CHINA Law and Practice Contributed by: Bing Zhai, Commerce & Finance Law Offices
vers of Non-Listed Public Companies (Article 27), the board of directors is required to: • conduct thorough investigations into the qualifications, creditworthiness and intentions of the acquirer; • analyse the terms of the takeover offer and provide recommendations to shareholders on whether to accept them; • engage independent financial advisors to provide professional opinions; and • disclose relevant information, including the board’s report and the financial advisor’s opinion, within specified timeframes (eg, 20 days after the acquirer’s announcement). Chinese courts typically defer to the board’s decisions if: • the board has followed proper procedures, such as conducting due diligence and obtain - ing independent advice; • the decision is made in good faith and with - out conflicts of interest; and • the board’s actions are aimed at protecting the company’s and shareholders’ interests. However, courts will intervene if there is evi - dence of: • breach of fiduciary duties, such as failure to investigate the acquirer or provide accurate disclosures; • gross negligence or fraud, such as hiring unqualified advisors or violating takeover commitments; or • illegal actions, such as providing financial assistance to the acquirer or setting improper obstacles to the takeover. While the legal framework primarily applies to listed and non-listed public companies, it serves
as a reference for other companies in China. Boards are expected to act diligently, transpar - ently and fairly in takeover situations to avoid legal risks, such as regulatory penalties (eg, warning letters from the CRSC) or shareholder lawsuits. 8.4 Independent Outside Advice In China, directors involved in a business com - bination (such as a merger or acquisition) often seek independent outside advice to ensure com - pliance with legal requirements, protect share - holder interests and make informed decisions. The following forms of advice are commonly utilised: • independent financial advisors provide valua - tion, fairness opinions and risk assessments are required under Chinese regulations for listed and non-listed public companies; • legal advisors ensure compliance with anti - trust, securities and foreign investment laws and assist in structuring transactions and drafting agreements; and • auditors and accountants review financial statements and identify potential liabilities, which is critical for assessing the target com - pany’s financial health. 8.5 Conflicts of Interest Conflicts of interest involving directors, manag - ers, shareholders or advisers are subject to sig - nificant scrutiny in China, both judicially and by regulatory authorities. This scrutiny is aimed at ensuring fair and transparent decision-making, particularly in transactions such as M&A. Judicial Scrutiny Concerning breach of fiduciary duties, courts may intervene if directors or managers are found to have prioritised personal interests over those of the company or shareholders, and sharehold -
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