5.4.3.1.2 Forms of relief

Another obvious difference is the form of relief. In both Article 20 and Article 153 of the Chinese Company Law, the only form of relief is compensation, while the oppression and the unfair prejudice remedy give the court a very wide discretion as to what kind of relief it thinks fit. S. 996 in the UK Company Act contains a non-exhaustive list of orders the court may make, for example, the petition may be followed by a derivative action, dissolution of the company, buyout of the applicant's shares, and so on. The remedy can therefore be viewed as a connection hub to other forms of remedies. Such an approach fits in with the tradition and training received by judges of the common law system and offers efficiency and flexibility in minority shareholder protection but it is felt as "missing" in civil law countries.1

It is not my concern here to assess which approach is superior, but I do think that only offering compensation to aggrieved shareholders is too limited and at the very least, exit rights should be afforded in the Chinese Company Law. The lack of an exit remedy is one of the differences compared to the remedies in the UK and US, but it also can be termed a problem or deficiency in minority shareholder protection in the Chinese Company Law because at present, the chance to exit a close company is only available in Article 75 when shareholders vote against certain resolutions (the appraisal remedy). In one of the few published cases judged on the basis of Article 20, compensation was granted to the plaintiff, but the defendant did not agree with the judgment and appealed.2 In the end, a mediation agreement was reached according to which the defendant (the majority shareholder) bought the aggrieved minority shareholder out. From the final solution in this case we can see that shareholders do not always prefer compensation, and the lack of a way out in the statute is felt. Even though minority shareholders have the possibility to negotiate for exit rights in the articles of association or in shareholder agreements, not every shareholder has the bargaining power and most of all, in the Chinese culture, parties are reluctant to think in advance about dispute settlement. They consider it a practice showing lack of trust between each other, and indicating unsuccessful cooperation. Consequently, mandatory exit rights are necessary. I recommend including exit relief in the relevant remedies. When exit relief is introduced, the valuation issues studied in the previous chapters, such as valuation methods, date, discount, are also helpful.3