Corporate Litigation Study... Practical points of liability disputes against shareholders' interests.

Introduction

A dispute over liability for damage to the interests of shareholders refers to a dispute between a company's directors or senior management who, in violation of laws, administrative regulations or the provisions of the company's articles of association, damage the interests of shareholders and shall bear the liability for damage to shareholders. The subject of interest directly directed by the director or senior manager in violation of the provisions of laws, administrative regulations or the articles of association may be the company, but the object of the case is not the company, but the shareholders, as long as the interests of the shareholders are indirectly directed, the shareholders can initiate a dispute against the interests of the shareholders.

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1. related regulations

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Companies Act of the People's Republic of China (2018 Revision)

Article 148 A director or senior manager shall not commit any of the following acts:

(I) misappropriation of company funds;

The (II) deposits the company's funds in his or her own name or in an account opened in the name of another individual;

The (III), in violation of the Articles of Association, lends the company's funds to others or provides security for others with the company's property without the consent of the shareholders' meeting, the shareholders' meeting or the board of directors;

The (IV) enters into a contract or conducts a transaction with the Company in violation of the Articles of Association or without the consent of the shareholders' meeting or the shareholders' general meeting;

(V), without the consent of the shareholders' meeting or the shareholders' general meeting, take advantage of their positions to seek business opportunities belonging to the company for themselves or others, and operate on their own or for others the same kind of business as that of the company they work;

(VI) accept as his own commission on transactions between others and the Company;

Unauthorized disclosure of company secrets by the (VII);

(VIII) other acts that violate the duty of loyalty to the company.

The income of directors and senior managers in violation of the provisions of the preceding paragraph shall be owned by the company.

Article 149 If a director, supervisor or senior manager violates the provisions of laws, administrative regulations or the company's articles of association when performing his duties, and causes losses to the company, he shall be liable for compensation.

[Shareholder Derivative Litigation] Article 151 Where directors and senior managers have the circumstances specified in Article 149 of this Law, shareholders of a limited liability company or shareholders of a joint stock limited company who individually or collectively hold more than 1% shares of the company for more than 180 consecutive days may request in writing the board of supervisors or the supervisor of a limited liability company without a board of supervisors to bring a lawsuit to the people's court. If the supervisor has the circumstances specified in Article 149 of this Law, the aforementioned shareholders may request in writing the board of directors or the executive director of a limited liability company without a board of directors to file a lawsuit in the people's court.

If the board of supervisors, the supervisor of a limited liability company without a board of supervisors, or the board of directors or the executive director refuses to file a lawsuit after receiving the written request from the shareholders specified in the preceding paragraph, or fails to file a lawsuit within 30 days from the date of receiving the request, or the situation is urgent, Failure to file a lawsuit immediately will cause irreparable damage to the company's interests, the shareholders specified in the preceding paragraph have the right to directly file a lawsuit in the people's court in their own name.

If another person infringes upon the legitimate rights and interests of the company and causes losses to the company, the shareholders specified in the first paragraph of this article may file a lawsuit in the people's court in accordance with the provisions of the preceding two paragraphs.

[direct litigation by shareholders] Article 152 if a director or senior manager violates the provisions of laws, administrative regulations or the articles of association and harms the interests of shareholders, the shareholders may bring a lawsuit to the people's court.

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Overview of 2. Litigation

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1, the plaintiff qualification: the main body of the lawsuit is the shareholder.

1) An anonymous shareholder is not a qualified plaintiff. [(2018) Ji Min Shen No. 6736, (2019) Yue Min Shen No. 6871]]

2) The successor of the equity that has not gone through the change registration is not a qualified plaintiff. [(2018) Gan Min No. 170 and (2019) Gan 0203 Min Chu No. 680]]

3) The spouse of the shareholder who has obtained the equity based on divorce (without registration of change) is not a qualified plaintiff.

[(2018) Beijing 0115 Minchu No. 15431]]

4) Other circumstances, such as: the so-called shareholders who only hold stock certificates but do not have payment certificates and are not recorded in the register of shareholders, are considered not qualified as plaintiff shareholders. [(2018) Chuan Min Shen No. 5906]]

2, the defendant qualification: applicable to the infringer for the company's directors, senior management personnel.

Note: The Company's supervisor is not a competent defendant in the lawsuit. [(2018) Beijing 0105 Minchu No. 81563]]

The so-called senior management personnel of the company include the manager, deputy manager, financial officer, secretary of the board of directors of the listed company and other personnel stipulated in the articles of association of the company.

3, the jurisdiction of the court: generally for the company's domicile of the court jurisdiction.

Legal basis: Article 26 of the "Civil Procedure Law" stipulates that "company-related disputes", adjusted by the "Company Law", shall be under the jurisdiction of the people's court of the company's domicile.

4, litigation results: litigation results belong to the plaintiff shareholders.

Since it is aimed at the actions of directors and senior managers that harm the interests of shareholders, the interests of litigation are directed directly at shareholders rather than the company.

5, the company status: the company as a third party to participate in litigation.

6. Pre-procedure: The law does not provide for pre-procedure.

7, the purpose of litigation: in order to protect the interests of shareholders themselves. The purpose of the exercise of the shareholder's direct litigation right is to safeguard the interests of the shareholders themselves, so they bring a lawsuit to the court in the name of the individual shareholders.

8. Difficulties in litigation: It is necessary to prove that directors and senior managers have violated laws, administrative regulations or the provisions of the company's articles of association, which have harmed the interests of shareholders. That is: infringement, subjective fault, shareholder loss.

9. Limitation of statute of limitations: The "Company Law" does not provide otherwise, so the relevant provisions of the "General Principles of Civil Law" apply, that is, the right holder may file a lawsuit within 3 years from the date when he knows or should know that the rights and interests have been infringed.

10. Claim:

The claims are generally expressed as follows:

(1) Request the court to order the defendant shareholder and the company (in the case of illegal cancellation of the company) to compensate the plaintiff for the loss of XXXX yuan and interest (based on XXXX yuan, from the date of prosecution to the date of actual payment, according to the same period of the national interbank lending center published market quotation interest rate calculation)

(2) All litigation costs such as the acceptance fee and preservation fee of the case in this case shall be borne by the defendant.

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3. Disputes and Judgment Rules

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Problem overview:

Article 152 of the Company Law provides for disputes that harm the rights and interests of shareholders of a company, which means that if a director or senior manager violates the provisions of laws, administrative regulations or the company's articles of association and harms the interests of shareholders, the shareholders may bring a lawsuit to the people's court to require the directors or senior managers to bear the liability for compensation. This article is the normative basis for the right of claim for direct litigation by shareholders. However, in practice, the infringed shareholders are generally in the tort occurred for a long time or without their knowledge of the circumstances, the filing of a dispute against the interests of shareholders is subject to the statute of limitations? How should the scope of the damage be defined? In this regard, how to prove that the plaintiff's claim does not exceed the statute of limitations and the scope of compensation for damages caused by the defendant's infringement is a difficult and key point in litigation.

Case 1: Huang Hong and Xu Shengfa dispute over liability for damage to shareholders' interests

[First Instance:(2014) Chao Min (Shang) Chu Zi No. 39002]]

[Second Instance:(2017) Jing 03 Min Zhong No. 7375]]

[Retrial:(2018) Jing Min Shen No. 4724]]

(1) Is the prosecution of a dispute against shareholders subject to the statute of limitations?

Xu Shengfa appealed that Huang Hong, as a shareholder of the company, should attend the shareholders' meeting of the company at least twice a year, and the transfer of his shares in 2008 was registered for industry and commerce, and the registration information was disclosed to the public. Huang Hong did not raise any objection during the seven years between the transfer of his shares in 2008 and 2015. According to the law, Huang Hong should know about this and should bear the consequences of losing the lawsuit. In response, the Beijing No. 3 Intermediate People's Court held that although the effective judgment showed that Huang Hong had lost the shareholder qualification of Huasheng King Company on May 14, 2008 due to Xu Shengfa's forged signature transfer of equity, Xu Shengfa had no evidence to prove that Huang Hong had known or presumed to have known about the loss of his equity since then, and Huang Hong had continuously claimed his rights through several lawsuits since 2014, according to its self-admitted knowledge time and subsequent claims of rights, since the end of 2015, it has received several civil judgments such as Beijing Chaoyang District People's Court (2014) Chao Min (Shang) Chu Zi No. 42196, confirming the rejection of its claim to confirm the invalidity of the shareholders' meeting resolution, only to know that its equity cannot be reinstated and can only claim compensation for infringement damages from the infringer, therefore, in this case, he sued Xu Shengfa for damages and claimed that the statute of limitations did not exceed.

(2) The question of the scope of damages caused by the tort of other shareholders by the shareholder who filed a dispute against the interests of shareholders?

With regard to the scope of compensation, the actual losses of Huang Hong caused by Xu Shengfa's infringement shall include the loss of the illegal transfer of Huang Hong's original shares, and the loss of Huang Hong's corresponding interests in obtaining equity due to the loss of the opportunity to increase capital to the company and the loss of participation in major decisions. With regard to the calculation of the loss, since Huasheng View is a limited liability company and the value of its equity cannot be directly quantified, the asset position of Huasheng View is primarily considered in the calculation of the loss. Regarding the Beinei Research Building project, Huasheng King Company obtained the land use right certificate and construction permit before May 14, 2008. The current housing situation was also formed in 2006, and neither Xu Shengfa nor Huasheng King Company submitted evidence to prove that the housing construction funds were built by Xu Shengfa's personal debt loan. Therefore, the North Inner Scientific Research Building belongs to the fixed assets of Huasheng View Company, and its corresponding market value should be included in the scope of loss calculation. According to the "Real Estate Appraisal Report" issued by the appraisal company entrusted by the court of first instance, the market value is calculated according to the construction area of 10001 square meters and the corresponding allocation, and the construction area of 11386 square meters and the corresponding allocation. The market value on May 11, 2016 It was 296.2902 million yuan and 308.4398 million yuan respectively. Xu Shengfa and Huasheng Jing Company believe that the above-mentioned area measurement is inaccurate, and both of them and those outside the case have disputes over the North Nei Research Building. However, according to their approved area of 8641.3 square meters, the valuation also reaches 256007672.28 yuan. In the second instance litigation, in order to protect the legitimate rights and interests of Xu Shengfa and Huasheng Jing Company, the court commissioned an accounting firm to audit the financial status of Huasheng Jing Company. (IV), it should be pointed out that Huang Hongyuan was originally a shareholder of Huasheng Jing Company, but his shares in Huasheng Jing Company were diluted and then transferred by Xu Shengfa through false shareholders' meeting resolutions and capital contribution transfer agreements, until he lost his qualification as a shareholder. Compensation for losses caused by infringement is not the distribution of shareholders' interests to the company under normal circumstances. 1. the court of second instance mainly considered the status of Huasheng King's assets as of the time of the first instance litigation, it was not improper. Xu Shengfa argued that the calculation of loss compensation in this case should be based on the net asset value available for distribution to shareholders, deducting the various taxes and fees incurred in the realization of sales revenue, and there is no legal basis. the new evidence submitted by xu shengfa was not enough to overturn the original verdict. To sum up, the court of second instance, based on the audit and evaluation of the basic asset value of Huasheng Jing Company, comprehensively considered the amount to be determined in the dispute of Beinei Research Building and the liabilities of Huasheng Jing Company, and combined with Huang Hongyuan's 50% legal shareholding, supported Huang Hong's request for Xu Shengfa to bear compensation for economic losses of 80092100 yuan, which had factual and legal basis and the handling results were not improper.

Case 2: Liang Chengtong, Fengxian Yunda Trading Co., Ltd. and Liu Dequan damage to the interests of shareholders liability dispute.

[Case No.:(2020) Su 03 Min Zhong No. 5940, Xuzhou Intermediate People's Court of Jiangsu Province]]

The Intermediate People's Court of Xuzhou City, Jiangsu Province held that Liang Chengtong forged his signature on the relevant application cancellation documents without the consent of Liu Dequan and other shareholders, and Yunda Company stamped the corresponding application cancellation documents, and canceled the company without liquidating the company according to law, resulting in the court ruling that Liu Dequan and other shareholders should be responsible for repaying the debts of the company, and Liu Dequan and others have actually fulfilled the relevant obligations determined by the effective judgment. Liang Chengtong, Yunda company appeal claim Liu Dequan and other shareholders agreed to cancel the company, and its cancellation behavior is implied, Liu Dequan and so on do not recognize, Liang Chengtong, Yunda company also have no relevant evidence to prove, so do not accept. Article 3 of the Company Law of the the People's Republic of China stipulates that "a company is an enterprise legal person, has independent legal person property and enjoys legal person property rights. The company shall be liable for the debts of the company with all its property. The shareholders of a limited liability company shall be liable to the company to the extent of the capital contribution they have paid; the shareholders of a joint stock limited company shall be liable to the company to the extent of the shares they have paid". Therefore, Liang Chengtong, Yunda company illegal cancellation of the company's behavior, resulting in Liu Dequan with its capital contribution of personal property to the company's debts, to Liu Dequan caused the corresponding losses, Liang Chengtong, Yunda company should be liable for compensation.

Case 3: Bai Shuntian, Xiao Kui, Tan Chuan and Bai Zaiyi, Bai Chaoan, Dazhou Tianyuan Food Co., Ltd., Sichuan Zijinzhou Wine Co., Ltd. damage the interests of shareholders.

[(2017) Chuan 17 Min Zhong No. 1459, Dazhou Intermediate People's Court of Sichuan Province]]

The Intermediate People's Court of Dazhou City, Sichuan Province held that: Article 20 of the the People's Republic of China Company Law "The shareholders of a company shall abide by laws, administrative regulations and the company's articles of association, exercise shareholder rights in accordance with the law, and shall not abuse shareholder rights to harm the interests of the company or other shareholders; company shareholders If the abuse of shareholder rights causes losses to the company or other shareholders, it shall be liable for compensation according to law." And Article 36 "The shareholders' meeting of a limited liability company shall be composed of all shareholders. The shareholders' meeting shall be the company's authority and shall exercise its functions and powers in accordance with this Law." The existing shareholders of Zijinzhou Company are Bai Zaiyi (86.5 per cent of the shares), Bai Shuntian (10.3 per cent of the shares), Tan Chuan (1.7 per cent of the shares) and Xiao Kui (1.5 per cent of the shares), all of which enjoy the business decision-making power of Zijinzhou Company. Although Bo in Yi's shareholding ratio exceeds 2/3, but Bo in Yi did not prove that its disposition of the company's assets and the company issued a "power of attorney" was made by the company's shareholders' meeting resolution, so its decision-making procedures are illegal. The appellants Bai Shuntian, Xiao Kui and Tan Chuan did not prove the fact that Bai Zaiyi's illegal decision-making behavior caused losses to him. Therefore, the reason put forward by the appellant for compensation of 50000 yuan for economic losses cannot be established and the court will not support it.

Referee rules:

In the judicial practice of the dispute over liability for damage to the interests of shareholders, the plaintiff's success rate is relatively low, mainly because the plaintiff's failure to sufficiently prove the facts of the constituent elements, can not prove the infringement, or can not prove subjective fault, or can not prove the loss, or even if the loss is proved, it is not a direct loss to shareholders. Specifically, for example, shareholders suing directors and senior management on the grounds of the company's operating losses are often not supported, because the company's directors and senior management are protected by the "business judgment rule", based on Article 152 of the Company Law to claim their liability is generally subject to gross negligence. For example, the small shareholders sued the large shareholders to dilute the small shareholders' shareholding ratio constitutes an abuse of rights but is not recognized by the court, because the large shareholders normally held a shareholders' meeting and obtained an absolute majority of votes, it is difficult to prove that there is harm to the interests of shareholders. In practice, it is more difficult to prove whether the loss occurred and the scope of the loss, so the plaintiff shareholders should collect and fix relatively complete evidence to confirm the occurrence of their loss and determine the scope of their loss.