CHINA Law and Practice Contributed by: Kevin Wang, Global Law Office
obligations in time and cause losses to the company. Shareholder Direct Lawsuit Against Directors or Officers If directors or officers violate any law, adminis - trative regulations or the company’s articles of association, thereby harming the interests of a shareholder, the shareholder may directly file a lawsuit, in their own interests. Company Lawsuits Against Directors or Officers A company can directly sue its directors or offic - ers for their failure to fulfill their duty of loyalty and diligence. For example, Article 13 of Provisions of the Supreme People’s Court on Several Issues Con - cerning the Application of the Company Law of the People’s Republic of China (III) stipulates that if a shareholder fails to fulfil the capital injection obligation at the time of the company’s capital increase, the company can request the directors or officers who fail to monitor or manage the process to pay the capital; after the directors or officers repay the capital, they may claim indem - nification against the defendant shareholders. With respect to the shareholder direct lawsuits against company itself, please see 5.4 Share- holder Claims . Class Action Lawsuit in Securities Litigation Directors and officers of publicly traded compa - nies, along with the company and other respon - sible parties, may also be held accountable for misbehaviour including false statements, breach of promises, insider trading and market manipulation, and shall be responsible to com - pensate the investors who have suffered losses as a result of such conduct, according to the
following special procedures of shareholder rep - resentative lawsuits under the Securities Law of China. The lawsuits are similar to class action lawsuits in western developed markets but with special procedures. • If an investor protection institution holds shares of the company, the institution may file a lawsuit in its own name in the interests of the company with no limitations on the share - holding ratio and holding period. • If the parties on one side of the actions are numerous with the same type of claims, they may legally recommend and select repre - sentatives to participate in the actions; the people’s court may issue an announcement to notify the investors to register during a certain period. • An investor protection institution, authorised by 50 or more investors, may participate in actions as a representative, except for investors who have expressly indicated their reluctance to participate in the actions. Furthermore, the China Supreme People’s Court issued a judicial interpretation in 2022 stipulating that such civil litigation does not need to wait until an administrative authority or criminal court makes a formal finding on the wrongfulness of the alleged misconduct. 4.9 Other Bases for Claims/Enforcement Against Directors/Officers There are other bases for claims or enforcement against directors or officers according to new revisions of Company Law, which already cause attention from the public. Claims Against Legal Representatives If the legal representative causes damage to oth - ers due to the performance of their duties:
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