5.3.5 Summary and recommendations

Though the law on appraisal rights in China is relatively sparse compared to the laws in the United States, its value is reflected as the first exit remedy in the history of Chinese company law.

In China, the appraisal remedy also aims to protect the minority shareholders as anywhere else. Its function is to strike a balance between majority rule and the minority shareholders' fundamental expectations and interests. And for close companies, it also helps to maintain the close relationship and cooperative basis within such companies. But achievement of the purpose and function of this remedy depends not only on the design of the remedy itself, but also on the coordination and support of other relevant mechanisms, for instance the system of dealing with repurchased shares. This chapter has focused on the substantive and procedural issues of the appraisal remedy itself.

The scope of Article 75 is close to the one in the RMBCA. It includes withholding of dividends; mergers, divisions, and disposition of assets; and prolongation of operation terms. All the triggers are fundamental changes to the companies and can substantially affect the shareholder 's interests, except the withholding of dividends which can affect the interests of minority shareholders considerably but which is by no means a fundamental change to the company. Accordingly, I advise moving this category to the oppression remedy. The scope of both mergers and divisions needs to be refined to exclude the simple mergers and simple divisions which are not fundamental changes to the company. And as to transactions in major assets, the main issue is to provide a standard to define which transactions fall within the scope of Article 75. Besides, there is a flaw in relation to the procedural aspect of this trigger: power for the shareholders' meeting to vote on transactions in major assets is not regulated by company law, let alone the division of power between the shareholders' meetings and the board on this aspect. This impedes the exercise of appraisal rights relating to this trigger. Consequently, the right of shareholders to vote on dispositions of major assets should be explicitly recognized by company law and the criterion to measure major assets should also be provided. One more proposal for the scope of the appraisal remedy is the inclusion of private ordering in appraisal triggers. In a word, though the scope of appraisal triggers can be substantially the same, 'the devil is in the details'.1

Devils not only exist in the substantive area, but also in the procedural area. Study of the substance of a remedy is important, but the procedures to implement it count a great deal in achieving the purpose of the remedy. Rules in the ALI Principles and the RMBCA are helpful examples for Article 75. Recommendations from the comparative study are summarized as follows. Article 75 should: