"Luoshengmen": The Exercise And Abuse Of The Rights Of Shareholders' Meeting

On August 28, 2020, after "many dangers" such as the removal of directors, suspension of the removal resolution by the court, temporary cancellation of the change of directors and supervisors as well as the resignation of several directors and supervisors, the general meeting of shareholders was finally held to complete the selection and appointment of new directors and supervisors, and the three-month struggle for control of the company was temporarily put to an end. At the same time, the equity battle of another A-share company has intensified.

On September 7, Dalian Shengya held a violent conflict between the shareholders' meeting and the board of directors. Some directors were injured and all parties were in uproar.

The control right of listed companies has always been the focus of interest competition, conflict and contradiction.

Since the beginning of this year, there have been a number of cases of struggle for control rights in A-share market. The conflicts between shareholders and shareholders, between shareholders and directors, supervisors and senior management of the company finally broke out at the level of corporate governance, which also pushed the focus of conflicts among the parties involved in the struggle for control rights such as the "right to propose" and "the right to call" of the general meeting of shareholders.

The rules of the company's Listing Rules and the rules of the company's listing rights, the shareholders' rights and obligations of the company's shareholders' meeting and the company's rights and obligations of the shareholders' meeting are specified in the company's listing law of the people's Republic of China. But in practice, the shareholders of some listed companies often fall into "dilemma" when they exercise the relevant rights of the general meeting of shareholders.

Blocking: "repeatedly obstructing" the application submitted to the general meeting of shareholders

For the sake of their own interests, it is common that the existing directors, supervisors and senior management teams of listed companies fail to perform or delay in performing their duties of deliberation in the application for proposals of the general meeting of shareholders involving the content of re election of directors and supervisors.

For example, for a listed company in the Internet service industry, the Secretary of the board of directors and the securities affairs representative of the company did not submit the document to all directors after receiving the proposal from the largest shareholder to remove several directors and supervisors of the company, and failed to timely notify the board of directors to hold a meeting of the board of directors to consider the matters proposed by the shareholders, which eventually led to the board of supervisors failing to complete the notice of the general meeting of shareholders The board of directors was forced to cancel the shareholders' meeting.

In addition to the right to call the general meeting of shareholders, another important right of shareholders, the right of temporary proposal of the general meeting of shareholders, is also faced with a dilemma. For example, in March 2018, the board of directors of * ST Huaze, a delisted company, received the interim proposals submitted by the shareholders of Beijing KangBo Hengzhi Technology Co., Ltd. and Shenzhen Juyou Network Investment Co., Ltd., but it neither issued a supplementary notice of the general meeting of shareholders nor announced the content of the interim proposal within 2 days after receiving the proposal. Finally, the regulatory authorities took corresponding regulatory measures.

Delay: lengthening the time interval between the notice and the holding of the general meeting of shareholders

The company law stipulates that when an annual general meeting of shareholders is held, the time, place and matters to be deliberated shall be notified to all shareholders 20 days before the meeting is held; the interim general meeting of shareholders shall be notified to all shareholders 15 days in advance.

According to statistics, since 2020, listed companies in Shenzhen Stock Exchange have issued 5822 notices of general meeting of shareholders, and the average interval between the date of holding the general meeting of shareholders and the date of issuing the notice of general meeting of shareholders is 19.38 days.

However, after the board of directors of some listed companies with control disputes have passed the resolution to hold the shareholders' meeting, the interval between the date of issuing the notice of the general meeting of shareholders and the actual date of the general meeting of shareholders is much longer than the average interval time. It is intended to adopt the "delay" formula and provide more mediation time for the dispute parties to resolve the conflicts by delaying the holding of the shareholders' meeting.

For example, a listed company in Shenzhen, after receiving the materials submitted by shareholders for holding the general meeting of shareholders, issued a notice of the general meeting of shareholders on January 22, 2020. The holding time of the general meeting of shareholders was March 20, with an interval of 58 days. Coincidentally, the board of supervisors of another listed company, after receiving the materials of shareholders' application for holding the shareholders' meeting, issued the notice of shareholders' meeting on August 2, 2019 The opening time is September 11, with an interval of 40 days. However, this kind of deliberate procrastination arrangement tends to aggravate the contradiction between the two sides, leading to the results contrary to our wishes.

Cancellation: cancellation of the general meeting of shareholders for "just" reasons

According to the rules of the general meeting of shareholders, after the notice of the general meeting of shareholders is issued, the general meeting of shareholders shall not be postponed or cancelled without proper reasons, and the proposals listed in the notice of the general meeting of shareholders shall not be cancelled. In case of postponement or cancellation, the convener shall make an announcement and explain the reasons at least 2 working days before the original date of the meeting.

In practice, most listed companies can still cancel the general meeting of shareholders for normal reasons. For some kind of listed company, the so-called "cancellation of control" is not uncommon.

For example, the board of supervisors of a listed company in cloud service industry issues a notice of the general meeting of shareholders as the convener after receiving the materials submitted by the shareholders for convening the shareholders' meeting. However, two days before the general meeting of shareholders, the board of supervisors cancelled the convening of the shareholders' meeting on the grounds that the effective conditions of the proposal on the removal of directors and election submitted by shareholders violate the articles of association and restrict the rights of other shareholders.

Abuse: shareholders issue notice of general meeting of shareholders without authorization

Procedural justice is regarded as "visible justice". Although the right to call the general meeting of shareholders is a right given to shareholders by law, the exercise of the right must comply with the provisions of the company law and the rules of the general meeting of shareholders of listed companies. In the case of disclosure of information on the company's own website, the company violates the rules of shareholders' self disclosure and even violates the rules of shareholders' self disclosure.

In view of the compliance of the deliberation procedures of the general meeting of shareholders and other issues, the opinions of the intermediary agencies employed by the parties involved in the struggle for control often differ, even "tit for tat". It is not unreasonable for the intermediary to express different opinions on the controversial issues. However, if it is only to meet the needs of the clients and ignore the interests of small and medium-sized investors, the intermediary will no longer be the "gatekeeper" of the capital market, but the "accomplice" of illegal behaviors.

Chaos control: the return of market subject

The dispute over control right is the product of the development of the capital market. As a capital constraint, it promotes the improvement of the governance mechanism of listed companies to a certain extent. However, if all parties do not abide by the rules and act arbitrarily, the company's operation will be disordered and disordered, and the interests of the company and the majority of small and medium-sized shareholders will be sacrificed. For example, a listed company has had a dispute over control rights since March 2012. The new controlling shareholders convened the general meeting of shareholders to re elect the board of directors and the board of supervisors in December of that year. As the original board of directors did not approve of the new board of directors, a strange situation of "double headed" board of directors appeared, which seriously affected the normal operation of listed companies. During the struggle for control, the company's cash flow nearly dried up and its production and operation fell into a quagmire, resulting in a loss of 185 million yuan in 2012, a year-on-year decrease of 348.01%.

For shareholders and directors, supervisors and senior executives of listed companies, it is necessary to strengthen the "four awe", adhere to laws and regulations as the criterion, strengthen the awareness of law-abiding, rule-based and contract spirit, promote the improvement of the governance level of listed companies, and effectively shoulder the main responsibility of standardized development and quality improvement of listed companies. In addition, the directors, supervisors and senior executives should have a correct understanding of their fiduciary obligations to all shareholders, perform their duties faithfully and diligently, and safeguard the long-term interests of listed companies.

As for intermediary institutions, they should give full play to their professional ability, make professional judgments on controversial issues, help small and medium shareholders make correct investment decisions, and effectively play the role of "gatekeeper" in the capital market.

On the basis of full respect for the autonomy of the company, the regulatory authorities should take necessary regulatory measures for the behaviors that obviously violate the rules of information disclosure, fail to perform their duties and violate the corporate governance obligations, and give timely warning and correction. For example, for malicious restrictions on shareholders' rights and shareholders' abuse of rights, timely focus on inquiry and attention, and take measures against violations of laws and regulations Necessary disciplinary measures and so on.

If you don't follow the rules, you can't make a square. The equity dispute seems to be a dispute among shareholders, but it affects the stable development of listed companies and the legitimate rights and interests of investors. While protecting their own interests, all market entities should respect the market, the rule of law, the profession and investors. The fundamental interests of all parties lie in the compliance with laws and regulations and the maintenance of our common market ecology.