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Legal Regulation of Director Self-Dealing

Author: ZhangLi
Tutor: WangYanMing
School: Jilin University
Course: Legal
Keywords: Director Self-dealing Regulation
CLC: D922.291.91
Type: Master's thesis
Year: 2010
Downloads: 116
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Abstract

Self-dealing transaction by corporate directors is a typical form of conflict-of-interest transactions in company management. Directors or senior management personnel as the other side of self-dealing, it is highly likely for their own interests to secure the best terms of trade, and the company’s interests in the transaction will be jeopardized. Therefore, how to make the self-dealing undergoing toward helping the interests of the company and the shareholders under the frame of law, and prevent director from taking advantage of his position and power to harm the interests of company has become the subject of study of contemporary corporate law, which this is the main purpose and aim of this text to research.This dissertation is composed of three parts: preface, text and conclusion. There are five chapters in the text.Preface mainly talks about the background of selected subject, the research status in home and abroad, the method of research and the purposes of the paper.Chapter One is concerned about the overview of self-dealing by directors. It starts with the definition and characteristic of self-dealing by directors. It defined as follows: whether or not the transaction is brought before the board of directors of the corporation for action, the director knows at the time of commitment that he or a related person is a party to the transaction or has a beneficial financial interest in or so closely linked to the transaction and of such financial significance to the director or a related person that the interest would reasonably be expected to exert an influence on the director’s judgment if he were called upon to vote on the transaction. It has several characteristics as follows: first, parties to the transaction are unequal; second, self-dealing will lead to a conflict of interest; and third, it is possible that the result of the trade is unfair; In addition, the self-dealing behavior in reality can not be avoided. Second, the directors in the transaction directly or indirectly have a significant personal benefit. Finally, the dissertation introduces the classification of directors self-dealing. According to different criteria, it can be divided into different types. According to the different transaction forms between directors and company, it can be divided into: direct self-dealing transaction and indirect self-dealing transaction. This is a typical classification form of self-dealing transactions. Third, it analyzes the composition of self-dealing by directors: First, the company directly or indirectly transacts with the related persons, and there is economic conflict of interests in the transaction. Second, an individual or a group of related companies in the transaction have decision-making influence.Chapter Two expounds on the basic theories of directors self-dealing. This chapter analyzes from three aspects. First, it analyzes the directors self-dealing regulation based on economics. From this point of view, in modern company, shareholders are principal, while directors and managers are agents. Because of the different interests between principals and agents, when the agent does his behavior, it may do harm with the interests of the principal. Second, it analyzes the legal basis of the directors self-dealing. It mainly results from the directors’duties of loyalty, which request the directors couldn’t place their personal interests over the companies’and shareholders’, and couldn’t use their power for their own benefits. In addition, that legal system regulate the directors of self-dealing conduct have the following values: first, to maintain transactions in safe order; second, to promote fair and equitable transaction results; third, the realization of both effectiveness and efficiency; fourth, to realize equal importance of the company self-government and law enforcement. Finally, it analyzes the directors self-dealing regulation based on the Civil and Commercial Law. Directors and the company’s relationship is the appointment, the company is appointer, while the directors are entrustees. The object of appointment is the operations and management of company’s property. In the self-dealing, corporate directors or managers have different interests with the company, and even the existence of conflict interest in some cases. Practice has proved that self-dealing effect on the interests of the company in two ways, both positive and negative effects. Therefore, it is necessary to regulate the conduct of directors self-dealing.Chapter Three analyzes the legal standards of directors self-dealing. This chapter has two parts: The first part is the substantive criteria. The standard is usually to determine whether the transaction is fair, reasonable and appropriate to the company. This section analyzes the substantive standard of continental law and common law countries through cases. Compared with other countries, there isn’t substantive standards in China’s Company Law, in my opinion, it should be given the court the right of the substantive standard of directors self-dealing, and take a different method of regulation for different types of companies and different types of transactions, so as to solve the transaction fairness and efficiency to a certain extent. The second part is the procedural standard. Disclosure of self-dealing should obtain the relevant authority (board of directors or shareholders) of the consent of the company in order to produce legal effects. The article discusses the information disclosure standards from the content, manner, and time; and analyzes several foreign legislative approval process requirements about the approval of the information, and raises several feasible suggestions.Chapter Four discusses liability of directors self-dealing. It contains three parts: The first part introduces liability of directors self-dealing in common law countries. In the United States and Britain, if directors against self-dealing, they should return their benefits which they obtain in self-dealing to the company, even if the company did not loss. The second part introduces the liability of directors self-dealing in the continental law countries. In civil law countries’company law, directors have the liability of compensate the company’s losses if they against self-dealing. With the authority of the Board continues to expand, the laws in most countries tends to increase the director’s responsibility. The third part analyzes legal liability of directors self-dealing of the two law systems, in order to resolve our country’s legal problem. The differences of the two legal liability of directors self-dealing as follows: first, the civil law countries’laws are far more stringent than the common law countries’on the investigate of the degree of responsibility; second, common law countries formulate that the profit of directors self-dealing should return to the company, while civil law countries have no such requirement. It finally discusses liability of directors self-dealing in our legislation. This section is based on domestic and foreign scholars of directors self-dealing regulation of research, studies abroad legislative status, raises the method of improvement in Chinese legislation. The suggestions are as follows: first, define the effectiveness of the contracts on the directors against self-dealing rules; second, provide the legal status of the self-dealing contracts after a company or court make avoidance. Third, clearly require the schedule of a company to apply for revocation of self-dealing and to pursue violations of obligations of self-dealing directors’responsibility; fourth, add to specific provisions of directors’responsibility if they go against the rules of self-dealing.Finally, this dissertation summarizes the legislative significance of self-dealing transactions of directors and several Western Countries’practices, and concludes Chinese self-dealing transactions of directors with new trend in directors self-dealing problems.

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CLC: > Political, legal > Legal > Chinese law > Economic Law > Corporate law, company law
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