Regulating Conflict-of-Interest Transactions through Share Buyback Rights
Regulating conflict-of-interest transactions is a central issue in corporate law.Article 89 of the newly revised Chinese Company Law has increased the scenarios of abuse of shareholders'rights,thereby providing a clear legal basis for regulating conflict-of-interest transactions through share buyback.An empirical analysis of judicial decisions in China indi-cates that the right to request share buyback has already played a significant role in regulating such transactions.This paper conducts an empirical analysis of judicial decisions to understand how the right to request share buyback has been applied in practice.This analysis reveals that courts have supported buyback requests in numerous cases,especially where conflict-of-interest transactions have been detrimental to minority shareholders.Additionally,courts have suppor-ted the request for share buyback when there is a conflict of interest in the corporate transaction even when doing so sometimes is not entirely consistent with law.These findings highlight the important function of the right to request share buyback in minority shareholder protection.However,using share buyback to regulate conflict-of-interest transactions violates the principle of corporate legal personality.Implementing share buyback requests involves significant costs,including the accurate valuation of shares and the potential impact on a company's cash flow.Courts often face challenges in evaluating a company's value due to information asymmetry and the complexity of financial assessments.This regulatory strategy is thus appropriate only in spe-cific situations.This paper draws comparisons with practices in other jurisdictions,such as the U.S.and the U.K.,where similar mechanisms have been used to regulate conflict-of-interest transactions.It highlights the importance of judicial discretion in balancing the interests of all shareholders and ensuring fair transaction practices.When a company undergoes significant changes,its operational stability is already disrupted.Additionally,a corporation usually can prepare cash in advance to address buyback requests.In such cases,fulfilling minority share-holders'buyback requests does not incur excessive social costs.When determining the buyback price,courts should consider the conflict of interest involved in the company transaction as an important factor.Conversely,in the absence of significant changes within the company,courts should support shareholder buyback rights only when the conflict-of-interest transaction consti-tutes shareholder oppression.Courts must clearly distinguish between single,sporadic conflict-of-interest transactions during normal business operations and systematic tunneling activities.Moreover,in determining whether to approve a share buyback request,courts should consider whether alternative remedies,such as damage compensation and judicial dissolution,are more appropriate in protecting minority shareholders.
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