Viewpoint | A little thought on the "presiding power" of the shareholders' (general) meeting-whether Article 40 of the Company Law is a mandatory norm of validity

Companies Act (I) A40

Where a limited liability company has a board of directors, the shareholders' meeting shall be convened by the board of directors and presided over by the chairman of the board; if the chairman of the board is unable to perform his duties or fails to perform his duties, the vice-chairman shall preside over the meeting; if the vice-chairman is unable to perform his duties or fails to perform his duties, more than half of the directors shall jointly elect a director to preside over the meeting.

Where a limited liability company does not have a board of directors, the shareholders' meeting shall be convened and presided over by the executive director.

If the board of directors or the executive director is unable to perform or fails to perform the duty of convening the shareholders' meeting, the board of supervisors or the supervisor of the company without the board of supervisors shall convene and preside over the meeting; if the board of supervisors or the supervisor does not convene and preside over the meeting, the shareholders representing more than one tenth of the voting rights may convene and preside over the meeting by themselves.

(II) Association Law

1. Companies Act A22

Resolutions made by the shareholders' meeting, the shareholders' meeting or the board of directors of the company in violation of laws or administrative regulations shall be null and void.

If the convening procedure or voting method of the shareholders' meeting or the meeting of the board of directors violates laws, administrative regulations or the articles of association of the company, or the content of the resolution violates the articles of association of the company, the shareholders may request the people's court to revoke the resolution within 60 days from the date of the resolution.

Where a shareholder brings an action in accordance with the provisions of the preceding paragraph, the people's court may, at the request of the company, require the shareholder to provide a corresponding guarantee.

If the company has gone through the change registration in accordance with the resolution of the shareholders' meeting, the shareholders' meeting or the board of directors, after the people's court declares the resolution invalid or revokes the resolution, the company shall apply to the company registration authority to cancel the change registration.

2. (IV) of Provisions of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Company Law A4

If a shareholder's request to revoke the resolution of the shareholders' meeting or the general meeting of shareholders or the board of directors complies with the provisions of Article 22 of the Company Law, the people's court shall support it, but the procedure for convening the meeting or the voting method is only slightly flawed and does not have a substantial impact on the resolution, the people's court shall not support it.

(I) case 1: the supreme court-Guangxi jinwuyue energy group co., ltd. and Guangxi material reserve co., ltd. confirm the civil judgment of invalid contract dispute retrial [(2019) supreme fa min zai no 35, July 30, 2019]

The Supreme People's Court believes that the first paragraph of Article 40 of the the People's Republic of China Company Law stipulates: "A limited liability company shall establish a board of directors, and the shareholders' meeting shall be convened by the board of directors and presided over by the chairman; if the chairman is unable or fails to perform his duties, the vice chairman shall be presided over; if the vice chairman is unable or fails to perform his duties, more than half of the directors shall jointly elect a director to preside, you can have a vice chairman. The method for the selection of the chairman and vice-chairman shall be stipulated in the articles of association of the company"; Article 47 stipulates: "the meeting of the board of directors shall be convened and presided over by the chairman of the board of directors; if the chairman is unable or fails to perform his duties, the vice-chairman shall be convened and presided over by more than half of the directors".As the person in charge of the board of directors, the chairman of the board of directors bears important responsibilities for the overall development, production and operation of the company. Therefore, with reference to the above-mentioned provisions of the the People's Republic of China Company Law, when the chairman is unable to perform his duties for some reason, he should transfer his power or re-election through legal procedures, but not through the overall general authorization of the individual.In this case, when Yuan Jianwei was unable to normally perform his duties as chairman and legal representative due to residential surveillance, he issued a "Power of Attorney" to Ding Haishun without a resolution of the company's shareholders meeting or board of directors, and entrusted him to "Perform the powers of the chairman and legal representative of the material reserve company, keep the company's official seal and carry out company business activities in accordance with the law", the authority of the chairman and legal representative of the company is generally authorized to Ding Haishun, which violates the above-mentioned provisions of the the People's Republic of China Company Law. Ding Haishun cannot obtain the authority of the legal representative and chairman of the material reserve company. The act of signing the "Creditor's Rights Transfer Contract" with the Material Group Company is an unauthorized representative, not the true intention of the Material Reserve Company."

Summary 1: In this case, the Supreme Court held that the chairman (executive director) could not transfer the legal obligation to convene and preside over the shareholders' meeting by way of authorization, and the relevant authorization was invalid.

(II) Case 2: Shandong High Court-Zhang Wei, Ji Changjian, Jinan Tianjian Construction and Installation Engineering Co., Ltd. and other companies resolution dispute retrial review and trial supervision ruling [(2020) Lu Minshen 5448, August 31, 2020]

The Shandong Higher People's Court believes that based on the facts ascertained in this case, the convener of the shareholders meeting of Tianjian Real Estate Company on January 25, 2019 was actually Tianjian Real Estate Company, the company's supervisor and the major shareholder Tianjian Jian'an Company. The convening procedure complies with the law. The moderator of the meeting recorded in the notice of convening an interim shareholders' meeting is not a member of the board of directors or the board of supervisors of Tianjian Real Estate Company, but Jia Mingkai, the legal representative of the major shareholder of Tianjian Real Estate Company. Therefore, in accordance with the relevant provisions of the Company Law, the original effective judgment determined that Tianjian Real Estate Company had certain defects in the organizational procedures of the shareholders' meeting, which was in line with objective facts and judicial guidance.

The Supreme People's Court on the application<中华人民共和国公司法>Article 4 of the (IV) on certain issues stipulates: "if a shareholder requests to revoke the resolution of the shareholders' meeting or the general meeting of shareholders or the resolution of the board of directors in accordance with the provisions of paragraph 2 of Article 22 of the Company Law, the people's court shall support it, but if the procedure for convening the meeting or the voting method is only slightly flawed and does not have a substantial impact on the resolution, the people's court shall not support it". The specific circumstances of minor defects are not clearly stipulated in the company law and the relevant judicial interpretations, but in judicial practice, the criterion should be whether the procedural defects lead to the fair participation of the shareholders, the formation of the majority meaning and the access to the information needed for this. In this case, Tianjian Real Estate Company, the company's supervisors and major shareholders jointly issued a notice to inform the company's shareholders 15 days in advance. The applicants Ji Changjian and Zhang Wei received the notice of convening the shareholders' meeting and entrusted their agents to attend the shareholders' meeting and exercised their voting rights. Their channels for obtaining information and expressing their opinions were smooth. Therefore, to sum up, the original effective judgment found that although there were defects in the convening procedure of the shareholders' meeting of Tianjian Real Estate Company on January 25, 2019, it did not prevent shareholders from obtaining the required information and exercising their voting rights. It should be a minor defect, which does not affect the effectiveness of the resolution of the shareholders' meeting, and rejects the applicant's litigation request, which is clear in fact and correct in applicable law.

Summary 2: In this case, the specific circumstances of minor defects are not clearly stipulated in the company law and relevant judicial interpretations, but in judicial practice, whether the procedural defects lead to the fair participation of shareholders, the formation of majority meaning and the acquisition of the information needed for this should be the criterion. Only the host is defective and should not be deemed invalid.

(III) Case 3: Jinan Intermediate People's Court-Wenzhou Dongtou Yuanyuan Mariculture Co., Ltd. and Jinan Yindu Real Estate Development Co., Ltd. resolved to revoke the second-instance judgment of the dispute [(2019) Lu 01 Min Zhong No. 650, March 14, 2019]

Jinan Intermediate People's Court holds that Article 12 of the Articles of Association of Yindu Company stipulates: "The shareholders' meeting shall be convened by the board of directors and presided over by the chairman. If the chairman is unable to perform or fails to perform his duties, a director jointly elected by more than half of the directors shall preside over the meeting." In response, the court believes that according to the above provisions of the company law and the articles of association of yindu company, the failure to preside over the interim shareholders' meeting is not the legal cause and necessary condition for revoking the resolution of the interim shareholders' meeting. The resolution of the interim shareholders' meeting involved states that more than half of the directors of the board of directors elected Huang Songmin as the convener and moderator of the interim shareholders' meeting, and the participating shareholders Qiao Sen Company, Financial Services Company, Kodar Company, Kodar Company, more than half of the shareholders of Yindu Company passed the resolution of the interim shareholders' meeting involved in the case; Teng Yuanfang is not a shareholder of Yindu Company, and he himself did not raise any objection to his failure to preside over the interim shareholders' meeting; and the board of directors of Yindu Company held on the same day of the interim shareholders' meeting formed a resolution to remove Teng Yuanfang from the post of chairman, which was unanimously approved by other directors of Yindu Company except Teng Yuanfang himself, therefore, it is not feasible for Teng Yuanfang to preside over the interim shareholders' meeting. To say the least, even if an interim shareholders' meeting is reconvened, the voting results of the resolutions of the shareholders' meeting will not change based on the existing facts and the voting ratio agreed in the articles of association of Yindu Company. Yuan Yuan Company claims that the convening of the above-mentioned shareholders' meeting and the resolution of the shareholders' meeting infringed upon its rights and interests as a minority shareholder holding 28.3 percent of the shares of Yindu Company, which has no factual and legal basis and is not supported by the Court.

Summary 3: In this case, the Jinan Intermediate People's Court believes that the failure to convene a shareholders' meeting in accordance with the Company Law A40 will not affect the effectiveness of the resolution of the shareholders' meeting under the circumstances that there is room for the Articles of Association, the chairman cannot convene normally, and the voting results of the voting ratio orientation will not change.

(IV) Case 4: Second Instance of Resolution Dispute between Jinan Intermediate People's Court-Jinan Tianjian Construction and Installation Engineering Co., Ltd. and Zhang Wei and Other Companies [2020 Lu 01 Min Zhong No. 882, April 2, 2020]

The Jinan Intermediate People's Court believes that according to Article 40 of the Company Law: "Where a limited liability company establishes a board of directors, the shareholders meeting shall be convened by the board of directors and presided over by the chairman; if the chairman is unable to perform his duties or fails to perform his duties, the vice chairman shall preside over; If the vice chairman is unable to perform his duties or fails to perform his duties, more than half of the directors shall jointly elect a director to preside. Where a limited liability company does not have a board of directors, the shareholders' meeting shall be convened and presided over by the executive director. If the board of directors or the executive director is unable to perform or fails to perform the duty of convening the shareholders' meeting, the board of supervisors or the supervisor of the company without the board of supervisors shall convene and preside over the meeting; if the board of supervisors or the supervisor does not convene and preside over the meeting, the shareholders representing more than one tenth of the voting rights may convene and preside over the meeting on their own". According to the facts ascertained in this case, the convener of the shareholders' meeting of Tianjian Real Estate Company on January 25, 2019 is actually Tianjian Real Estate Company, the company's supervisor and the major shareholder Tianjian Jian'an Company, so the convening procedure of the shareholders' meeting is in line with the above legal provisions. In the notice of convening an interim shareholders' meeting, the actual moderator of the meeting is not a member of the board of directors or the board of supervisors of Tianjian Real Estate Company, but Jia Mingkai, the legal representative of the major shareholders of Tianjian Real Estate Company. Therefore, Tianjian Real Estate Company has certain defects in the organization procedure of the shareholders' meeting.

Article 4 of the interpretation IV of the Company Law stipulates: "if the shareholders' request to revoke the resolutions of the shareholders' meeting or the general meeting of shareholders or the board of directors conforms to the provisions of paragraph 2 of Article 22 of the Company Law, the people's court shall support it, but if there are only minor defects in the convening procedure or voting method, and there is no substantial impact on the resolution, The Company Law and its judicial interpretation do not clearly stipulate the specific circumstances of minor defects, in practice, it is possible to determine whether procedural defects will lead to equitable participation by shareholders, the formation of majority meaning and access to the information needed for this. Tianjian Real Estate Company, the company's supervisors and major shareholders jointly issued a notice informing the company's shareholders 15 days in advance. Ji Changjian and Zhang Wei had no objection to the fact that they had received the notice of convening the shareholders' meeting, and entrusted their agents to attend the shareholders' meeting and exercised their voting rights. Their channels for obtaining information and expressing their intentions were smooth. Therefore, to sum up the above analysis, although there are defects in the convening procedure of the shareholders' meeting of Tianjian Real Estate Company on January 25, 2019, it does not prevent shareholders from obtaining the required information and exercising their voting rights, which should be a minor defect and will not affect the effectiveness of the resolution of the shareholders' meeting. Therefore, Ji Changjian and Zhang Wei requested the revocation of the resolution of the shareholders' meeting on the grounds of procedural violations, and the Court did not support it.

Summary 4: In this case, Jinan Intermediate People's Court held that under the condition that all shareholders received the notice and sent personnel to attend the shareholders' meeting without raising any objection, the host's inadequacy was a minor defect and did not affect the validity of the resolution of the shareholders' meeting.

(I) System Interpretation of Procedural Flaws in Resolutions of Shareholders' Meeting(Jianghai Journal, No. 2, 2019; Peng Zhenming, born in 1963, professor and doctoral supervisor of Hainan University Law School; Wen Changqing, born in 1993, researcher of Xiamen University Financial Law Research Center)

The statutory requirements for presiding over acts are provided for in articles 40 and 10 of the Companies Act. Because of the ambiguity of language expression, it is still doubtful whether it belongs to peremptory norm or arbitrary norm. The moderator plays an important role in maintaining the order of the meeting, controlling the process of the meeting and ensuring the freedom of shareholders to speak and discuss. Violation of the rules of chairmanship specified in the Company Law or the Articles of Association of the Company constitutes a defective chairmanship in the meeting.

As the core of collective meeting activities, the host is the key figure to form the democratic discussion atmosphere and organize democratic voting activities. The leading role of the moderator in the proceedings of the meeting directly or indirectly affects the formation of the resolution of the shareholders' meeting.Articles 40 and 101 of China's Company Law clearly stipulate the rules for determining the right to preside over the meeting, and these two provisions do not use the words "should" and "must" and other words embodied as mandatory rules, nor do they have a proviso that the articles of association of the company or all shareholders may agree separately.In fact, the arrangement of the presiding power is the pre-selection of the meeting leader by the shareholders collectively,The presiding role of the host does not necessarily directly affect the meaning of individual shareholders to vote freely, and the control of the order of the meeting does not mean that the result of the vote can be influenced, and the free will of shareholders is not bound by the meeting procedure.Therefore, the provisions of the articles of association on the right to preside over the meeting have priority over the provisions of articles 40 and 101 of the Company Law. In violation of the provisions of the Company Law or the Articles of Association on the right to preside over the meeting by a person without the right to preside over the meeting constitutes a defect in the right to preside over the meeting. The rules for determining the right to preside as stipulated in the Company Law or the Articles of Association of the Company are the collective pre-approval of the qualifications of the presiding officer of the meeting by the shareholders' meeting.In the process of the shareholders' meeting, a person without the right to preside over the meeting who does not meet the legal or statutory requirements shall preside over the meeting. If all the shareholders present at the meeting do not express any objection to the hosting behavior, it also constitutes the collective recognition of the shareholders' qualification of the host. The identification and confirmation of the collective will of the shareholders' meeting does not constitute an obstacle, so the defect of the right to preside does not constitute a cause affecting the effectiveness of the resolution.On the contrary, if the shareholders participating in the meeting express clear objection to the qualification of the moderator, the defect of the right of hosting will have an impact on the shareholders' sense of identity with the form of the meeting, and then affect the expression of the individual free meaning of shareholders, that is, the identification and confirmation of the collective meaning of the shareholders' meeting constitutes an obstacle, shareholders who express their express disagreement with the qualifications of the presiding officer at the shareholders' meeting shall have the right to apply to the court to revoke the resulting resolution of the shareholders' meeting within the prescribed period of exclusion.

(II) Tang Xin "On the Character of Company Law --- Forced Law or Arbitrary Law"[China Law, No. 1, 2001] and Liu Junhai's "The Art of Balancing Corporate Autonomy and Judicial Intervention: Innovation, Defects and Reinterpretation of" Interpretation IV of Company Law "[Law Journal, No. 12, 2017] are consistent with the above views.

The (I) Supreme Court tends to believe that the Company Law A40 is a mandatory norm for effectiveness;

(II), Shandong High Court and Jinan Intermediate People's Court tend to believe that under the circumstances that do not affect substantive voting (e.g. 1. The articles of association provide otherwise, 2. All shareholders are notified and have not raised any objection, 3. The majority of voting rights are dominant), A40 of the Company Law can be regarded as a minor defect due to the obstruction of A4 of the (IV) for Interpretation of the Company Law, which can be regarded as a mandatory management norm.

(III) theory tends to hold that the right of revocation can only be granted to shareholders who explicitly dissented from the qualification of the moderator at the shareholders' meeting, and in theory, the right of revocation can only be granted to shareholders whose rights have been infringed by improper procedures, and in this case, the shareholders whose rights can be clearly identified as infringed are limited to those who explicitly dissented from the qualification of the moderator at the shareholders' meeting.