On The Localization Structure Of Freeze Out Of Remaining Shareholders

In the process of privatization and delisting of listed companies,it seems not to be uncommon for small and medium shareholders to refuse to sell their shares or take the opportunity to "rip off" for personal gain,which seriously hinders the successful completion of privatization acquisitions.As a result,more and more countries have gradually realized that blindly emphasizing the absolute protection of small and medium shareholders is not only unrealistic,but will even seriously hinder the adjustment of the company’s business strategy.In China,it may have been indicated that,to a certain extent,the risk of abusing controlling shareholders’ rights is far less harmful compared to the small and medium shareholders’ conducts from "taking advantage of the fire” to malicious lawsuits by the cases such as "the case of Erzhong Group(Deyang)Heavy Equipment Co.,Ltd.’s active delisting" and "the case of Sinopec’s comprehensive tender offer to acquire its four listed subsidiaries" Therefore,under certain circumstances,the concept of protecting small and medium shareholders in China’s company law should be changed from "empowering" to "compensating".Accordingly,China has tried to build supplemental content for delisting system,in the"Several Opinions on Reforming and Improving and Strictly Implementing the Delisting System of Listed Companies" issued in 2014 and the "Securities Law(Revised Draft)"(Second Review Draft)formulated in 2015.It seems to be crucial for advancing the delisting system.During the tender offer process of a listed company,the forced-out mechanism for remaining shares is a special delisting system aimed at privatizing listed companies which allows the acquirer who holds the target company’s voting shares that meet the statutory requirements(generally more than 90%)to extrude the remaining minority shareholders on the premise of providing reasonable consideration and compensation.As a "violent" system enabling controlling shareholders to force out minority shareholders,the forcible elimination mechanism for remaining shares is generally favored by legislators in foreign countries(regions).Although it is inevitable that the system violates the "autonomy of will" of the remaining shareholder and disrupts the free trading order of the securities market to a certain extent,because it solves the difficult problem caused by the remaining shares of listed companies in an efficient and low-cost manner,it is in line with the the principle of commercial transaction efficiency justifying certain legitimacy.With the gradual advancement of the registration system reform,the advantages of voluntary delisting and privatization delisting to reduce the company’s operating costs and improve the corporate governance structure will gradually become prominent,and China will progressively produce a compulsory extruding mechanism on remaining shares to meet the urgent need.In March 2021,the Premier Li Keqiang first proposed to "improve the normalized delisting mechanism" in the "Report on the Work of the Government".It can be seen that the improvement of the delisting system under the background of the registration system reform is one of the critical parts of the capital market reform during the "14th Five-Year Plan" period,and the construction of a compulsory extruding mechanism for surplus shares should be the top priority of improving the delisting system.Based on the relatively successful practice and advanced experience of foreign countries,this paper proposes to construct a compulsory extruding mechanism for surplus shares in China from the perspectives of substantive requirements,operational logic,due process,comprehensive supervision,judicial relief,etc.The first chapter of this paper aims to introduce the legal basis of the compulsory extrusion mechanism of the remaining shareholders.By sorting out the historical evolution and developmental alienation process of the mechanism,the applicable value and practical significance of this system are explored from the perspective of historical roots.On this basis,this chapter will further analyze the legal basis of the mechanism,and defend the legitimacy of it from the perspectives of the boundary of minority shareholder protection,the conflict of legal values and coordination.The second chapter of this paper focuses on the necessity and feasibility of introducing the compulsory extrusion mechanism of surplus shares for China.In terms of necessity,through the case analysis of the "Double Reloading Active Delisting Case" and "Sinopec’s Privatization Acquisition Case",it could be demonstrated that the introduction of the mechanism in China not only has theoretical value,but also solves practical problems and satisfies registration requirements.In terms of feasibility,under the background of the continuous reform and improvement of Chinese securities market,by connecting the compulsory extrusion mechanism with China’s existing systems such as the institution of shareholder exit,delisting of listed companies,and acquisition of listed companies,it could be concluded that our country already has the basic legal conditions for the compulsory extrusion mechanism of surplus shares.It is an appropriate time that might be the final piece of the puzzle.The third chapter of this paper is a comparative study of the mechanism.The study of the legislative examples of the mechanism civil law system and common law system,and the summary of the various elements,operation logic and remedies,may provide a reference for the construction of the relative mechanism in China.The fourth chapter of this paper,based on previous chapters,puts forward preliminary suggestions for the localization construction of the relative mechanism in China.While drawing lessons from foreign practice,combined with the actual situation and future development trend of China’s securities market,a model of compulsory extrusion mechanism for excess shares is designed to suit China’s development needs from the aspects of applicable subjects,triggering requirements,and implementation mechanisms.From the perspectives of information disclosure,administrative supervision,judicial relief,and etc.,a supporting mechanism for the forced extrusion of surplus shares is established aimed to ensure the proper implementation of the system and maximize the benefits of the capital market.Finally,after analyzing the advantages and disadvantages,it can be concluded that the compulsory extrusion mechanism of the remaining shareholders seems to be an essential institutional guarantee for China in cooperation with the reform of the registration system in the future and for the smooth process of the privatization and delisting of listed companies.