Research On Chinese Version Of "Shadow Director" System

The existence of controlling shareholders and actual controllers has become normal in our country,and it is not uncommon for controlling shareholders and actual controllers to control the company’s operation “in the shadow” by instructing the company’s management.By summarizing the status quo of the regulation of controlling shareholders and actual controllers’ behind-the-scenes instructions in the field of company law and securities law in our country,it can be found that there are few and limited regulations in the field of company law,but many and scattered regulations in the field of securities law.There is a serious imbalance with the regulation of this behavior in these two fields of law,which makes the controlling shareholders and actual controllers of non-listed companies easy to become “outlaws”and also makes the regulation of controlling shareholders and actual controllers related to corporate governance lack of legislative support.In this context,Article 191 of the Company Law(The First Amendment Draft)promulgated in December 2021 stipulates for the first time the responsibilities of controlling shareholders and actual controllers who give behind-the-scenes instructions to directors and executives.In the Company Law(The Second Amendment Draft)(hereinafter referred to as the Draft)promulgated after one year,this provision was retained and further revised as “the company’s controlling shareholders and actual controllers who direct directors and senior managers to engage in acts that damage the interest of the company or shareholders shall be jointly and severally liable with the director and senior management.” The establishment of Article 191 of the Draft is an important breakthrough in the field of company law.It can effectively correct the unbalanced situation in the field of company law and securities law in the regulation of“behind-the-scenes directions” by controlling shareholders and actual controllers,and is of great significance.Compared with the traditional shadow director system,although Article 191 of the Draft does not mention the concept of “shadow director”,it can basically play the same regulatory role as the traditional shadow director system: Firstly,in terms of regulatory subjects,Article 191 focuses on the big and let go of the small,and takes the most-likely “shadow directors” who are behind the scenes to manipulate the company’s management in China—the controlling shareholders and actual controllers as the regulatory objects,which is a choice to respond to the practical needs of China.Secondly,the premise of holding the controlling shareholders and actual controllers accountable stipulated in Article 191 basically coincides with the situation of holding shadow directors accountable under the traditional shadow director system.Thirdly,the stipulation that the controlling shareholders and actual controllers are required to bear joint and several liability with the directors or senior managers is consistent with the situation that under the traditional shadow director system,where the shadow director who conveys the direction is required to bear joint and several liability with the statutory director or de facto director who accepts the direction,and the provisions of this article also reflects the same substantialism value orientation as the traditional shadow director system.At the same time,on the basis of the connotation of the traditional shadow director system,Article 191 responds to the status quo of Chinese shareholder centralism,concentrated share-ownership structure,and the situation that the directors’ fiduciary duty legislation is to be improved and judicial experience is not yet mature.The non-director-oriented regulatory path makes this article a Chinese version of “shadow director” system which is more in line with our own national conditions.As the country of origin of the shadow director system,the UK has relatively complete legislation and rich case experience in this system,which can provide a useful reference for the construction and improvement of the Chinese version of“shadow director” system.In terms of the definition of shadow directors,the UK has experienced the development of the definition standard from scratch in the statutory law,and at the same time,it has continuously developed the standard through the case law,forming a strict model of the definition standard from the case of Re Hydrodam(Corby)Ltd.and shifting to a freer model in the case of Secretary of State for Trade and Industry v.Deverell.In terms of the obligations and responsibilities of shadow directors,the UK Company Law has made different provisions on the general obligations and specific obligations of directors,but it has not provided a clear answer to the question whether the general obligations of directors can be applied to shadow directors.On this issue,the case law has undergone a change of attitude from questioning in Ultraframe(UK)Ltd.v.Fielding to acceptance in Vivendi S.A.v.Richards,and finally affirmed that shadow directors should bear the general obligations of directors.Inspired by the experience of the UK shadow director system,we should adopt relatively loose objectivism and substantive standards when determining the constituent elements of Article 191 of the Draft,and at the same time promote the development of the system through the benign interaction between legislation and the judiciary.Combining the UK experience and our own national conditions,I put forward some suggestions for the improvement of Article 191.Firstly,in terms of the determination of the subject requirements,the “significant influence on the resolutions of the shareholders’ meeting” in the legislative definition of controlling shareholders should be determined by whether the shareholder can decide the approval of the resolutions of the shareholders’ meeting,and this should be discussed in two situations: ordinary majority vote and special majority vote;the dominance or control required by the actual controller does not need to extend to all business matters of the company,as long as the parties in dispute have the dominance to decide the passing of the resolution in the dispute resolution,they should meet the requirement in definition.Secondly,in terms of identifying the elements of conduct,“directions” are different from instigating,appointing,and providing advice or guidance.Its essence is dominance and control.Whether it constitutes “directions” should be specifically judged in combination with objective factors;The behaviors undertaken by management should reach the level of causing “damage” to the company or shareholders,and there should be a causal relationship between the damage and the directions of the controlling shareholder or actual controller.Thirdly,in terms of identification of joint liability,firstly,it should be clarified that regulatory subjects with the identity of shareholder should bear limited joint liability,and regulatory subjects without the identity of shareholder should bear unlimited joint liability;secondly,it should be clarified that the form of joint liability is limited to liability for damages.In addition,the internal liability shares of joint and several persons should be divided according to the degree of objective fault and the strength of the cause,the proportion of profit,and the average share in order.Finally,when the state is the controlling shareholder or actual controller,under certain conditions,it should be allowed to be exempted from joint and several liability for “pursuing social and public interests”.The introduction of a new system is also inseparable from the connection and cooperation with the original system and the system that may be established in the future.I believe that in terms of the system positioning of Article 191,if we establish the fiduciary duty system of controlling shareholders in the future,this article should be subordinated to the “loyalty duty” in the system.In terms of the relationship between Article 191 and the existing relevant provisions,it should be clear that there is a “partial overlap” relationship between Article 191 and other controller regulations in the Company Law,and there is a “parallel concurrent punishment” relationship between the article and the relevant provisions of the Criminal Law and Securities Law.Meanwhile,the shareholder derivative action and the security representative action system need to be effectively connected with this new regulation in order to promote such a Chinese version of “shadow director” system to play its due positive role.