Introduction:
In the corporate governance structure, the signing of a concerted action agreement is a common cooperation mechanism between shareholders, and the concept of a person acting in concert is currently only stipulated in the Administrative Measures for the Acquisition of Listed Companies and some documents of the China Securities Regulatory Commission and the stock exchange. However, with the development of business practices, shareholders of non-listed companies also adopt concerted action agreements to jointly exercise shareholder voting rights to achieve the purpose of shareholders' actual control over the company, among other purposes. Such agreements usually involve the transfer of voting rights of shareholders, which brings the protection of the interests of the minority shareholders, but also brings the risk of damage to their rights and interests. In particular, when the minority shareholders have conflicts with other persons acting in concert, they may face a more passive disadvantage. Concerned about the frequent occurrence of disputes between shareholders after the signing of concerted action agreements in practice, this article analyzes and discusses from the perspective of the path of agreement termination for reference.
1. The concept and nature of concerted action agreements
Article 83 of the Administrative Measures for the Acquisition of Listed Companies stipulates that "the term "concerted action" as used in these Measures refers to the act or fact that an investor jointly expands the number of voting rights of the shares of a listed company that it can control with other investors through agreements or other arrangements. Investors who act in concert in the acquisition of listed companies and related changes in their share interests are persons acting in concert with each other. ”
In practice, more and more shareholders and investors of limited liability companies enter into concerted action agreements in preparation for the company's pre-listing or financing, which is common to bind the scattered equity of all parties, with a view to expanding the equity or shareholder voting rights so as to jointly enjoy or ensure the control and influence of a shareholder over the company, which is not prohibited by law. However, once a dispute arises between the counterparties to the agreement, there is considerable controversy in judicial practice and academia about the nature of the concerted action agreement, and when the counterparty to the agreement requests to terminate the concerted action agreement, the different characterization may directly affect the understanding of its legal effect and the choice of the termination path.
Some views believe that a concerted action agreement is similar to an entrustment contract in that there is a certain entrustment and agency relationship between the shareholders, especially in the document, which is specified in the document, and the discretionary termination rule can be applied, while others usually consider it to be a nameless contract, because it may contain a mixture of various contractual elements such as an entrustment contract and a partnership contract, and the parties to the agreement cannot exercise the right of arbitrary termination.
2. Termination of the Concerted Action Agreement
With regard to the termination of a concerted action agreement, the fundamental concerted action agreement is an agreement between the parties to the agreement to create a certain legal relationship based on autonomy of will, and the relevant provisions on the termination of the contract should still apply. By searching the keywords "concerted action agreement" and "termination" in the Alpha case database, the authors found a total of 84 cases in which the cause of action was a contract or quasi-contract dispute, including 1 case of entrustment contract dispute and 59 cases of other contract disputes.
(1) Common points of dispute
After further collating and analyzing the relevant cases of disputes over the termination of concerted action agreements, the common focus of disputes in such cases is "1) whether the concerted action agreement should be terminated, and 2) whether the breaching party has breached the contract and whether it should bear the liability for breach of contract".
With regard to issue 1, the court will usually first confirm the validity of the agreement when hearing the case. On the premise that the agreement is valid, it is then determined whether there is a factual and legal basis for rescission in accordance with the litigation claims of the litigants. If the concerted action agreement is an expression of the true intention of the counterparty to the agreement, and is intended to protect the rights and interests of shareholders through legal means and does not violate the law, As for the focus of dispute 2, it is often a certain breach of contract that causes the agreement to fall into a dispute over termination that needs to be terminated early, and if the parties to the agreement want to litigate to terminate the concerted action agreement, it is best for the parties to the agreement to ensure that there is no breach of contract, and in judicial practice, there have been cases supporting the high liquidated damages under the concerted action agreement, such as the (2020) Jing 0112 Min Shen No. 22 case.
(2) Basis for the right of rescission with different qualifications
In practice, the main legal basis involved in the termination of a concerted action agreement is the Civil Code: change of circumstances under Article 533, termination by agreement under Article 562, statutory termination under Article 563, and arbitrary termination of the entrustment contract under Article 933.
The rules of agreed termination, statutory rescission and change of circumstances are applicable to general contracts, while arbitrary termination shall be applied under the circumstances expressly provided by law. There are several avenues for shareholders or investors to consider terminating a concert agreement:
1. Termination of Agreement
Termination by agreement is highly dependent on the autonomy of will between the parties to the agreement, one is the parties to terminate by consensus, and the other is that the agreement stipulates in advance the right of termination under specific conditions, and the person with the right of termination needs to exercise the right of termination according to the specific terms of the agreement. In practice, it is uncertain for the parties to the agreement to terminate the agreement by consensus in the event of a dispute afterwards, while stipulating specific termination conditions in advance requires the parties to anticipate the possible risks as much as possible and take precautions against the terms, and when the conditions are met, the parties can claim termination.
2. Statutory Release
The exercise of the statutory right of rescission usually requires a certain degree of severity, and article 563 of the Civil Code enumerates several circumstances" (1) The purpose of the contract cannot be realized due to force majeure; (2) Before the expiration of the performance period, one of the parties clearly states or shows by its own conduct that it will not perform the main obligation; (3) One of the parties delays the performance of the main debt and fails to perform it within a reasonable period of time after being reminded; (4) One of the parties delays the performance of the debt or has other breaches of contract, resulting in the inability to achieve the purpose of the contract; (5) Other circumstances provided by law. ”
Since the basic purpose of concerted action is to expand the control and influence of the concerted actor over the company by aggregating scattered equity or shareholder voting rights in a certain context, the background and specific purpose of signing the concerted action agreement need to have a clear direction, which is also the key direction of evidence for the parties claiming the termination of the agreement.
3. Voluntary Termination
Different types of contracts may have completely different legal consequences, and the right to terminate at will is an inherent right granted by law to the parties to several specific types of contracts, and the entrustment contract is one of them. In judicial practice, most cases do not determine the nature of the concerted action agreement, but the author finds that in the case (2020) Yun 2501 Min Chu No. 1514, the court did not directly determine that the concerted action agreement involved in the case was in the nature of an entrustment contract, but supported the exclusion of the arbitrary right to terminate the entrustment contract through agreement in the concerted action agreement, which to a certain extent reflects the judicial view that the concerted action agreement cannot be arbitrarily terminated.
4. Change of circumstances
After the conclusion of the contract, if there is a major change in the basic conditions of the contract that the parties could not foresee at the time of conclusion of the contract and which is not a commercial risk, and it is obviously unfair to one of the parties to continue to perform the contract, the adversely affected party may renegotiate with the other party;
The fundamental purpose of the change of circumstances regime is to protect the adversely affected party from a manifest unfair position as a result of the continued performance of the contract, and the material change is due to objective facts that are not attributable to liability and not to the breach of contract by the other parties. In the specific application, it is first necessary to recognize whether the change in the objective situation is unforeseeable in light of the purpose of the contract, and second, whether the impact of the change in the objective situation has caused one party to fall into unfair treatment. For example, in the case (2018) Yue 06 Min Zhong No. 67, the court held that the main purpose of the concerted action agreement involved in the case was to prepare for the company's "A-share" listing, and then it was obviously unfair to the parties to continue to perform the agreement due to the termination of the company's listing and the withdrawal of the parties from the management, thereby supporting the termination of the agreement.
3. Practical suggestions
How to choose the termination route requires professional analysis based on the specific facts of the case, but it may be the most convenient and effective way to stipulate the termination conditions in the agreement in advance. In order to protect the rights and interests of their shareholders, they have to properly make reasonable planning for concerted actions and fully assess the risks in advance.
1. Signing with caution: Before entering into a concerted action agreement, minority shareholders should fully understand the content of the agreement and assess the potential risks.
2. Clarify rights and obligations: The rights and obligations of all parties should be clarified in the agreement, especially the key terms such as termination conditions and liability for breach of contract.
3. Legal advice: In the process of signing or terminating the agreement, minority shareholders should seek professional legal advice to ensure that their rights and interests are not infringed, and avoid facing high liability for breach of contract due to their own actions during the performance process or if the concerted action agreement is still valid.
4. Backup plan: Minority shareholders should consider setting up a backup plan in the agreement, such as the ability to exercise voting rights separately under certain circumstances.
【References】
1. Intermediate People's Court of Changzhou City, Jiangsu Province, (2022) Su 04 Min Zhong No. 1096, 2022-05-20
2. Intermediate People's Court of Foshan City, Guangdong Province, (2018) Yue 06 Min Zhong No. 67, 2018-05-17
3. Gejiu Municipal People's Court, (2020) Yun 2501 Min Chu No. 1514, 2020-11-20
4. Beijing Tongzhou District People's Court, (2018) Jing 0112 Min Chu No. 24863, 2019-09-02
5. Xiamen Intermediate People's Court of Fujian Province, (2021) Min 02 Min Zhong No. 648, 2021-03-26
6. Zhangjiakou Economic Development Zone People's Court, (2019) Ji 0791 Min Chu No. 1620, 2020-02-03
7. Hangzhou Xihu District People's Court, (2018) Zhe 0106 Min Chu No. 3961, 2018-07-27
Source: Hunan Furong Law Firm
Author: Shi Guilin
Editor: Yi Sainan
