China Cases Insight™ No. 9: Guiding Case No. 8 and 66 Related Subsequent Judgments/Rulings: How to Determine “Whether Serious Difficulty Occurs in the Operation and Management of a Company”*

China Cases Insight™ No. 9: Guiding Case No. 8 and 66 Related Subsequent Judgments/Rulings: How to Determine “Whether Serious Difficulty Occurs in the Operation and Management of a Company”*

Date of Publication:
2020/03/15
Author(s):
  • ZHOU Zihao, Associate Managing Editor, China Guiding Cases Project, Stanford Law School |
  • CHE Chi, Editor, China Guiding Cases Project, Stanford Law School
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Commentary

 

(2016) Zui Gao Fa Xing Shen No. 2088 Administrative Ruling 5

China Cases Insights aims at providing legal and business professionals with concise and practical information, as well as insightful analyses and indispensable takeaways, about cases in or related to China to help these professionals in their practice of law and business.

Abstract

Shareholders who bring corporate dissolution lawsuits must meet the “serious difficulty occurs in the operation and management of a company” condition. Guiding Case No. 8 (“GC8”) makes up for the inadequate regulation of this condition in China’s Company Law and a related judicial interpretation by providing a clearer method for its determination to be used in judicial practice. Since GC8 has important referential value, as of December 31, 2019, 66 subsequent judgments/rulings (“SJ/Rs”) in which the parties and/or courts cited this Guiding Case have already been identified.

The authors of this article have conducted in-depth research on these 66 SJ/Rs and found that the facts of these SJ/Rs are varied and complex, and the parties and courts interpreted and used GC8 quite differently. When the parties sought to apply GC8, some courts failed to respond properly, whereas quite a few other courts referred to and applied this Guiding Case correctly.

Overall, GC8 has had a noticeable guiding effect on the adjudication of most of these SJ/Rs, but in some of the SJ/Rs, the courts held different opinions on the line of reasoning used in GC8. For example, some courts had different views about the conditions that need to be satisfied in lawsuits seeking compulsory corporate dissolution, while a few other courts allowed, on the basis of GC8, for exceptions in consideration of actual situations in society.

These different understandings of GC8 show many Chinese judges’ serious attitudes toward the development of cases. As more SJ/Rs related to GC8 are adjudicated, the determination method and specific application of the “serious difficulty occurs in the operation and management of a company” condition will certainly and gradually become clear so as to achieve the ultimate goals of the Guiding Cases System: “to summarize adjudication experiences, unify the application of law, enhance adjudication quality, and safeguard judicial impartiality”.


Introduction

[…]

The Origin of Guiding Case No. 8

[…]

Overall Characteristics of Subsequent Judgments/Rulings

[…]

1. Distribution by Year

[…]

“Since the Eighteenth National Congress of the Communist Party of China was held in November 2012, […] the reform of China’s market access system and the optimization of the business environment have promoted the rapid increase in the number of enterprises in the country. With the increasing complexity of business models, many companies face situations similar to that in GC8. Therefore, the number of lawsuits that were brought to seek compulsory corporate dissolution and that cited GC8 has also increased.”

[…]

2. Distribution by Level of Court

[…]

3. Distribution by Stage of Adjudication Proceeding

[…]

4. Distribution by Location of Court

[…]

“Guangdong Province, as the core province of the Guangdong–Hong Kong–Macao Bay Area, has attracted substantial foreign investment, and the proportion of emerging industries […] has increased in the province. In addition, the Belt and Road Initiative has also attracted a large number of enterprises to be based in the Guangdong–Hong Kong–Macao Bay Area. The increase in the number of enterprises and the diverse types of investment in the area explains the greater number of compulsory corporate dissolution lawsuits.”

[…]

Treatment of Guiding Case No. 8 by Courts Rendering Subsequent Judgments/Rulings

[…]

1. Overall Analysis

[…]

2. How the SPC Handled Guiding Case No. 8 and Analyzed the Conditions Stated in Article 183 of the Company Law

[…]

3. How the Courts of Other SJ/Rs Explored the Scope of Application of Guiding Case No. 8’s Main Points of the Adjudication

[…]

(1) “[T]he company has been unable to hold a shareholders’ meeting or shareholders’ general meeting for two or more consecutive years, and [thus] serious difficulty occurs in the operation and management of the company”

[…]

(2) “Social interests”

[…]

Conclusion

[…]

Appendix: 66 Subsequent Judgments/Rulings Which Explicitly Mention Guiding Case No. 8 (identified through December 31, 2019)

[…]


Author’s Bio

Zihao Zhou
Associate Managing Editor, China Guiding Cases Project, Stanford Law School

Zihao Zhou is an attorney at Cooley LLP and a founding member of the firm’s Asia capital markets practice. Prior to joining Cooley LLP, he was a legal professional at Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Zhou specializes in advising “new economy” companies in China on complex business transactions, including early- and late-stage equity financings, mergers and acquisitions, corporate governance matters, and matters concerning compliance with requirements of the U.S. Securities and Exchange Commission. Over the past several years, he has participated in some of the world’s largest initial public offerings (“IPOs”) of technology companies, and these IPOs have had demonstration effects on the market. Mr. Zhou received a Bachelor of Laws degree (with Distinction) from Shandong University and a Master of Common Law degree from the University of Hong Kong, where he received a full academic scholarship. In the fall of 2020, he will begin his studies at Stanford Law School in its Master of Laws in Corporate Governance and Practice program.

Chi Che
Editor, China Guiding Cases Project, Stanford Law School

Chi Che is currently pursuing a Bachelor of Arts degree in Jurisprudence at the University of Oxford. Before attending Oxford, she worked as a paralegal at Norton Rose Fulbright LLP’s Beijing Office and as an international associate at the Beijing Office of Baker McKenzie LLP. Her main practice areas include power projects as well as banking and finance. She has provided legal services in multiple cross-border merger and acquisitions and finance transactions, with clients including major state-owned enterprises and banks in China. Ms. Che obtained a Bachelor of Arts degree in Social Sciences from University College Utrecht in 2014 and a Master’s Degree in Corporate Law (MCL) from the University of Cambridge in 2015.

Endnotes

* The citation of this China Cases Insight™ is: Zihao Zhou & Chi Che, Guiding Case No. 8 and 66 Related Subsequent Judgments/Rulings: How to Determine “Whether Serious Difficulty Occurs in the Operation and Management of a Company”, 8 China Law Connect 17 (Mar. 2020), also available at Stanford Law School China Guiding Cases Project, China Cases Insight™, Mar. 2020, http://cgc.law.stanford.edu/commentaries/clc-8-202003-insights-9-zhou-che.
The original, Chinese version of this China Cases Insight™ was edited by Dr. Mei Gechlik. The English version was prepared by the authors, and was finalized by Jennifer Ingram, Nathan Harpainter, and Dr. Mei Gechlik. The information and views set out in this China Cases Insight™ are the responsibility of the authors and do not necessarily reflect the work or views of the China Guiding Cases Project.