Zhiheng Viewpoint... Chen Hui lawyer: why private enterprise shareholder conflict easily evolves into corporate governance deadlock.
Chen Hui, lawyer of Guangdong
in recent years, the number of corporate equity disputes has continued to increase, and shareholder disputes have increasingly evolved from single rights disputes to corporate governance failures. For private enterprises, the risk of corporate governance is often not limited to the disagreement of shareholders, but that after the disagreement of shareholders enters the shareholders' meeting, the board of directors and the management system, the company gradually loses its normal decision-making ability.
In the case of Kelley Company involved in the guidance case No. 8 of the Supreme people's Court, the two shareholders of the company each hold 50% of the shares. after the intensification of shareholder contradictions, the company cannot hold a shareholders' meeting normally for a long time and cannot form an effective resolution, but the enterprise is still operating. This case shows that the company still has business and revenue, and it does not directly indicate that the corporate governance mechanism is still normal. Therefore, the key to judging whether there are serious difficulties in the management of the company is to pay attention to whether the organization of the company can still operate effectively?
How 1. Distinguish between Shareholder Disputes and Corporate Governance Deadlock
shareholder disputes usually manifest themselves as disputes over rights and obligations such as audit, profit distribution, confirmation of equity, revocation resolution, transfer of equity, and liability for capital contribution. As long as the shareholders' meeting and the board of directors can still form resolutions in accordance with the law and the articles of association, and the company's operations can continue to advance in accordance with effective decision-making, it is not of course considered a corporate governance deadlock.
The core of corporate governance deadlock lies in the failure of corporate governance mechanism. Article 231 of the new "Company Law" stipulates that serious difficulties occur in the operation and management of the company, and the continued existence of the company will cause major losses to the interests of shareholders. If it cannot be resolved through other means, eligible shareholders may request the people's court to dissolve the company. The relevant judicial interpretation also lists typical situations such as persistent failure to convene a shareholders' meeting, long-term failure to form an effective resolution, and long-term conflicts between directors that cannot be resolved through a shareholders' meeting.
The 2. four scenarios can easily escalate shareholder disagreements into governance gridlock
one is the right to vote confrontation. The 50% to 50% shareholding structure is the most typical, and a similar effect may be achieved by setting a threshold for passing voting rights too high in the articles of association. If the governance rules only emphasize mutual checks and balances, and there is no corresponding breaking mechanism, checks and balances will be transformed into interlocking.
Second, the long-term failure of the shareholders' meeting. If shareholders do not participate in the meeting, do not sign, and compete for the right to convene, the company will not be able to form effective resolutions on matters such as capital increase, financing, profit distribution, and major investments for a long time.
Third, the board is deadlocked. Arrangements such as the allocation of directors' seats, the manner in which the chairman of the board is elected, the restriction on the number of board meetings and the special consent of some directors will all affect the normal decision-making of the board of directors. Even if the shareholder level is not 50-50, it may affect the operation of the company because of the imbalance in the design of the board system.
Fourth, business controls are fragmented. If key business carriers such as official seals, licenses, bank accounts, financial systems, and management teams are controlled separately by different camps, the company is prone to be materially affected in terms of payments, contracting, financing and personnel management.
The outcome of 3. litigation can resolve disputes, but it is not a substitute for corporate governance.
Shareholder litigation usually makes judgments about specific legal relationships. The right to know lawsuit solves the problem of consulting the company's financial information and various documents, the resolution validity lawsuit solves the problem of whether a specific resolution is legal, and the lawsuit of returning the official seal and license solves the problem of specific operating conditions. The court judgment on these issues is very important for the relief of shareholders' rights, but it cannot automatically restore the trust of shareholders, nor can it replace the business decisions of the next shareholders' meeting and the board of directors.
Therefore, when dealing with shareholder litigation disputes, in addition to formulating litigation strategies, it is necessary to simultaneously consider whether the company can maintain basic operations, how the governance structure can be restored, and whether there is a feasible exit path for shareholders. In the relevant typical cases of the Supreme People's Court, there have also been practices that promote the continued existence of enterprises by amending the articles of association, extending the operating period or transferring shares.
4. corporate governance rules should reserve a "broken interface"
from the perspective of corporate governance, the prevention of corporate deadlock needs to pay attention to at least the following six aspects: first, to clarify the procedures for convening shareholders' meetings, the proportion of voting rights adopted by resolutions and the authorization boundary; The second is to deal with the connection between the shareholder agreement and the company's articles of association. The third is to set up a reasonable voting mechanism for special protection matters to avoid excessive restrictions on daily business matters into unanimous agreement. Fourth, improve the rules for director nomination, board voting and deadlock handling; fifth, the conditions for equity transfer, equity repurchase, capital reduction, separation, valuation and exit are designed in advance; sixth, temporary relief measures such as evidence preservation, property preservation and behavior preservation are evaluated in a timely manner when a conflict has occurred.
Lawyer Chen Hui believes that the value of corporate governance rules is not to ensure that shareholders will never have differences, but that after differences occur, the company can still make decisions in accordance with the law; when shareholders cannot continue to cooperate, they can also achieve an orderly exit through a pre-agreed mechanism.
Epilogue
for private enterprises, judging whether the governance structure is sound or not can start with such a simple question: if there is a sudden serious conflict between major shareholders, can the company continue to hold meetings, form resolutions, complete payments, sign contracts and maintain core operations? If there is no clear answer to this question, it is necessary to re-examine the articles of association, shareholder agreements and internal authorization system.
Introduction to the Author
chen Hui, a lawyer and corporate equity lawyer of Guangdong
, has long been engaged in the legal practice of corporate equity structure, corporate control, equity incentive, equity investment and financing and shareholder disputes, and has experience in business management and independent directors of listed companies.