction of the people's court of the place where the company is domiciled. 2. Company Law of the People's Republic of China Article 74 Under any of the following circumstances, a shareholder who votes against the resolution of the shareholders' meeting may request the company to purchase its equity at a reasonable price: (I) the company has not distributed profits to its shareholders for five consecutive years, and the company has made profits for the five consecutive years and meets the conditions for distribution of profits as stipulated in this Law; Merger, division or transfer of main property of the (II) company; (III) the term of business as stipulated in the articles of association expires or other reasons for dissolution as stipulated in the articles of association arise, the shareholders' meeting passes a resolution to amend the articles of association so that the company continues to exist. Within 60 days from the date of adoption of the resolution of the shareholders' meeting, if the shareholders and the company cannot reach an equity purchase agreement, the shareholders may bring a lawsuit to the people's court within 90 days from the date of adoption of the resolution of the shareholders' meeting. Article 142 A company may not purchase its own shares. However, any of the following circumstances shall be excluded: (I) reduction of the company's registered capital; (II) merger with other companies holding shares in the Company; (III) use of shares for employee stock ownership plans or equity incentives; (IV) shareholders request the company to purchase its shares due to their objections to the merger or division resolution made by the general meeting of shareholders; (V) the use of shares for the conversion of convertible corporate bonds issued by listed companies; (VI) listed companies is necessary to safeguard the value of the company and shareholders' rights and interests. Where a company purchases its own shares under the circumstances specified in items (I) and (II) of the preceding paragraph, it shall be subject to a resolution of the general meeting of shareholders; where a company purchases its own shares under the circumstances specified in items (III), (V) and (VI) of the preceding paragraph, it may, in accordance with the provisions of the articles of association or the authorization of the general meeting of shareholders, be resolved by a meeting of the board of directors attended by more than 2/3 directors. After the company acquires the company's shares in accordance with the provisions of the first paragraph of this article, it shall be canceled within ten days from the date of acquisition if it falls under the circumstances of item (I); if it falls under the circumstances of items (II) and (IV), it shall be transferred or canceled within six months; if it falls under the circumstances of items (III), (V) and (VI), the total number of shares of the company held by the company shall not exceed 10% of the total issued shares of the company, and shall be transferred or canceled within three years. Where a listed company purchases its own shares, it shall perform its information disclosure obligations in accordance with the provisions of the the People's Republic of China Securities Law. Where a listed company acquires its own shares due to the circumstances specified in Items (III), (V) and (VI) of the first paragraph of this Article, it shall proceed through public centralized trading. (II) relevant judicial interpretation 1. Circular of the Supreme People's Court of China, on Printing and Issuing the Revised Provisions on the Cause of Action in Civil Cases 21. Disputes related to the company 268, request the company to acquire shares dispute. 2. Interpretation of the Supreme People's Court on the Application of the the People's Republic of China Civil Procedure Law Article 3 The domicile of a citizen refers to the place where the citizen's household registration is located, and the domicile of a legal person or other organization refers to the place where the main office of the legal person or other organization is located. If the location of the principal office of a legal person or other organization cannot be determined, the place of registration or registration of the legal person or other organization shall be the place of domicile. Article 22 Jurisdiction shall be determined in accordance with the provisions of Article 26 of the Civil Procedure Law for lawsuits arising from disputes over records in the register of shareholders, requests for changes in company registration, shareholders' right to know, company resolutions, company mergers, company division, company capital reduction, company capital increase, etc. 3. (I) of the Provisions of the Supreme People's Court on Several Issues concerning the Application of the the People's Republic of China Company Law Article 3 When the plaintiff brings a lawsuit to the people's court on the grounds stipulated in Article 22, paragraph 2, and Article 74, paragraph 2 of the Company Law, if the time limit stipulated in the Company Law is exceeded, the people's court shall not accept it. Provisions issued by regional courts in (III) 1. Opinions of the Higher People's Court of Shandong Province on Several Issues concerning the Trial of Company Dispute Cases (for Trial Implementation) 81. In the case of item (I) of paragraph 1 of Article 75 of the Company Law, if the company has not held a shareholders' meeting for five consecutive years to make a resolution on the distribution of profits, shareholders holding less than one-tenth of the voting rights of the company may request the company to purchase its shares at a reasonable price. 82. If a shareholder files a lawsuit within the time limit specified in the second paragraph of Article 75 of the Company Law, the people's court shall not accept it. 83. If the shareholders require the company to acquire the equity in accordance with the provisions of Article 75 of the Company Law, but there is no consensus on the purchase price of the equity, the people's court shall support the shareholders' claim to determine the purchase price of the equity by way of evaluation. 2. (II) of Opinions of Shanghai Higher People's Court on Several Issues Concerning the Trial of Litigation Cases Involving Companies Issues related to the handling of disputes over shareholders' rights and interests in 3. 3. If the shareholders' meeting of a limited liability company forms a resolution on the merger, division or amendment of the articles of association of the company, and it is difficult to transfer the shares held by the shareholders after the resolution, the shareholders who vote against the resolution at the shareholders' meeting shall have the right to request the company to acquire its shares. If the company has been profitable for many years and meets the conditions for the distribution of shareholders' surplus as stipulated in the Company Law, but the company does not distribute profits, the shareholders who meet the shares of the company as stipulated in the Company Law shall have the right to request the company to convene a shareholders' meeting to make a resolution; shareholders who vote against the resolution at the shareholders' meeting shall have the right to request the company to acquire their shares. 3. Guiding Opinions of the Higher People's Court of Jiangxi Province on Several Issues concerning the Trial of Company Dispute Cases (V) limited liability company share repurchase dispute 66. Under the circumstances of Item (I) of the first paragraph of Article 75 of the Company Law, if the company has not convened a shareholders' meeting for five consecutive years to make a resolution on the distribution of profits, shareholders holding less than one-tenth of the company's voting rights may request The company acquires its equity at a reasonable price. 67. If a shareholder files a lawsuit within the time limit specified in the second paragraph of Article 75 of the Company Law, the people's court shall not accept it. 68. If the shareholders require the company to acquire the equity in accordance with the provisions of Article 75 of the Company Law, but there is no consensus on the purchase price of the equity, the people's court shall support the shareholders' claim to determine the purchase price of the equity by way of evaluation. Other relevant provisions of the (IV) China Securities Regulatory Commission, Guidelines on the Articles of Association of Listed Companies Article 23 A company may purchase its shares in accordance with the provisions of laws, administrative regulations, departmental rules and these Articles of Association under the following circumstances: (I) reduction of the company's registered capital; (II) merger with other companies holding shares in the Company; (III) use of shares for employee stock ownership plans or equity incentives; (IV) shareholders request the company to purchase its shares due to their objections to the merger or division resolution made by the general meeting of shareholders; (V) the use of shares for the conversion of convertible corporate bonds issued by listed companies; (VI) listed companies are necessary to safeguard the value of the company and shareholders' rights and interests. Except in the above circumstances, the company shall not purchase the shares of the company. A company issuing preferred shares shall also specify in its articles of association that the option to repurchase the preferred shares shall be exercised by the issuer or shareholders, and the conditions, price and proportion of the repurchase shall be specified. If the issuer requires the repurchase of preferred shares in accordance with the provisions of the articles of association, it must pay the dividends owed in full, except for the issuance of preferred shares by commercial banks to supplement capital. Summary of Litigation Plaintiff: Shareholder Defendant: Company Jurisdiction: by the people's court of the company's domicile Litigation request: 1. The defendant was ordered to purchase the defendant's shares held by the plaintiff at a reasonable price (subject to the assessed price, tentatively xx yuan). 2, the case acceptance fee, preservation fee and other litigation costs are borne by the defendant. Dispute Issues and Judgment Rules (I) Dispute Question 1: How is the price of the acquisition shares determined? Summary of the problem: According to Article 74 of the Company Law, shareholders should adopt a "reasonable price" when requesting a company to acquire shares, and according to the opposition interpretation of this provision, if shareholders do not adopt a "reasonable price" when requesting a company to acquire shares, the company has the right to refuse the acquisition. However, Article 74 of the Company Law does not further specify how to determine the "reasonable price", from the interpretation of the meaning of this provision, the "reasonable price" should be the price agreed by both parties, but not necessarily the price expressly agreed in the articles of association. For the company and its shareholders, the acquisition price can be called "reasonable" only if it does not harm the legitimate interests of the company or the shareholders, so it is necessary to make a certain balance between the interests of the company and the shareholders. Case: Zhao Zaiyue and Hailisheng Group Co., Ltd. requested the company to retry the civil judgment on the dispute over the acquisition of shares (case No.:(2017) Zhejiang Minzai No. 89; Trial court: Zhejiang Higher People's Court) First of all, Zhao Zaiyue advocates that determining the equity purchase price through third-party financial audit and asset evaluation is not the only way to judge the "reasonable price. If it is sufficient to determine a fair market price based on the circumstances of the case, there is no need to determine the purchase price of the equity by entrusting a third party to conduct an appraisal. Secondly, the reasonable price for the company to acquire the shares of the dissenting shareholders shall refer to the equity value calculated on the basis of the net assets of the company. Under the standard of the company's financial accounting system, the owner's equity in the balance sheet of the enterprise can reflect the real net assets of the company, even if the articles of association of the company do not agree on the purchase price of equity, there is nothing wrong with calculating the purchase price of equity on the basis of the owner's equity at the end of the year. Thirdly, at present, 21 natural person shareholders and 191 members of the shareholding association have accepted the price to transfer their shares, which to a certain extent confirms the true share price of the acquired shares in market transactions. (II) Disputed Question 2: What is the main reference to the transfer of main property under Article 74, paragraph 2, of the Company Law? Problem overview: What is the main property, the company law does not make clear. This leads to the need for judges to judge and identify the "main property" at their discretion in the process of handling specific cases. The discretion of the judge has led to the ambiguity of the criteria for the identification of the main property in judicial practice, and does the transfer of the main property simply refer to the sale? Is it a transfer to set up a company with another person in the form of in-kind capital contribution? It can be seen that Article 74 of the Company Law covers a narrow scope and cannot cover the problems that arise in the real process, such as asset restructuring, asset mortgage and other matters, in which case the interests of small and medium-sized shareholders are harmed, and there are doubts as to whether the provisions on share repurchase apply. In current practice, the court adopts two situations to determine the "main property": one is based on the "quantity" of the transferred property, and the other is based on the "quality" of the transferred property. Case: Zhongshan jielong kitchenware co., ltd. and Peng antao's request for the company to acquire shares (case no:(2016) yue 20 min zong no 4064; Trial Court: Zhongshan Intermediate People's Court of Guangdong Province) The court of second instance held that, first of all, the issue of whether the content of the resolution of the meeting belonged to the "transfer of major property" of Jielong Company. China's company law does not make a clear legal definition of the scope of the "transfer of the main property" of a limited liability company, the Court believes that whether the property transferred by the company is the main property, depending on whether the property transferred by the company affects the normal operation and profitability of the company, resulting in fundamental changes in the company. The business scope of Jielong Company is: production, processing, and sales of kitchenware and sanitary ware, and the content of the meeting resolution shows that Jielong Company "sold the equipment involved in the case to Zhang Hongmei at a price of 170518.46 yuan" and transferred bending machines, Shears, punches, argon arc welding machines, air compressors, wire drawing machines and other main production and operation equipment, not the products in its business scope, the transfer also did not involve the upgrading of the company's production equipment; and, in the second instance, Jielong confirmed that after the equipment involved was sold to Zhang Hongmei in May 2015, Jielong had ceased normal operations. Obviously, the property transferred by Jielong Company has affected the normal operation and profitability of the company, resulting in fundamental changes in the company, which has constituted the "transfer of main property" of the company in Article 75 of the Company Law of China. comment and analysis In practice, the determination of "reasonable price" is generally determined by reference to the fair market price of the acquired shares; when there is no fair market price for the acquired shares, it should be determined by reference to the fair market price of the shares of similar companies; when there is no fair market price for the shares of similar companies, it can be determined by reference to the company's establishment, operating conditions, the market value of the company's realizable assets, the market value of the company's net assets and other factors; in addition, in the absence of relevant factors to refer to, you can apply to an independent third-party audit institution for audit confirmation or apply to the court for judicial confirmation to determine. In addition, for the determination of "transfer of main property", it is more reasonable to take the "quality" of the transferred property as the criterion, that is, a comprehensive examination should be made of the extent to which the assets involved affect the operation, survival and interests of the company and shareholders.

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