5.4.2.2 Possibility II — Article 20 and Article 153

Since at this stage of its development Article 183 can hardly be seen as a remedy to constrain oppressive conduct by the majority or directors, other articles dealing with shareholder's duties or director's duties, and giving rise to direct actions in case of breach of duties, need to be examined. Relevant articles which come to light are Article 20 and Article 153.

Article 20 stipulates that shareholders of a company must abide by laws, administrative regulations and the articles of association of the company, exercise their rights according to law, and shall not abuse their rights to damage the interests of the company or other shareholders. Based on this article, the shareholders who have abused their rights so as to cause losses to the company or other shareholders shall be liable for the losses. To be more specific, two litigation forms are laid down in this article. A derivative action is possible if a shareholder has breached his duty and caused losses for the company;1 the other form, closely related to this research, is a direct action by individual shareholders if their interests are harmed by other shareholders. With this article, the Chinese company law introduces a fiduciary duty which shareholders must observe towards their fellow shareholders. Even if they are excising their legal power, shareholders are not allowed to damage the interests of others by abusing it. Except for Article 20, there are no other provisions in Company Law 2006 with regard to the duty owed by a shareholder to other shareholders.

A close examination shows that both the essence and the legislative approach of this article resemble the oppression remedy in the US and the unfair prejudice remedy in the UK: it restricts the majority shareholders from infringing the interests of others by means of general standards and open-ended criteria. But the possibility of a direct action is not covered by this article when the interests of shareholders are harmed by a breach of fiduciary duties owed by directors. Nonetheless, such a situation is covered by Article 153 which provides that if any director or senior manager damages the shareholder's interests by violating any law, administrative regulation or the articles of association, the shareholders may lodge a lawsuit at the people's court and the relief available is compensation. The conclusion of my finding is therefore that Article 20 and Article 153 together cover mainly the same scope as the oppression/unfair prejudice remedy. Not surprisingly, differences from the oppression/unfair prejudice remedy exist. In the following section, I will explain two major differences and two major application problems in China.