The Introduction Of Unfair Prejudice Remedies To China

The provisions for unfair prejudice remedies are contained in ss.994-996 of the Companies Act 2006 in England. Section 994 states that:"A member of a company may apply to the court for petition for an order under this Part on the ground that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or some part of the members (including at least himself), or that any actual or proposed act or omission of the company (including any act or omission on its behalf) is or would be so prejudicial. " The unfair prejudice remedies cover a wide variety of acts of misconduct and give the courts extensive discretion to grant remedies. They have developed into extremely valuable remedies for minority shareholders in England. Similar developments have taken place in other common law jurisdictions such as Canadal and Australia and have achieved significant success for the protection of shareholders’ interests.Chinese Company Law 2005 was aware of the peculiarity of limited liability company and enhanced the company autonomy through granting option to shareholders in the way of internal power disposition, institutional framework and management conduct of the company. Though compared with that under the Chinese Company Law 1993, the scope for shareholders’ remedies has been extended under the Chinese Company Law 2005, the rules have established only the basic framework and lack detailed guidance which may result in insufficient remedies to protect minority shareholders’ interests. As similar problems are faced by minority shareholders in both England and China and the unfair prejudice remedies have achieved significant success for the protection of shareholders’interests in England as well as other major common law jurisdictions, it is therefore appropriate to consider whether their introduction into China might greatly enhance the protection of minority shareholders’interests there. Besides the introduction and conclusion, this article will be divided into four chapters. The first chapter evaluates the unfair prejudice remedies in England and their associated problems which involve the concept of unfair prejudice, the interests of members and legitimate expectations as well as the courts’wide discretion to grant remedies. The exit and arbitration articles which proposed by English Law Commission will also be discussed. The second chapter examines whether minority shareholders face problems of unfairly prejudicial conduct in Chinese companies similar to those in English companies. Firstly, the form of company and management structure of Chinese company is introduced. Secondly, the unfairly prejudicial conducts which Chinese minority shareholders faced are explored. The third chapter discusses the inefficiencies of the shareholder remedies in Chinese Company Law 2005, in particular, the right to know, the right to challenge the validity of shareholder and board resolutions, appraisal rights, winding up remedies and derivative actions. It is concluded that it is necessary to introduce the unfair prejudice remedies into China because of their success in England, the existence of similar problems for minority shareholders in both jurisdictions and the insufficient shareholder remedies in the Chinese Company Law. Chapter four evaluates whether the introduction of unfair prejudice remedies is consistent with the main objectives of Chinese Company Law 2005 and the extent to which the unfair prejudice remedies can be implemented in China given its various unique contexts. A practical model is designed for China to introduce unfair prejudice remedies which is amending and extending article 22 of Chinese Company Law. It is concluded that the protection of minority shareholders’interests in China may be greatly enhanced by way of introducing the unfair prejudice remedies; while at the same time, effective mechanisms should be in place to prevent malicious lawsuits and to avoid the problems of lengthy and costly proceedings which exist in England.