5.4.3.2.5 Recommendations for the discretion issue — Proposals from the CLR

In this subsection, suggestions will be given for the problem of court discretion required by this remedy. The nature of the oppression/unfair prejudice remedy does not allow it to be reduced to specific circumstances.1 The scope depends on the interpretation of the court. So all one can expect is a competent, wise and experienced court. Although general guidelines and interpretation standards have been developed and are still developing through case law, it is often admitted that even understanding the general lines is not easy.2 If possible, therefore, the provisions of the Chinese Company Law should be clearer and more illustrative to minimize the court's uneasiness in exercising judicial discretion and increase legal certainty.

As stated in the UK chapter, to reduce the number of petitions brought onder the general wording of s. 459 (now s. 994) and to enhance legal certainty, the CLR suggested a new discrete remedy which presumed on a rebuttable basis that a minority shareholder with 10 per cent voting rights was unfairly prejudiced if he could prove exclusion from management in a private company with a maximum of five shareholders, and among them there was a relationship such as that set out in Ebrahimi.3 The relief was a purchase order for his shares without discount.4 Although not adopted in the Company Act 2006, in my opinion, the CLR's approach has attributen. The recommendation not only provides an expeditious way of handling cases, but more importantly, it brings clarity and certainty of the general term to members in a small business.

As a newly introduced remedy, the scope of Article 20 is vague not only to the court but also to the business people in China. Vague standards for shareholder conduct may compound confusion among the Chinese and international investors. In addition, the courts may find it extremely difficult to fulfil their interpretation task. A list of typical patterns of majority conduct which may be indicative of oppressive actions therefore serves the functions of educating the business community, guiding the court's judgment, and facilitating a uniformed application across the country. Under the current circumstances, the court has been pushed to the front by the legislators. So to alleviate the sudden load on the court, I think the Chinese Company Law should make use of the CLR approach, the merits of which have never been accorded the weight they deserve in the UK. Regarding instances for the list, situations identified in case law in the UK and US are referential which include: (1) exclusion of a minority shareholder from management; (2) misappropriation or diversion of corporate assets; (3) improper increases in share capital; (4) excessive remuneration; (5) no distribution of dividends, and (6) certain alterations of the articles of as sociation.5

This list actually overlaps with the most frequently observed instances of oppression in close companies in China,6 which again proves that problems in close companies are quite universal. I thus recommend that the list of oppression triggers in the oppression remedy in China should be:

Legislators can certainly draw indications from cases and surveys of business people as well to make the list best suit the needs of the Chinese situation. The list can first adopts the way as in the situation of explaining "serious difficulties" for Article 183, presented in the interpretations of the Company Law 2006 by the Supreme Court, and after being tested and proved effective, stipulated in Article 20.

In brief, inspired by the CLR recommendations, I propose that, to maintain the scope of the remedy, the general wording "abuse of rights" can remain, but it should be supplemented by a statutory list of rebuttable presumptions which are supported by case law reviews and business practice.