On The Criteria For The Recognition Of Non-Fair Related Transactions Of Chinese Companies

Related party transaction is a double-edged sword.The regulation of the company’s non-fair related party transactions has great significance in safeguarding the interests of companies,minority shareholders and creditors,and it can optimize the business environment.The recognition standard is a necessary substitute for effectively regulating the company’s non-fair related party transactions.On April 28,2019,"Provisions of the Supreme People’s Court on Several Issues concerning the Application of the Company Law of the People’s Republic of China(V)" were promulgated.Article 1 clearly states that if the related party transaction harms the interests of the company,performing legal procedures cannot waive internal liability,which means that a review of the process to determine whether the transaction is fair has been eliminated,but there is no further definition of the recognition standard.Therefore,taking the accreditation standard as the research object,and following the logical approach from theory to norms,this article defines the subject in theory firstly,and then reviews the status of identification in China with the experience of extraterritorial law,at last,based on these theories,it makes due choices on the identification criteria for non-fair related party transactions in Chinese companies.In addition to the introduction and conclusion,the main content of this article includes four parts:The first part mainly defines the company’s non-fair related transactions.The company’s non-fair related party transactions refer to the unfair transfer resources or obligations between the company and its affiliates.Its characteristics include the formal equality of subject status,the fact that the transaction is determined by one party,and the existence of unfair consequences.According to the differences in identity,influence and content,profit and loss direction,and frequency of occurrence,the company’s non-fair related transactions can be divided into four typical types.The second part analyzes the status of Chinese companies’ non-fair related party transaction recognition standards.The current status of legislation presents three issues:the lack of role of company law,uneven distribution of legislative resources,and the role of "soft law" that need to be strengthened.In judicial practice,different courts have different approaches and standards when dealing with disputes over connected transaction damages.In theory,the differences between the existing substantial fairness standards and the dual-track recognition standards have their own flaws,and the flaw of the dual-track recognition standards is rooted in the coincidence of the procedural fairness standards and the flawed system of company resolutions.The third part introduces the extraterritorial law experience of the company’s non-fair related party transaction recognition standards.Judgment on the fairness of related party transactions by extraterritorial law includes "Lawful Procedure Test","Business Judgement Rule Test","Intrinsic Fairness Test",and "Objective Fairness Test",while the specific recognition standards involve single-procedure fairness standards,dual-track recognition standards,and substantial fairness standards.All in all,the experience of extraterritorial law shows that China’s regulation of company’s non-fair related transactions should attach importance to substantial fairness at this stage.The fourth part discusses the appropriate choice of Chinese company’s non-fair related party transaction recognition standards.Combining the current situation in China and the experience of extraterritorial law,in order to ensure fairness and take into account efficiency,we should adopt a substantial fairness standard,with transaction results as the basic elements,transaction conditions as the core elements,and transaction motivation as the key elements,and the effectiveness will decrease in order.