Reflections On The Problem Of The Plaintiff In Shareholder’s Representative Action

So-called Shareholder’s Representative Action means that when the interest of companies’ minority shareholders by unlawful damage, after using all internal remedies still unable to prompt the company to exerciserights to unlawful infringers, the shareholders would be entitled to execute the Shareholder’s Representative Actionin its behalf, and the consequences of litigation attributes to the company’s system. Among the Shareholder’s Representative Action, the persons of damaging the legitimate interests of the company is often company’s board of directors, supervisors, senior management or big shareholders, company promoter, liquidator, and due to their special status and identity, if rigidly persevered in "majority" and "independence of corporate personality”, basically it is impossible to stop such infringement. Therefore, in some special conditions, if eligible shareholders who had fulfilled certain procedures are not allowed to stop unlawful infringers damaging the company’s interest in their own name on behalf of the company, it will lead to another kind of injustice. Therefore, in consideration of fairness, it is necessary to set up a system which can breakindependence of corporate personalityandthe capital majority principle, and the new system can provide the last remedy for minority shareholders to protect their legal interests which are infringed by corporate governance. Under the background, Shareholder’s Representative Action was born.Progress with the times, Modern Corporation System has been established and applied in many aspects. The fundamental purpose and ultimate ownership of modern corporate governance depend upon the company management how to maximize the interests of the company. In the process of achieving the fundamental purpose, it is bound to support the executors of corporate governance find effective balances between playing an important role in subjective initiative, diligent and efficient work and prompting the corporate governance to fulfill their duties responsibly, abide by fiduciary duty, consider the company’s interests as the first. In order to achieve the maximization of corporate profits, corporate governance’s executors(i.e., directors and executives) is bound to become an increasingly important role in dealing with daily operations of the company, and their abilities of determining the development direction of the company and controllingor dominating the company’s daily business activitiesis getting stronger. Consequently, an irrevocable trend of our modern company system has emerged, that is, the center from “shareholders center” to “the center of the board of directors”. But the corporate governance have their own interests, therefore, to protect their own interest, their behavior of damaging the company’s interest seems inevitable. The outstanding performance is that corporate governance fills their own pocketwith company’s collective property and abuses their power by related transactions which are not conform to the conditions of the market andexploiting the advantage of corporate policy and information superiority. In order to fulfill the restriction and supervision of corporate governance, the civil law system had tried to construct the supervisor board to restrict(the power of) the board of directors. Unfortunately, the board of supervisors not only did not fulfill its due duty, but also fall into an optional, dispensable and awkward position. In the absence of supervision, the absolute power will lead to absolute corruption. Under such a background, Shareholder’s Representative Action which can empower the qualified minority shareholdersthrough judicial relief to punish the company’s executors who damage the interests of the company returns to the people’s vision, and the action is given the greater expectations.Until 2005, our country formally introduces the shareholder’s Representative Action System through the newly revised Company Law.People are appointed with the importance of the system and aims of lawmakers, but since formal establishment of the shareholder’s Representative Action System, judicial practice in China is scarce. It can be said that the Shareholder’s Representative Action system failed to play its function and role.In the practice,Shareholder’s Representative Action is less and less, so the case of the case is rare and less.Why such a highly expected system which can restraint corporate governance’s rights, improve corporate governance’s structure and safeguard the legitimate rights of small and medium shareholders in the company can not radiate vitality? Why litigation of shareholder’s representative action was clearly signed into normal legal clauses, but in the reality of judicial practice, why the litigation put aside as decoration? Why did the legislator’s good wishes come to a real winter? We have to pay attention and reflection to the matter.From the essence of the shareholder’s representative action to proceed, the author reach a conclusion based on the study of existing literature: the unreasonable plaintiff system of shareholder’s representative action(such as the plaintiff’s qualification of the plaintiff system in shareholder’s representative action, the problem of plaintiff’s prosecution system, the problem of protecting the successful plaintiff ’s interests, and so on) lead cause the existing shareholder’s representative actiondo not play a due role, and the most unreasonable, most urgent problemsmust be solved is that small and medium shareholders’ motivation of restricting corporate governance’s rights isinsufficient. Imaginethat the company’s minority shareholders whoexperience untold hardships establish and complete the procedures of Shareholder’s Representative Action, theaccomplishment that has been too hard won all attribute to the company, and the holdings’ shares of plaintiff shareholders only entitle them to gain trivial benefit indirectly. Once the plaintiffs lose the suit, the losing consequences are undertaken by themselves only. The rights and obligations are so unequal, the cost and the income are so disproportionate, and where are the momentum of using the power of shareholder’s representative action by medium and small shareholders from? If minority shareholders do not carry outthe shareholder’s representative action, the legitimate interests of the company can not be guaranteed, countries for the company’s management system can notbe improved, thus it will be a LOSE--LOSEresult. Regardless of which side, they are unwilling to see the results.To prevent the abuse of litigation, many scholars consider that plaintiff system of shareholder’s representative action should have more strict restrictions and constraints. Moreover, in order to prevent the abuse of litigation, the author thinks that setting restrictions on the plaintiff system of shareholder’s representative action has realistic meanings and some validity. At present, the number of shares holding by the Shareholder’s Representative Action is extremely rare, and small and medium shareholders lack of motivation to restrictcorporate governance’s rights. Based on above reasons, whether setting restrictive barriers on the Plaintiff System of Shareholder’s Representative Action is reasonable? Under the current situation, there is not much Shareholder’s Representative Action and lawsuit abuse do not occur, so whether we should consider that increase the number of Shareholder’s Representative Action, reconstruct the company governance structure by making good use of the Shareholder’s Representative Action, all these can safeguard the legitimate rights and interests of minority shareholders. The answer is absolutely positive.Furthermore, the author think that we should grasp the essence of the shareholder’s Representative Action firmly, and conduct careful design and improvement on the system from point to facebased on our country’s circumstance and judicial practice, thereby help the shareholder’s Representative Action’s contradictionreach a balance and make good use of advantages and functions of the shareholder’s Representative Action.Above-mentioned is also the author’s underlying purposeof improving the plaintiff system of shareholder’s Representative Action.Therefore, this article will make in-depth analysis which mainly through comparativemethod on improving the Plaintiff System of shareholder’s Representative Action, then try to put forward the suggestions and solutionsto perfect our Plaintiff System of shareholder’s Representative Action.