CHINA Trends and Developments Contributed by: Jiang Guoliang, Huang Jie, Xie Tingting and Lang Tao, T&C Law Firm
dural regularity. Many oppression claims stumble on proof: plaintiffs often fail to demonstrate an improper purpose, conduct beyond the bounds of normal com- mercial judgment, or a substantive breach of duties of loyalty and good faith. In a recent case, the court emphasised that redemption relief is a last resort, encouraging shareholders first to exercise information rights, inspect accounts and seek damages where appropriate. Strengthened accountability for controlling shareholders and actual controllers For corporate governance in China, controlling share- holders and actual controllers often influence corpo- rate decision-making through informal channels, even when they hold no formal office, such as directors or senior managers. This behind-the-scenes control can steer strategy and operations while avoiding the statu- tory duties and liabilities imposed on formal office- holders. The New Company Law seeks to close this governance gap. Article 192 strengthens accountability by expressly extending liability to controlling shareholders and actual controllers who instruct directors or senior offic- ers to take action that harms the company’s interests. In such circumstances, the controller may be jointly and severally liable alongside those who acted on the instructions, effectively bringing “shadow controllers” within the director-liability framework and expanding the potential defendant pool in shareholder litigation. The statute does not restrict how an instruction may be given. Instructions may be oral or written, formal or informal. Communications in non-official messag- ing channels can qualify, and even where there is no explicit directive, an implied instruction may suffice if it is sufficiently clear and specific. Courts will focus on effect: whether the directive carried a degree of compulsion or authority that overrode independent judgment and enabled the controller to achieve com- plete or near-complete control in the relevant deci- sion. Habitual conduct is not required; a single deci- sive instruction can trigger liability if it causes harm. Nor must the control extend to every corporate mat- ter – exerting decisive influence over key strategic or operational decisions can be enough.
Although reported cases directly applying Article 192 to “shadow directors” are not yet available, aca- demic commentary suggests a substance-over-form approach. The likely judicial inquiry will ask whether the controller’s involvement was decisive in the out- come, whether the instruction was capable of binding the decision-maker, and whether the resulting harm is sufficiently linked to the instruction. For minority shareholders, Article 192 opens an additional avenue to hold de facto controllers to account. For control- lers, it heightens the compliance imperative: informal influence must align with fiduciary standards and the company’s best interests, and governance records should reflect genuine board deliberation rather than deference to extra-board instructions. Litigating defective resolutions Under the prior framework, procedural irregularities in convening or voting at shareholders’ or board meet- ings often led to revocation of resolutions, even where the defects had no real bearing on the outcome. The New Company Law introduces a more measured approach by recognising a minor-defects exemption: where the convening procedure or voting method suf- fers only minor irregularities that do not have a sub- stantive impact on the resolution, revocation is not warranted. The assessment is fact-sensitive. In practice, three questions guide the analysis. First, is the problem confined to procedural aspects of convening or vot- ing rather than substantive voting rights or eligibility? Second, did the irregularity impair fair participation – for example, by denying shareholders adequate infor- mation or a fair opportunity to be heard? Third, is there evidence that the irregularity altered the outcome or undermined the legitimacy of the decision? Where the answers tend toward “no”, courts are likely to treat the defect as minor. Two illustrations show the contrast. In one instance, a company’s legal representative circulated a notice one day in advance through a shareholder’s WeChat group. A shareholder refused to attend, objecting to the agenda. At the meeting, holders of 90% of the vot- ing rights participated and unanimously approved the resolution. The court acknowledged non-compliance with the statutory notice period but found no substan-
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