CHINA Law and Practice Contributed by: Bing Zhai, Commerce & Finance Law Offices
the major accounting policies and notes on key accounting items; • if the acquirer has been established for less than one year or was specifically set up for the acquisition, it must disclose the financial information of its actual controller or holding company in accordance with the require - ments in 7.2 Type of Disclosure Required ; • if the acquirer is a domestically listed compa - ny, it may be exempt from disclosing financial statements for the most recent three years – however, it must specify the name and pub - lication date of its annual report; and • if the acquirer is a foreign investor, it must provide financial reports prepared in accord - ance with CAS or IFRS. 7.4 Transaction Documents Certain transaction documents, such as the tender offer report, board report and independ - ent financial advisor’s report, must be disclosed in full to the public. Some documents, such as detailed internal valuations or sensitive commer - cial agreements, may remain confidential if they contain proprietary information or trade secrets. However, key terms and conditions of the trans - action must still be disclosed. According to the PRC Company Law, directors owe duties of care, loyalty and compliance to the company during a business combination, ensur - ing decisions are made in the company’s best interests and comply with laws. While the principal directors’ primary duty is to shareholders, there is increasing emphasis on considering other stakeholders, such as employ - ees, creditors and society, reflecting evolving 8. Duties of Directors 8.1 Principal Directors’ Duties
corporate governance trends. Directors must also ensure proper disclosure of material infor - mation, especially in listed companies. 8.2 Special or Ad Hoc Committees In China, it is common practice for boards of directors to establish special or ad hoc commit - tees during significant business combinations, such as mergers or acquisitions. These commit - tees are typically formed to: • focus on specific aspects of the transaction, such as valuation, due diligence or negotia - tion; and • ensure thorough and impartial evaluation of the deal. Such committees are particularly important when some directors have a conflict of interest. For example, directors with personal or financial ties to the transaction may recuse themselves from decision-making, and independent direc - tors or external advisors may be appointed to the committee to ensure objectivity and fairness. This practice aligns with corporate governance principles and helps maintain transparency and credibility in the decision-making process. 8.3 Business Judgement Rule In China, courts generally defer to the judgment of the board of directors in takeover situations, provided that the board fulfils its statutory duties and acts in the best interests of the company and its shareholders. This deference is similar in principle to the business judgment rule (BJR) in the United States, though it is not explicitly codified in the same manner. Under the Measures for the Administration of Takeovers of Listed Companies (Article 32) and the Measures for the Administration of Takeo -
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