- Disputes in connection with corporate resolution are further divided into disputes regarding (1) confirmation of the validity of corporate resolutions; and (2) revocation of corporate resolutions.
- Scope of Court’s Judicial Review of Revocable Corporate Resolutions
Corporate resolutions, including resolutions of the general shareholders’ meeting and board meetings, embody the decisions of the company. Modern company law stresses corporate autonomy, and in principle the judicial refrains from interfering with corporate resolutions. Because a company itself is best positioned to have a say in connection with any judgment about the affairs of the company, and a court cannot make commercial judgments in the company’s place. Circumstances which render a corporate resolution revocable include: a meeting is convened through a process which does not comply with relevant laws, administrative regulations or the company’s articles of association; the resolution is voted on in a manner that does not comply with relevant laws, administrative regulations or the company’s articles of association; and the content of the resolution violates the company’s articles of association. Therefore, in principle, the scope of a court’s judicial review of disputes involving revocation of corporate resolutions is limited to review of the above mentioned three revocable causes.
The specifics of each are outlined below:
- Defects in the process through which a meeting is convened. The common defects include lack of standing on the part of the convening person; failure to meet specified deadlines for giving a meeting notice; and failure to use the specified manner in which the notice should be given etc..
- Defects in voting. The common defects include failure to receive the statutory percentage of votes; the lack of voting qualifications on the part of the voters; and undue interference with the exercise of voting rights etc..
- Whether the content of the resolution complies with the company’s articles of association (Note by Dennis: a resolution is void if its contents violate relevant laws and administrative regulations). Under the PRC Company Law, a resolution is revocable if its content violates the company’s articles of association, and this is more helpful for stabilizing a company’s legal relationship and facilitating corporate autonomy.
- The causes for removal of a company’s management by resolution is beyond the scope of judicial review
The appointment and removal of the general manager touches upon the core and key of the decision-making in the ordinary course of the company, and reshuffling of the top management of a company by the board based on the need of corporate growth is an exercise of the company’s autonomy.
The board can exercise its powers authorized under the articles of association to remove managers of the company. The causes and rational for removing a manager (as well as the reasonableness and genuineness thereof) are things within the autonomy of the company, and should not be subject to review of the court.
It is generally held in the legal profession that the relationship between the board and the manager is a principal-agent relationship, and due to the legal nature of such a relationship, the board can remove the manager at any time, and it is not necessary for the court to review the causes of the removal.
- Where the board removes a manager without cause before his/her tenure expires, which causes damages to the manager, the removed manager can claim against the company for damages. As the board resolution embodies the expressed intention of the company, legal consequences arising from the resolution should be borne by the company. However, such a claim is legally different from an action for revocation of the board resolution, and the removed manager can make a separate claim.
- The statute of limitation for an action for revocation of corporate resolution is 60 days. An action for revocation of a corporate resolution is an action for altering a legal relationship by judgment, and the right of a shareholder to petition a court to revoke a corporate resolution, i.e. the right of revocation, is a right of formation. As revocation of a corporate resolution has a significant impact over the normal operations of the company, the period for exercise or existence of the right of revocation must be specified so that the legal relationship is determined as early as possible, and such period of time is unchangeable and must not be extended. The PRC Company Law specifies a period of 60 days from the date of the resolution during which a shareholder can bring an action before the court to seek revocation of the resolution.