CHINA Law and Practice Contributed by: Shuting Qi, Han Kun Law Offices
the CSRC. Consequently, traditional defensive tactics such as poison pills can be impractical. 9.3 Common Defensive Measures In China M&A practice, common defensive measures include: • preventive measures incorporated into constitu - tional corporate documents in advance, including: (a) staggered board provisions limiting annual director re-elections; (b) supermajority voting requirements for major transactions; and (c) Golden Parachute arrangements providing management compensation upon change of control; and • reactive measures that may be deployed after the awareness of a potential hostile offer, including: (a) litigation to challenge acquirer disclosure com - pliance; (b) inviting a White Knight to make a competing offer; and (c) with shareholders’ approval, conducting share buybacks or defensive asset acquisitions. While these measures are legally available, most face strict regulatory oversight. For example, in 2025, the Supreme People’s Court and the CSRC jointly issued the Guidelines on Strict and Impartial Law Enforce - ment and Judicial Services to Ensure High-Quality Development of the Capital Market, specifying that anti-takeover provisions in the articles of association shall be invalid if they violate laws and regulations. 9.4 Directors’ Duties Pursuant to the Takeover Measures, when enacting defensive measures, directors owe fiduciary duties of loyalty and care. They must treat all acquirers fairly and must not abuse their powers to set improper obstacles to the acquisition. The board’s decisions shall be conducive to maintaining the interests of the company and all shareholders. Facing a tender offer, directors must commission an independent financial adviser to evaluate such offer and disclose that opinion to shareholders. After a tender offer is announced, directors may not, without shareholders’ approval, take actions that would mate -
rially impact on the company’s assets, business or rights such as issuing shares or selling major assets. Resignation during the offer period is also prohibited. This framework prioritises shareholder choice over managerial entrenchment. In practice, this means directors facing unsolicited bids must focus on pro - cedural compliance and shareholder communication rather than unilateral obstruction. 9.5 Directors’ Ability to “Just Say No” In China, directors cannot simply “just say no” to a business combination. Under the Takeover Measures, target boards must treat all acquirers fairly and can - not abuse their powers to set improper obstacles to prevent the combination. Under such circumstances, directors’ primary weapons are persuasion and proce - dural compliance, not obstruction. This is to say that, while directors may express opposition to an offer and recommend that shareholders should reject it, they cannot take unilateral action to block a transaction without shareholder approval. Litigation is common in connection with M&A deals in China, particularly in disputes involving unfulfilled performance commitments, financial fraud, breach of representations, or deal break-up and termination. 10.2 Stage of Deal M&A-related litigation is commonly brought at three key stages: • Pre-signing stage: Disputes over breach of con - fidentiality, improper due diligence, or violation of good faith negotiation obligations arise at this stage. However, such claims are less common due to the non-binding nature of preliminary agree - ments. • Pre-closing stage: It is common to see disputes over material adverse changes, breach of interim operating covenants, or failure to obtain regulatory approvals at this stage. Interim period compliance is a frequent source of tension. 10. Litigation 10.1 Frequency of Litigation • Post-closing stage: While litigation can occur throughout a deal, post-closing disputes account
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