China Moves Toward Minority Shareholder's Rights

China Moves Toward Minority Shareholder's Rights

China is hard at work trying to make doing business in China easier for investors, specifically minority investors. The Supreme People’s Court as recently released a new draft judicial interpretation which is intended to clarify common issues with corporate governance and minority shareholder’s rights.

A judicial interpretation is the Supreme Court’s official reading and clarification of existing provisions of law, and typically serves to resolve frequently encountered issues which are not adequately addressed by the law itself.

The most important innovation in the draft judicial interpretation will be to provide minority shareholders, creditors, senior management, and company employees a mechanism to challenge illegal and abusive action by majority shareholders. The draft judicial interpretation will also provide clear guidelines for bringing a law suit where there are allegations of abusive related party transactions.

Also improved will be guidelines for shareholders to enforce their rights to access company records. This right currently exists in the company law, but enforcement is difficult. In the past, the only way to enforce has been to bring a costly lawsuit.

Currently the draft judicial interpretation is open to comment from the public, and it is not clear when the interpretation will be officially issued. However, the contents of the current draft provide a clear view of the direction which the law and official policy is moving. One major effect of these provisions if implemented as they are now will be to greatly expand the rights of foreign minority partners in a Joint Venture company.

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