CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
Judicial Review Courts also examine conflicts in M&A-related dis - putes. In a recent merger transaction between two listed companies, an individual who is a public share - holder of one of the two companies alleged procedur - al violations including the failure to audit a connected transaction and sued to avoid the transaction, high - lighting how courts are being asked to review M&A processes for fairness. This intense oversight serves multiple purposes including protecting minority shareholders from self- dealing by controlling shareholders or management, ensuring market integrity and fair information disclo - sure, and upholding procedural compliance as man - dated by securities laws, thereby maintaining orderly capital markets. Legally, China does not forbid hostile tenders. How - ever, they remain extremely rare in practice. The pri - mary obstacles are: • the highly concentrated ownership structures of Chinese listed companies, which make control changes almost impossible without controlling shareholders’ consent; • the mandatory general offer rule triggered at the 30% threshold, which imposes prohibitive costs on unsolicited bidders; and 9. Defensive Measures 9.1 Hostile Tender Offers • the regulatory review process, which often deprives bidders of the element of surprise and may cause significant delay and uncertainty during such hos - tile tender offers. 9.2 Directors’ Use of Defensive Measures Pursuant to the Takeover Measures, target boards are subject to fiduciary duties of loyalty and care. Upon receiving a tender offer, the board must treat all acquirers fairly and must not abuse its powers to set improper obstacles to the acquisition. Therefore, the use of defensive measures must be justified as being in the best interests of the company and its sharehold - ers. In addition, a new issuance of securities requires approval by the general shareholders’ meeting and
on an informed basis, even if they resulted in short- term financial loss. 8.4 Independent Outside Advice Directors overseeing business combinations in Chi - na routinely retain three categories of independent adviser: • Independent financial advisers provide valuations, funding assessments and fairness opinions; for listed companies, such engagement is a regulatory requirement under the Takeover Measures, and the adviser’s opinion must be disclosed alongside the board’s recommendation. • Legal advisers are retained to address transaction structuring, regulatory compliance across antitrust, securities and foreign investment regimes, and the drafting of transaction documents. • Auditors and accountants conduct financial and operational due diligence to identify contingent liabilities and assess accounting quality. The combination of these three advisory streams sup - ports the board’s compliance with its duty of diligence and produces the professional opinions and docu - ments required for regulatory disclosure and review. 8.5 Conflicts of Interest Conflicts of interest of directors, managers, sharehold - ers and advisers have been the subject of significant judicial and regulatory scrutiny in China, particularly in the context of listed-company M&A. Regulatory Scrutiny The CSRC actively scrutinises conflicts in M&A trans - actions. In one case in 2025, the CSRC imposed a maximum CNY5 million fine on an executive direc - tor of a listed company for insider trading during a major asset restructuring of a subsidiary of the listed company, after the purchase of nearly CNY100 million of its shares during the sensitive period. During IPO review, the Shenzhen Stock Exchange also probes historical conflicts, such as a director receiving dual advisory fees from both the investor and the company for introducing financing.
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