Cheng: The Reform of the Corporate Duty of Care in China — From the Introspection of Delaware and Taiwan

Abstract:

The concept of fiduciary duty, derived from common law, was introduced to the Company Law of People’s Republic of China in 2005. The fiduciary duty plays an extremely important role in common law, particularly in U.S. corporate law. For this reason, one might have expected dramatic consequences from its introduction to Chinese law. In reality, however, few fiduciary lawsuits have been brought to the courts of China since 2005. There are three main reasons for the rarity of due care lawsuits. First, Chinese fiduciary law has neither clear content nor a practical enforcement. This is especially true of the body of fiduciary law that deals with the duty of care. This makes it difficult for lawyers to decide whether pursuing a due care lawsuit is worthwhile and for judges to establish a legal doctrine for applying and enforcing the law. Second, the traditionally harmonious culture of China discourages filing lawsuits against directors. Shareholders thus prefer other ways to solve problems, such as simply selling their stocks. Third, Chinese law imposes severe restrictions on derivative lawsuits. One such restriction is the requirement for shareholder(s) to have held at least 1% of company stock for at least 180 consecutive days in order to be eligible for filing a derivative lawsuit. This dissertation examines China’s problematic duty-of-care law and demonstrates that it is in dire need of revision by introspecting the duty of care in Delaware and the obligation of care of a good administrator in Taiwan. In any case, however, one cannot simply transplant a common law concept to civil law without also making a substantial effort to explain the law and adapt it to fit its new context. Otherwise, the law will inevitably suffer either from vagueness or ambiguity, both of which are sure sources of confusion. Therefore, the ambition of this dissertation is to provide the Chinese world a practical reform of the duty-of-care law that fits in the Chinese society.

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