Research On Duty Of Loyalty Of Controlling Shareholders In Affiliate Transactions

In practice,it is often the case that the controlling shareholder uses control to suppress supervision and obtain private benefits.In China’s capital market,it is more serious for the controlling shareholders to infringe the interests of the company and minority shareholders through improper affiliated transactions.In the World Bank’s "Business Environment Report" in 2019,China’s "Protection of Minority Investors" scored only 60 points,and it is urgent to improve the normative system of controlling shareholders and improve the business environment in light of China’s situation.Although the fiduciary duty of the controlling shareholder in connected transactions is regulated by the company law,securities law,fiscal and tax law and criminal law,there are still problems such as loopholes in the regulatory system and conflicts in the internal system.The specific performance is as follows: "Company Law Interpretation 5" and other sources that do not specify the source of the compensation liability of the controlling shareholder for damages and the loyalty obligation of the controlling shareholder in the related party transaction,and the provisions on the distribution of the referee method and the burden of proof are insufficient.From a practical perspective,the existing normative system lacks restrictions on violations of loyalty obligations,administrative punishment is not strong enough,criminal punishment is vacant,and minority shareholders have too much burden of proof to file derivative derivatives litigation,and minority shareholders have a higher risk of losing litigation.This caused the lack of regulation of the controlling shareholders’ damage to the minority shareholders and the companies’ interests and damage to the minority shareholders ’rights and interests.Judging from the purpose of the regulation and the interpretation of the system,the "use of connected transactions" in the "Company Law" is not a single element of the controlling shareholder’s breach of loyalty obligations.It is appropriate to interpret "use of connected transactions" as an abuse of connected transactions.The specific performance is as follows: the controlling shareholder and the company carry out improper related party transactions,and use their own control to influence the company’s decision-making,which may make themselves profitable and damage the rights of the company and a few investors.The connotation of the controlling shareholder’s loyalty obligations in connected transactions has a two-tier structure: one is the essential elements for the full disclosure of information and the consent of the shareholders’ meeting and the board of directors;the second is the essential requirements to ensure that the connected transactions are substantially fair and that the interests of the company and minority shareholders must not be compromised.When reviewing the fiduciary duties of the controlling shareholder,the court should refer to the Delaware judicial review method in the United States,that is,the principle of substantive review and the principle of commercial judgment as the exception.A series of institutional settings are required to implement the normative function of the controlling shareholders’ loyal duty in connected transactions in judicial practice.First of all,qualified plaintiffs and defendants should be identified.Among them,minority shareholders can only initiate shareholder derivative actions after exhausting internal remedies.If an anonymous controlling shareholder commits an act of damage,the principle of nominal shareholder participation shall be used,with the exception of the company and other shareholders being informed;if a related party has maliciously used related party transactions,it shall bear joint and several liability with the controlling shareholder.Secondly,the burden of proof should be reasonably allocated based on the standard of proof responsibility.After the minority shareholders provide reasonable suspicion evidence to prove that the controlling shareholder violated the duty of loyalty,the controlling shareholder should prove the rationality of their actions.When it is determined that the controlling shareholder violates the obligation of loyalty,the reasonableness of the damage result shall be certified by the controlling shareholder.