CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
8.2 Special or Ad Hoc Committees The formation of special or ad hoc committees in M&A transactions is neither statutorily mandated nor commonly practised in China. Under the PRC Com - pany Law, conflicted directors must recuse them - selves from voting on connected transactions, and their votes are excluded from quorum calculations. Independent directors must issue opinions on material related-party transactions and may engage external advisers, but formal committee empowerment is rare. 8.3 Business Judgement Rule China has not codified a business judgement rule in the same manner as established in the United States. However, a functionally analogous standard has evolved through judicial practice, pursuant to which courts accord meaningful deference to board deci - sions in takeover situations, provided the board has fulfilled certain substantive and procedural require - ments. Article 180 of the revised PRC Company Law requires directors to apply the level of care expected of a rea - sonably competent manager acting in the company’s best interests. In contested decisions, courts examine whether directors undertook genuine inquiry into the relevant circumstances, acted in good faith, were free of conflicts, and exercised commercially reasonable judgement. Where these conditions are met, courts have consistently declined to substitute their own assessment of commercial merit for that of the board. In contested decisions, courts examine whether direc - tors undertook genuine inquiry, acted in good faith, were free of conflicts, and exercised commercially reasonable judgement. Where these conditions are met, courts consistently decline to substitute their assessment of commercial merit for that of the board. This judicial approach is exemplified in the Shang - hai Taiqi case, under which a director’s actions taken during a shareholder conflict led to significant finan - cial loss of the company. The Shanghai Intermediate People’s Court refused to hold this director liable for breach of director’s duty, finding that he was acting not on self-interest but on sufficient business consid - eration, and with the purpose of preserving company assets. The court emphasised that it would not sec - ond-guess business decisions made in good faith and
cumstances and explain why standard disclosure is impractical, confirming the acquirer’s financial
capacity and compliance intent. 7.4 Transaction Documents
In China M&A for listed companies, certain transac - tion documents must be fully and publicly disclosed. These include: the acquisition report or tender offer report; the board’s report on the transaction; the inde - pendent financial adviser’s opinion; valuation reports prepared by qualified asset valuers; and, where shares are issued, the prospectus. Detailed underlying transaction agreements such as share purchase agreements are not required to be fully publicly filed. Instead, only their essential terms must be summarised in the primary disclosure reports such as the equity change report, tender offer report or acquisition report. However, relevant internal docu - ments as such are listed as reference documents and must be made available for inspection at the com - pany’s premises, the stock exchange or other desig - nated locations, as specified in the relevant disclosure rule. Under the PRC, directors owe statutory duties of loyalty and due care to the company in a business combination, with their primary obligation focused on safeguarding the company’s and the sharehold - ers’ interests. Amid evolving corporate governance trends, directors are also encouraged to consider broader stakeholders including employees, creditors and public interests as guided by the revised law. For listed-company combinations, directors must ensure full and timely disclosure of material informa - tion related to the transaction, act fairly towards all potential offerors and adopt measures that safeguard corporate and shareholder interests, which reflects the evolving trend of imposing director duties that extend to protecting the interests of broader stake - holders under a specific M&A scenario. 8. Duties of Directors 8.1 Principal Directors’ Duties
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