The Study On Directors' Duty Of Target Company In A Hostile Takeover

The economic system is benefit-oriented, and it prefers to the efficiency. The law, the nature of which is to design a system, acts as guidance on the people's behavior by the rules and struggles for the balance between the fairness and efficiency so that it can ensure that the system can make a full play of its functions as designed. However, the relationship turns into complicated when it comes to the hostile takeover. Whether such takeover is in compliance with the efficiency requirement and how to balance the interest between the acquirer, the director and the shareholder of the target company. Faced with such problems, what the response should the law make?In a hostile takeover, the directors of the target company stand in the center of the interest conflicts, so the control on such directors' behavior plays a key role in resolving the interest conflicts. As for the behavior of the individual, the duty is no doubt the straightest way to impose the control on it. Therefore, the directors' duty becomes the most significant method for the behavior control. Based on the foresaid, the discussion of this paper begins:The introduction part discusses three issues: the value of the topic, the major issue of the study and the study method.Chapter 1, the Profile of the Directors' Duty. The paper starts with the doubt about the undertaker of the duty and makes an answer to the question who is the director. After the research on four different theories about the relationship between the director and the company, the paper comes to agree that every theory has its own reasonable value, andwhatever the relationship is, the director shall take the duty of loyalty and care, namely the duty of fiduciary.Chapter 2, the Duty of the Directors-the principal mechanism for interest balance in the hostile takeover. This chapter analyses the concept and characters of the hostile takeover at first, and then recognizes the hostile takeover as efficient judged by the standard that the benefit should be in excess of the cost. Based on the participation of three parties, the acquirer, the shareholder, and the directors of the target company, and their different requirements about interests, the author works out that there are three different types of interest conflicts in the hostile takeover, such as the conflicts between the target board and the shareholders, the conflicts between the substantial shareholder and non-substantial shareholder, and the conflicts between the company and the shareholders. The directors stand in the center of such conflicts, which provides the theory base for the discussion herein, so that the duty of the directors, by its efficient functioning, is the principal mechanism to balance the interest of the different parties and resolve the conflicts. At meanwhile, the author also realizes the limitation and non-exclusive of the directors' duty, and makes the related amendment to the view.Chapter 3, the Duty of the Directors- the comparison between the European Union model (the "EU model" ) and the U.S. model. After making the comparison on different models, the author finds that in EU, the directors of the target company are imposed on the duty of neutrality, which can be categorized into two types, the absolute neutrality and the comparative neutrality. In the U.S. model, the provision on the duty is set forth both in the federal law and the state law. The greatest character of the duty in the U.S. model is to put the restriction on the director's behavior by duty of care, which is governed by the Business Judgment Rule. The England and the U.S. are selected as the examples of the two models for the comparison analysis.Chapter 4, Choice and Suggestion— the thinking on the improvement of the directors' duty in our country. As the last part of the text, this chapter comes to a conclusion that to what extent the duty of the directors should be applied is based on who the power of director to be used against the takeover belongs to. From the view of the efficiency, the U.S. model should be chosen for our country, but subject to the limited resources of the jurisdiction, we'd better to adopt the EU model with using some mature case rule in the U.S. model for reference. Based on what mentioned above, some suggestion is put forward for improving our legislation about the directors' duty.The conclusion part emphasizes that the directors' duty is the principal mechanism to balance the interests in the hostile takeover.