Research On Judicial Review Of Related Party Transaction Fairness Standards

Related party transactions have become a very common economic phenomenon.Various cases of using related transactions to harm the interests of companies,small and medium shareholders and creditors are also emerging in endlessly.The judicial standard for the fairness of Related transactions is the prerequisite for judging its legality,proving the existence of damages,and determining the amount of compensation.The vague judicial review standards of related party transactions in China have directly led to the occurrence of "different judgments in the same case".The proportion of second-instance litigation is high,and the decision is delayed for a long time.The imperfect regulations on the pre-approval procedures of related party transactions in China’s legislation are the root cause of the above-mentioned problems.This article pointed out that strengthening the legislation on the prior approval procedures and standardizing the substantive review are effective ways to solve the problem of ambiguous and vague judicial review standards.Through the comparison between China and the United States,this paper studies the procedural and substantive fairness standards of judicial review to related party transactions.First,this paper reviewed the laws and regulations regarding the procedural and substantive fairness standards of related party transactions in China,and pointed out the problems.Then we searched for relevant provisions in American case law and statutory law,analyzed the procedural rules stipulated in Article 144 of Delaware’s General Corporation Law and Article 8.60-8.63 of the 1989 Model Business Corporation Act of the United States,pointed out their advantages and disadvantages,introduced the safe harbor rules.Finally,it is proposed that China’s "Company Law" should introduce safe harbor rules.It is suggested that related party transactions should be ratified in advance by informed disinterested directors or shareholders,China’s "Company Law" should require in its General Provisions that related parties in all types of company,including limited liability companies,to disclose the conflict of interest to disinterested directors and shareholders when entering into connected transactions.It is recommended that the substantive review should follow a certain order,that is,the objective fairness test and independent professional evaluation should be carried out first,business judgement rule should be considered appropriately,and the intrinsic fairness test should be restrained.