Make or buy – a new look for derivative action costs in Chinese law for a more enabling environment

Zhao, J. ORCID: 0000-0001-6430-2356, Ou, J., Liu, Y. and Lin, W., 2020. Make or buy – a new look for derivative action costs in Chinese law for a more enabling environment. Texas International Law Journal, 55 (2), pp. 297-326. ISSN 0163-7479

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Derivative actions in modern company law play a crucial role in protecting shareholders and promoting the soundness of corporate governance. However, since China's inauguration of derivative action there have been complications surrounding cost-related issues, especially for joint stock limited liability companies. This article focuses on a key element of the derivative action mechanism in China, namely the litigation fee. Despite the fact that fee related issues have been addressed in the recent Provisions of the Supreme People’s Court on Some Issues about the Application of the Company Law of the People's Republic of China (IV), the provisions failed to address some important aspects in detail, especially in relation to a more effective system for the filing and attorneys' fees. In order to maximize the effectiveness of derivative action and help the mechanism reach its full potential, it is crucial to make sure that litigation costs are tailored to a level that does not discourage shareholders from bringing these actions. This article aims to address the following related questions: are current fee-oriented stipulations in China hindering the effectiveness of derivative action? If so, could Chinese Company Law learn from legislative experiences from the UK, the US, and Japan to address the problem of insufficient incentives for shareholders to bring derivative actions? Through doctrinal and comparative analysis, we will explore the possibilities of establishing a more effective approach unique to China, considering its shareholding structure, corporate law, juridical system, culture, history, legal profession, and professional ethics. A fixed filing fee approach and a contingency fee arrangement supported by a common fund and substantial tests are proposed.

Item Type: Journal article
Publication Title: Texas International Law Journal
Creators: Zhao, J., Ou, J., Liu, Y. and Lin, W.
Publisher: University of Texas School of Law
Date: 1 August 2020
Volume: 55
Number: 2
ISSN: 0163-7479
Divisions: Schools > Nottingham Law School
Record created by: Linda Sullivan
Date Added: 14 Aug 2020 14:15
Last Modified: 31 May 2021 15:07

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