CHINA Trends and Developments Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
inquiries. He has worked with clients in the consulting, technology, retail, and automotive industries, amongst others. Prior to joining Han Kun, John worked at AllBright Law Offices in Shanghai. He holds a US Bar licence, is a certified public accountant, and also has previous Big Four accounting experience in the USA.
Han Kun Law Offices 9/F, Office Tower C1 Oriental Plaza 1 East Chang An Ave Beijing PRC Tel: +86 10 8525 5500 Fax: +86 10 8525 5511 Email: beijing@hankunlaw.com Web: www.hankunlaw.com
Officer Risks and Governance Restructuring for Multinational Corporations Under the Revised PRC Company Law Introduction and executive summary As the five-year transition period for the revised Company Law of the People’s Republic of China (the “Company Law”; effective 1 July 2024) enters its critical second half, corporate governance in China is highly anticipated to shift towards an era of look- through “substantive compliance”. This evolving reg - ulatory regime is structured to expand the statutory liability baseline for directors, supervisors and senior management (D&Os) of limited liability companies (LLCs) and joint stock companies (JSCs). It is predicted that traditional group-wide compliance arrangements – such as relying on offshore nomi - nee directors or executing parent company “shadow instructions” – will face heightened risk exposure in upcoming regulatory scrutiny cycles. Regulatory and judicial bodies are expected to increasingly look through corporate formalities to examine physical fund flows and internal resolution histories. Conse - quently, failure to adapt may leave subsidiaries in
China vulnerable to compliance issues with respect to capital verification or the unlawful withdrawal of capital. Local D&Os may also face direct exposure to personal joint and several liability, asset freezes and administrative exit controls (exit bans). To proactively insulate local management against these new risks, multinational corporations (MNCs) should consider restructuring subsidiary governance away from previous formalistic, check-the-box rou - tines and towards a localised, predictive compliance framework. This chapter of the guide offers a look at this framework across three core areas. • Rise of the audit committee – Examines the single-tier governance model and the phase-out of mandatory supervisor employee representatives; explores how to streamline structures while miti - gating the oversight liabilities of functional integra - tion. • Redefining fiduciary duties – Delineates the statu - tory duties of loyalty and diligence under PRC law, details why the “superior orders” defence fails nominee D&Os under controlling shareholder joint
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