Source: French Fengyan Author: Chen Ke (Shanghai High Court) Special reminder: All works marked "source" or "reprinted from" in this account are reprinted from the media, and the copyright belongs to the original author and the original source. The shared content is the author's personal opinion and is for readers' learning reference only and does not represent the views of this account.
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1. Introduction
2. Overview of content amendments to Article 142 of the Company Law and legislative logic
(I) The purpose and main content of this amendment
(II) Legislative logic - Three-step
3. Fact judgment - Problems facing the company's repurchase system
(I) Functional review of the company's repurchase system
(II) Judgment of the necessity of increasing the reasons for the company's repurchase of shares
(II) Concrete issues that need to be adjusted
4. Value judgment - legitimacy of oblique protection in legal relations
(I) Consideration of "for the company's value" in the amendment
3) Consideration of "for the company's value" in the amendment
3) Concrete issues that need to be adjusted
4. Value judgment - the legitimacy of tilted protection in legal relations
(I) Consideration of "for the company's value" in the amendment
(2) Are the evaluation criteria for "company value" positive?
(III) The "company value" standard needs to be balanced and understood
(IV) Review of the amendment based on the perspective of value judgment
(V) Supplement and emphasis
5. Legislative technology - coordination and conflict with other systems of the Company Law
(I) The connotation of adopting the expression "provisions of the articles of association and authorization of the shareholders' meeting"
(II) The source of funds for repurchasing and statutory capital system
(I) Shareholders equality in the process of repurchasing shares
6. Other issues involved in Article 142
(I) The effectiveness of surpassing or avoiding statutory matters for the company's repurchasing shares
6. Analysis and judgment on other issues involved in Article 142
(I) Determination of the effectiveness of the company's repurchasing shares
1) The effectiveness of the company's repurchasing shares
1) The effectiveness of the company's repurchasing shares
1) The company's repurchasing funds
1) The company's repurchasing shares
1) The company's equality of shareholders in the process of repurchasing shares
1) The company's shareholdings are equal.
1. The company's shareholdings are equal.
1. The company's shareholdings are determined by the company's repurchasing shares
1) The company's equity is determined by the company's behavior of repurchasing shares
1) (II) Determination of the effectiveness of the company's share repurchase behavior that violates the procedure arrangements
(III) Procedure arrangements for the company's share repurchase
(IV) Regulation of the main responsibility in the process of repurchasing shares
(V) Related issues involved in treasury shares
7. Conclusion
1. Introduction
On October 26, 2018, the sixth meeting of the Standing Committee of the 13th National People's Congress passed the amendment to Article 142 of the Company Law, which has a significant impact on the share repurchase system of joint-stock companies. A company's share repurchase refers to the legal act of a company to purchase its own issued shares. Within the author's limited reading scope, only the Hong Kong company's code for repurchasing shares shall stipulate that the offeror's company or the offeror's representative to the offeree's shareholders to purchase, redemption or other relaxation of the shares, and the privatization plan, agreement arrangement or other form of reorganization plan that belongs to such offer are also included.
The above definition involves three concepts: redeemed shares, company repurchase shares, and treasury shares. Among them, the redeemed shares issued by the company are clearly stated in foreign legislation that the articles of association stipulate that the company can issue shares that can be redeemed at any time. It is a type of preferred shares. Its focus is the company's planning for the financial structure. In addition to allowing the company to redeem, it also enjoys the right to make surplus distribution and surplus value claims. It is regarded as a "equity stock" form with superior rights than common shares. It can require the company to repurchase shares as agreed, but once redeemed, the regulations on share cancellation shall be subject to the regulations. The difference is that the company actively repurchases the share repurchases. Although the system is not allowed to be retained at the beginning, it is then considered that the retained repurchased shares can be transferred according to the circumstances, so that small amounts of funds can be raised at full market prices, a treasury stock (treasury stock) system is generated, which refers to the shares it has purchased by the company itself. Because of the requirements of the accounting system, some legislations regard treasury shares being sold again, not as a "transfer" but as a "issuance". The reason is that the accounting tax treatment and legal status are complex and uneconomical, but my country still insists that the company can continue to hold shares after repurchasing them without cancelling them. Given that "treasury shares" and "redemptionable shares" are closely related to the company's share repurchase system and are both causes or stages of company repurchase, and they can be included in the system and explained together.
In the 19th century, the legislative examples of various countries mostly negatively regarding the repurchase of shares by companies. Because the repurchase of shares by companies is a civil legal act, the repurchase of shares becomes a shareholder. As the obligation entity and the shareholder of the right entity are united, the fact that the company enjoys shares is distorted, which is difficult to make sense in logic. In view of the possible violation of capital maintenance principles and fair trading order, traditional corporate law adopts a strict prohibition attitude towards it. However, with the development of the capital market, people have discovered that as a special capital strategy and operation method, the company's repurchase of shares has the functions of defensive acquisitions and alternative dividend distribution. The legal system must respond to social needs, so it has changed from strict prohibition to exceptional permission. Article 142 of the original Company Law adhered to this concept. The above views are all drawn under the statutory capital system. Later, because the principle of capital maintenance is difficult to effectively protect the interests of creditors, and it is not conducive to the company's financing and operation, as well as the flexible use of funds, various countries have further loosened the company's repurchase of equity system. The amendment to Article 142 of this Company Law can be said to be a response to this trend.
The amendment to Article 142 of the Company Law relaxes the supervision of company repurchases, further relaxes the company's capital controls, and achieves the purpose of adjusting the company's capital and equity structure through the company's independent and rational use of company assets. This is a continuation of the reform of the capital registration system in 2013. The correction is closely related to the background of the continued sluggish stock market in my country in recent years. Legislators also hope that its introduction can promote the company's flexible use of funds, achieve the effect of adjusting and stabilizing the company's stock price, and thus boost the capital market. But the possible question is whether the amendment of a provision can achieve diversified tasks and whether the problem-oriented amendment is in line with the existing corporate legal system.
From the position of Article 142 in the Company Law, it involves a wide range of issues. Its modifications affect the whole body. If only emphasis is placed on its advantageous aspects, it will not be a loss, which will mislead the public. This article will discuss its legislative thoughts, pros and cons, gains and losses, explore legislative logic and related issues, and make suggestions for judicial application after legislation.
The explanation is divided into the following parts: First, it will introduce the main contents of the amendment, secondly, analyze the legislative logic of the company's repurchase of shares, and then discuss the three major issues of factual judgment, value judgment, and legislative technology in the amendment, and finally analyze the possible problem points and discuss the gaps in the legislation without taking into account the gaps.
2 . Contents and legislative logic of Article 142 of the Company Law
From the content of the amendment (see Table 1), the company's share repurchase system involves a very broad and complex content, and the legislative logic behind it is also discussed in depth.
Article 142 The company shall not acquire its own shares. However, this does not apply to any of the following circumstances:
Article 142 If a company is in any of the following circumstances, it may acquire its own shares:
(I) reduce the company's registered capital;
(I) reduce the company's registered capital;
(I) merge with other companies holding shares of the company;
(I) merge with other companies holding shares of the company;
(I) reward shares to the employees of the company;
(III) use for employee stock ownership plans or equity incentives;
(IV) Shareholders object to the company's merger or division resolutions made by the shareholders' meeting and request the company to acquire their shares.
(IV) Shareholders object to the company's merger or division resolutions made by the shareholders' meeting and request the company to acquire their shares;
(V) Use the shares to convert corporate bonds issued by listed companies that can be converted into shares;
(V) Listed companies are necessary to maintain the company's value and shareholders' rights.
If a company acquires its own shares due to reasons listed in paragraphs (1) to (3) of the preceding paragraph, it shall be resolved by the shareholders' meeting.
If a company acquires its own shares due to the circumstances stipulated in paragraph (1) and (2) of the preceding paragraph, it shall be resolved by the shareholders' meeting. If a company acquires its own shares due to circumstances stipulated in items (3), (5) and (6) of the preceding paragraph, it may resolve the board meeting with more than two-thirds of the directors attending in accordance with the provisions of the company's articles of association or the authorization of the shareholders' meeting.
After a company acquires its own shares in accordance with the provisions of the preceding paragraph, if it falls under item (1), it shall be cancelled within ten days from the date of acquisition; if it falls under item (2) or item (4), it shall be transferred or cancelled within six months.
After a company acquires its own shares in accordance with the provisions of the first paragraph, if it falls under item (1), it shall be cancelled within ten days from the date of acquisition; if it falls under item (2) or item (4), it shall be transferred or cancelled within six months; the shares acquired by the company in accordance with the provisions of the first paragraph (3) shall not exceed five percent of the total issued shares of the company; the funds used for the acquisition shall be paid from the company's after-tax profits; the acquired shares shall be transferred to employees within one year. If
belongs to item (3), item (5), or item (6), the total number of shares held by the company shall not exceed 10% of the total number of shares issued by the company, and shall be transferred or cancelled within three years.
If a listed company acquires its own shares, it shall fulfill its information disclosure obligations in accordance with the provisions of " Securities Law of the People's Republic of China ". If a listed company acquires its own shares due to the circumstances stipulated in paragraph 1, item (3), item (5) and item (6) of this article, it shall be conducted through public centralized transactions.
The company shall not accept the company's shares as the subject of the pledge right.
The company shall not accept its shares as the subject of the pledge right.
(I) The purpose and main content of this amendment
As an important measure for the reform of the basic system of my country's capital market, this amendment is an important measure for the reform of the basic system of China's capital market. It has three purposes: First, allow the company to choose the appropriate opportunity to repurchase its shares, further enhance the ability of listed companies to adjust their equity structure and manage risks, improve the overall quality and investment value of listed companies, and promote the construction of the corporate governance system and the modernization of governance capabilities. The second is to increase the reasons for repurchase, provide the company with a source of shares for employees, and convertible bonds, form a community of interests between capital owners and workers, improve the efficiency of corporate capital operation, and enhance investors' return capabilities; it is also conducive to enhancing the convenience of convertible bond cashing, expanding company financing channels, and improving the company's capital structure. The third is to expand the company's own operating scope. Allowing listed companies to repurchase shares to maintain the overall value of the company and shareholders' interests will help to thicken the net assets per share, consolidate the asset base of valuation, improve the endogenous stability mechanism of the capital market, and promote the overall stable operation of the capital market. It is obvious that the amendment under the leadership of the China Securities Regulatory Commission is more to enhance the autonomy of listed companies and boost the morale of the stock market, and legislators are on the side of the company.
The modification of this clause mainly comes from Article 28, 2 of the Securities Exchange Law of Taiwan and Article 168 of the Company Law. From the perspective of textual expression, there are three modifications. First, modify and increase the reasons for the company's share repurchase. The attitude changed from "the principle of "the company's equity repurchase principle denies exception affirmation" to the principle of "the reason for repurchase equity". In addition to retaining the repurchase of repurchases such as capital reduction, merger, and share acquisition of objections shareholders, the third item of this paragraph is to modify the "rewarding shares to employees of the company" as "employee stock ownership plan or equity incentive" (hereinafter referred to as employee shareholding), and adding the fifth and sixth item "using shares to convert corporate bonds issued by listed companies into stocks" (hereinafter referred to as convertible bonds), and "a listing company must be necessary to maintain the company's value and shareholders' rights" (hereinafter referred to as safeguarding the company's value and shareholders' rights), a total of six reasons for repurchasing shares. Item 6, "To protect the company's value and shareholders' rights, is a basic provision for the reasons for the company's repurchase of shares, which is the core of this amendment.
Second, simplify the decision procedures for the company to repurchase shares. Capital reduction and merger repurchase must be resolved by the shareholders' meeting; objection shareholders claim that the repurchase is the right of the shareholders, and if they make a claim that meets the requirements, the company should acquire it; (Although the legal interpretation of the objection shareholders clearly states that as long as they are proposed, the source of funds is not clear, and it is also controversial to repurchase without the resolution of the shareholders' meeting.) In addition, other repurchases are held by employees, convertible bonds, and to maintain the company's value and shareholders' rights and interests, after authorization by the articles of association and shareholders' meeting, only resolutions must be made by more than two-thirds of the directors attending the board meeting.
Third, expand the upper limit of the holding period and holding amount of the company that "treasury shares". It is clarified that the source of treasury shares is employee shareholding, convertible bonds, and to maintain the company's value and shareholders' equity. The total upper limit of treasury shares that the company can hold is also increased to 10% of the total issued shares, and the inventory period is extended to three years.
Fourth, information disclosure obligations for share repurchase of listed companies and requirements for public centralized transaction methods have been added. This amendment adds new regulations that if a listed company acquires its own shares, it shall fulfill its information disclosure obligations in accordance with the provisions of the " Securities Law ". If a listed company repurchases its own shares due to three reasons: employee shareholding, convertible bonds, and to maintain the company's value and shareholders' interests, it shall be carried out through public centralized transactions.
Since the content of the fourth item is market law, it should be classified into the securities law field. This article will focus on the first three items.
(II) Legislative logic - Three-step
In the context of legal doctrine, we should pay attention to the perspective of the referee in order to achieve the accurate application of Article 142 of the new company law . The three levels of "legal text-legal interpretation- law application " that implements the spirit of legislation in judicial practice are the process of using laws to explain social life. Legislation is a civil law ethics (value judgment) behind it based on the problems that need to be solved (factual judgment), so as to use legislative technology to concretize, conceptualize and institutionalize "value judgment" and ultimately realize the display of civil law in real life. To a certain extent, the use of law by referees is a mapping of the legislative process. It is necessary to accurately understand the law and accurately apply the law to understand the legislative logic of the law.
Fact judgment, value judgment, and legislative technology builds three steps of legislation: First, fact judgment, to reveal what interest relationships exist in the life world need to be coordinated, how effective the coordination of existing legal adjustment means, and whether it is sufficient. For example, lawmakers have found that a company's share repurchase is an important way to regulate the company's value and shareholders' interests in the company's capital system. At this stage, the company's repurchase is fewer reasons, which may hinder the free use of the company's assets, resulting in the inability to efficiently adjust the capital structure and equity structure, resulting in the lack of a company's independent adjustment mechanism for the company's value.
The second is value judgment. To solve the conflict of interest involved in the problems found in fact judgment, it is necessary to properly arrange the interest relationship according to a specific value orientation, which includes the question of whether the adjustment path and method of interest relationship conform to the social value consensus, that is, what type of coordination rules should be set for specific types of conflict relationships between civil subjects. For example, the law should set up corresponding coordination mechanisms for the increased reasons for the repurchase of shares and the decision procedures of the shareholders involved in the overall conflicts between the shareholders and the creditors, and the conflicts between the controlling shareholders and non-controlling shareholders.
The third is legislative technology, based on the value judgments that the legislators have made, it is necessary to make a proper place in the process of making the law. On the one hand, it should be simple and clear to avoid duplication and cumbersome legal regulations. More importantly, it should be consistent with the current legal system and there should be no conflict between norms and systems. The focus of this amendment is to relax the reasons and repurchase methods of company repurchase, which is a continuation of the relaxation of capital regulations in 2013. How to connect with existing statutory capital is still a problem that needs to be solved.
The above three steps also play an important role in the referee. The referee needs to have corresponding judicial technology. First, connect dispute handling events through legal adjustment scope, and secondly, identify the type of legal norms, and discover the major prerequisite for resolving disputes. Again, if there is difficulty in applying the law, you must also accurately understand the value judgments contained in the norm, and use legal methodology to identify and refine specific applicable norms and methods.It can be seen from this that the essence of judicial practice is to discover, repost or even expand the process of legislators' factual judgment, value judgment, and legislative technology in legislation. The above three issues also exist in the application of specific laws and are homogeneous with the legislative process. Therefore, Professor Kelson believes that judicial practice creates individual norms based on general legal norms. As a level in the process of creating legal principles, judicial behavior should pay more attention to the above three issues of homogeneity.
Go back to the revised equity repurchase system. The factual judgment is that the company's repurchase system is insufficient, the value judgment is to determine the direction of solving the problem, and the legislative technology is to clarify the specific way of solving the problem and the connection with the existing system. In other words, in response to the insufficient supply of the company's share repurchase system, legislators have adopted the value consensus of stabilizing the company's value, and have added adjustment methods such as expanding the reasons for company repurchase, simplifying the repurchase procedures, increasing the treasury shareholding, and extending the term of the treasury share.
It is certainly a direction for conducting institutional research on the company's repurchase of shares. This article hopes to analyze the appropriateness of value judgments based on the construction of the system itself, based on legislation and future judicial practice, and to clarify the instrumentality of legislative technology based on factual judgment. As for whether this modification can be consistent with the existing corporate law system and whether it leads to excessive negative effects, it is also involved in the discussion.
(Unfinished, to be continued...)
