How to solve the deadlock caused by shareholders' contradiction?

Source: Beijing DOCVIT Law Firm  Time: 2021-07-27 19:31:53  Author: The dispute resolution team

Party A, Party B and Party C established company a in 2008, holding 51%, 45% and 4% shares respectively. In 2018, due to policy adjustment, the main business of company a could not continue to operate. Party A, Party B and Party C held shareholders' meetings on the transformation and development direction of company a for many times, but Party A and Party B could not reach an agreement. Up to now, the development of the company has been stagnant, How can companies get out of trouble?

In such desperate situation, Party B filed a lawsuit for dissolution of company a in January 2021. After hearing, the court held that the company has been closed down and suffered losses since 2018, and there are serious difficulties in operation. Moreover, due to the objective reasons that the shareholders can not reach an agreement on the company's affairs, the company's management is deadlocked, resulting in the failure to form an effective resolution of the shareholders' meeting for more than two years, which makes the development of the company seriously difficult, According to the Company Law and the Provisions of the Supreme People's Court on Several Issues Concerning the Application of the Company Law(2), company A was then dissolved.

Ⅰ. Relevant law: The causes and characteristics of shareholders' contradiction

In the process of management of private enterprises, corporate deadlock is an important factor to block the continuous operation of the company, cause the company to lose money for years, and even lead to the dissolution of the company. As the most important and destructive contradiction in the company, the shareholder contradiction causes the failure of the corporate governance mechanism and the formation of corporate deadlock. Therefore, it is an important issue in corporate governance to correctly understand and understand the contradictions between shareholders, and timely prevent and correctly deal with the risks of contradictions among shareholders.

The contradiction of shareholders is often reflected in the company's business development planning, the company's interest distribution and the daily decision-making among shareholders. The root of the contradiction of shareholders lies in the rights of shareholders, mainly the balance between the property rights and control rights of shareholders. From the company level, the main reasons for the contradictions among shareholders can be divided into the following aspects: unreasonable structure of shareholders, unreasonable distribution of equity, unreasonable distribution of interests (imbalance of rights and interests among shareholders), contradiction of management authority and so on.

The main characteristics of the shareholder conflicts and disputes arising from the above reasons are as follows:

1. Because of the intense conflict of personal cooperation, it is difficult for the court to accept the judgment;

2. The frequent occurrence of shareholder conflicts is mainly concentrated in the initial development stage after the establishment of the company (within 2-7 years after the establishment), which easily leads to the company's failure to operate normally;

3. The conflicts and disputes among shareholders may lead to the intensification of a series of disputes between the company and its shareholders;

4. The "lethality" is stronger: the contradiction and dispute between shareholders is the heavyweight factor leading to the survival of the company. At the same time, because of the complexity of the contradiction and dispute between shareholders, such cases are often accompanied by the problem of criminal and civil overlapping.

Ⅱ. Feasible measures and suggestions to deal with shareholders' contradiction

It is a compulsory course for private enterprises in the process of governance to prevent shareholder conflicts and properly deal with the company deadlock caused by shareholder disputes. According to the current situation and specific characteristics of shareholder conflicts, combined with relevant cases and practice, this paper puts forward the coping and solving mechanism of shareholder conflicts from two aspects of prevention first and intervention afterwards.

Preventive measures

1. Reasonable optimization of equity design: while optimizing the ownership structure, the equity design within the company is optimized from the aspects of equity installment cash, dynamic adjustment of equity, establishment of reasonable distribution rules and establishment of shareholder exit mechanism, and so on, so as to reduce the frequent occurrence of conflicts and disputes among shareholders from the governance level.

2. Improve the relevant prevention system and documents: through the shareholder agreement, the articles of association, the establishment of other special systems and other relevant corporate governance documents, design solutions in advance for the possible company deadlock, clearly define the deadlock state and put forward feasible solutions, such as: preset independent third party to provide professional opinions on voting matters, set up independent director system,the voting system of Industry Association, the compulsory repurchase clause in deadlock, and the setting of dissolution reasons, etc. At the same time, we should pay attention to the stability of the content of the relevant system. It can be clearly agreed that the amendment of some provisions in the relevant system must be unanimously agreed by all shareholders, and try to reduce the matters that must be approved by all shareholders, so as to ensure the efficiency of the company's operation.

3. The company should pay attention to the balance of shareholders' rights. We can make detailed provisions on shareholders' rights from the aspects of implementing shareholders' right to know, making clear shareholders' control over the company and the disposal of equity. From the perspective of long-term development of the company, we can prevent and avoid the fatal harm of shareholders' shield to the enterprise.

Post intervention measures

1. Internal coordination of the company. In view of the contradiction between shareholders, the company and shareholders can seek the solution of the company's internal procedure coordination: to deal with the contradiction and dispute between shareholders, one shareholder withdraws, which is the most direct and rapid way to end the conflict. The specific withdrawal scheme of shareholders can be realized through the procedures of equity transfer between shareholders, company buyback, company capital reduction, company separation, etc, The specific operation process is selected according to the actual situation and needs of shareholders and the company, and the implementation of specific solutions is determined by agreement between the parties.

2. Seek the coordination of independent third party intermediary. If there is no internal communication and coordination, we can focus on the focus of contradictions through the intervention of independent third-party organizations or professionals (lawyers, tax agents, accountants), and the third party can mediate and mediate to achieve the solution and promote the implementation of the solution.

3. Resort to judicial relief is a common way to solve the company deadlock. When the parties to the conflict can not reach a solution through negotiation, and either party is unwilling or unable to quit the company, the last way to solve the problem is to file a lawsuit and ask the court to decide to dissolve the company. In the practice of judicial relief, we should make good use of the court's mediation procedure before making use of public power to achieve the main contradiction in resolving shareholder disputes, so as to achieve a win-win situation between the company and shareholders and avoid the company's dissolution.

If it is inevitable to break the company deadlock by dissolving the company in the end, it should be noted that in the judicial practice of dissolving the company, not all cases of company deadlock caused by shareholders' contradictions can achieve the result of dissolving the company and breaking the deadlock through litigation, Attention should be paid to the following conditions: shareholders who have the right to sue for dissolution should hold more than 10% of the voting rights, and there are serious difficulties in the operation and management of the company. In the practical trial, the court's trial focuses on whether the company meets the conditions of "serious difficulties in operation". According to the guidance cases of local courts and the Supreme Court, we should judge whether there are serious difficulties in the operation and management of the company from the following two aspects:

1. Comprehensive analysis is made from the operation status of the company's organization. Even if the company is in a state of profit, its shareholders' meeting will fail for a long time, and its internal management has serious obstacles, which has reached a deadlock. It can be regarded as having the conditions for dissolution. The lack of funds, serious losses and other operational difficulties of the company are not necessarily the conditions for the court to accept the lawsuit of dissolution of the company.

2. Whether the company and the shareholders themselves have exhausted other relief channels except the judicial judgment of the court. Other remedies include internal remedies in accordance with the articles of association, external equity transfer or internal equity transfer, and other judicial remedies outside the dissolution of the company (such as the appeal for redemption of dissenting shareholders). In the trial practice, the defendant shareholder or the third party outside the company to purchase the equity of the plaintiff shareholder is often used by the court as an alternative dissolution scheme.

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