Three Shifts in the Implementation of the New Company Law
Retrieved from Shanghai First Intermediate Court 04 November 2024
The newly amended Company Law has come into effect on 1 July 2024 after being voted on and passed by the Seventh Meeting of the Standing Committee of the 14th National People's Congress (NPC). The revision of the Company Law added and amended 228 articles, of which 112 articles were substantially amended, making it the largest revision to date. The amendment is necessary to implement the major decisions of the CPC Central Committee on deepening the reform of state-owned enterprises, optimising the business environment, strengthening the protection of property rights and promoting the healthy development of the capital market, as well as adapting to the development of practice and continuously improving the legal system of companies. The amendment of the Company Law is of great significance in improving the modern enterprise system with Chinese characteristics and promoting the high-quality development of the economy.
General Secretary Xi Jinping pointed out that ‘the rule of law is the best business environment’. The company is the most important subject participating in the market economy, and the company law is the fundamental law of the socialist market economy, as a law regulating the organisation and conduct of the company, directly related to the economic and social development and the construction of the business environment. The formulation and amendment of the Company Law is closely related to the establishment and improvement of China's socialist market economic system, and plays an important role in establishing and improving the modern enterprise system and promoting the sustained and healthy development of the socialist market economy. The author believes that, in order to fully implement the new company law, give full play to the rule of law to solidify the fundamental, stable expectations, and benefit the long-term role of market protection for the development of new productivity to create a good business environment under the rule of law, should be fully done in three aspects of the transformation.
First, from the ‘legislative theory’ to the ‘interpretation theory’ of the shift
Company law revision was included in the legislative planning of the Standing Committee of the thirteenth National People's Congress, the Legal Affairs Commission organised the establishment of the relevant departments of the central government and experts and scholars composed of the revision of the research and drafting, the formation of the revised draft, and through the ‘four readings’ and finally promulgated a new company law in force. Around the company law legislation on the debate has ended, followed by the implementation of the law. The vitality of the law lies in its implementation, and the authority of the law also lies in its implementation. Legal proverb: ‘The law shall not be applied without interpretation.’ Scientific understanding and interpretation of the new company law is related to the protection of the legitimate rights and interests of commercial subjects and shareholders, creditors, employees and other stakeholders. Judges should not only master all kinds of legal interpretation methods, but also be able to use them flexibly.
Legal interpretation methods in addition to textual interpretation, there are systematic interpretation, historical interpretation, purpose of interpretation, etc., the use of different methods of interpretation may lead to different conclusions of the judges. It is necessary to insist on systematic thinking and deal with the relationship between the new law and the old law as well as with the civil code and other special laws on commercial affairs
Interpretation of the law, should be free from the mechanical rules of logic, when there may be a variety of interpretation of the conclusion of the need to explore the legislator to formulate the law when weighing the various interests of the trade-offs made. The weighing of interests is a judge's value judgement in dealing with a specific case, a conclusion, not a method of deriving this conclusion; it is itself a method of justifying and verifying the appropriateness of the interpretive conclusion.
For example, before the amendment of the company law does not expressly provide that shareholders have the right to access the original accounting documents, for in the shareholders demand access to the original accounting documents in the right to information case, often involves the accounting books of course, including the original documents of the judgement. From the semantic point of view, the original documents have exceeded the scope of the accounting books, but the judge can be from the protection of shareholders' rights, the purpose and necessity of knowing the company's business and financial situation, the scope of the exercise of the right to know for the purpose of expansion of the interpretation.
Through the scientific interpretation of the new company law, ‘from the political point of view, from the rule of law to do’ to put into practice, in individual cases to draw appropriate conclusions, to help enterprises to enhance the ability of corporate governance, improve the modern corporate governance of state-owned enterprises, to guide the conditions of private enterprises to establish a modern enterprise system, and better promote the modernisation of the Chinese style.
Second，transformation from norms of provisions to norms of adjudication
The law is static inorganic, and society is the movement of the organism, the economic and social types of commercial activities often far beyond the expectations of the legislator. In this regard, the judge needs to change the provisions of the norms for the adjudication of the norms in response to the development of society, which is also the process of the application of the law. Legal norms, including mandatory norms, arbitrary norms, authoritative norms and other different attributes and classifications, different types of provisions of norms, should have different adjudication norms function.
For example, for the non-identical proportion of capital reduction, the articles of association has a clear agreement or all shareholders unanimously agreed and does not violate the mandatory provisions of the law, the judge shall fully respect the party's autonomy.
Another example, the new company law on the obligations of shareholders, directors of mandatory provisions, even if the articles of association of the company agreed otherwise shall not fight against mandatory norms.
When deciding on specific cases, the judge should be good at discovering the normative basis of the claim and identifying the complete law under the company law system. Judge in the ascertainment of facts, may not find applicable legal rules, or found that the new company law does not provide for this, at this time may encounter legal loopholes, but the judge shall not refuse to adjudicate, therefore, the need to use the interpretation method of legal loopholes to fill in, to guide the behaviour of the main body of commerce, the legal provisions of the norms into the effectiveness of the company's governance.
For example, according to article 54 of the new company law, in the company can not pay the debts due to the situation, creditors have the right to require shareholders to pay contributions in advance, the shareholders pay contributions is directly attributable to the company's property, or directly to the creditors, and there is no clear conclusion. At this time, the judge needs to consider the company, shareholders and creditors and employees and other different subjects of the rights and interests of the interests of weighing, in order to come to a proper conclusion, the formation of the ruling norms. In the process of applying the law to avoid the general provisions of the ‘escape’, should be through the adjudication norms to maximise the stability and predictability of the law, regulating the behaviour of commercial subjects, to create a business environment under the rule of law, and to protect the legitimate rights and interests of all types of market players.
Third，transformation from Governance Guidelines to Action Guidelines
The Company Law is a guide for compliance and governance of the company, which points out the direction for improving the modern enterprise system with Chinese characteristics, and we should really implement the ‘law on paper’ into the ‘law in action’. The amendment of the new Company Law also reflects the change in the mode of corporate governance from the centrism of the shareholders' meeting in the past to the centrism of the board of directors, highlighting the status and role of the board of directors in corporate governance. For example, the directors are responsible for supervising the capital contribution of the shareholders of the company, calling for the payment of lost rights, reduction of capital, distribution of profits, liquidation and so on.
At the same time, the new company law gives the company greater autonomy in the establishment of the company's organisational structure, providing shareholders with more options for corporate governance, such as the shareholders' meeting can be elected to produce the board of directors and the supervisory board of the two-tier system, or you can abolish the supervisory board, the implementation of the board of directors under the Audit Committee of the single-tier system, the audit committee to exercise the supervisory board of the powers and responsibilities. Fully respecting the company's operational autonomy, the authority to operate and manage the company shall be exercised by the board of directors, which shall be empowered to carry out operational management and select suitable managers, and the shareholders' meeting may authorise the board of directors to issue shares or bonds.
All types of companies shall, in accordance with the provisions of the new Company Law, transform the corporate governance guidelines into the company's code of conduct, and improve the governance structure in the light of the actual situation of their own companies, for example, a limited liability company with a small number of people or a small scale may not have a board of directors or supervisors, a wholly state-owned company shall not have a shareholders' meeting, the board of directors shall have more than half of the members who are outside directors, and the board of directors shall set up an audit committee composed of directors to exercise the powers of the supervisory board, without having a supervisory board. If the supervisory board has the authority, there is no supervisory board or supervisors. Good corporate governance is the foundation of economic and social development, and the implementation of the new Company Law has provided a clearer, more standardised and effective basis and guarantee for corporate governance and operation, which helps enterprises to build a scientific, effective, flexible and innovative governance system, stimulates the vitality of market players and innovative momentum, and plays a fundamental role in the reform of the regulatory system, the innovation of service methods and the reduction of interventions in the self-governance matters of market players to optimise business environment and high-quality development of the economy. It also plays a fundamental role in reforming the regulatory system, innovating service methods and reducing intervention in the autonomy of market entities, so as to optimise the business environment and high-quality economic development.
