Dispute over Revocation of a Company's Resolution

· Source： Guiding Cases 

· Instrument Type： Judgment

· Procedural status： Trial at Second Instance

· Source：Notice of the Supreme People's Court on Issuing the Third Group of Guiding Cases

· Date issued：09-18-2012

· Judgment date：06-04-2010

· Type of Dispute： Company, Securities, Insurance, Bills, etc. 

Li Jianjun v. Shanghai Jiadongli Environmental Protection Technologies Co., Ltd.(Dispute over revocation of a company's resolution)
(Issued on September 18, 2012 as adopted by the Judicial Committee of the Supreme People's Court after deliberation)
Keywords:
civil; revocation of a company's resolution; scope of judicial review
's Key Points
In the trial of cases involving dispute over revocation of a company's resolution, the people's courts shall examine: whether the procedure for convening a meeting and the manner of voting violate laws, administrative regulations or company bylaws and whether the content of the resolution violates the company bylaws. If the aforesaid provisions are not violated, whether the facts based on which a resolution removes the general manager are true and whether the grounds are well-founded shall not fall within the scope of judicial review.
Relevant Legal Provisions 
Paragraph 2, Article 22 of the Company Law of the People's Republic of China 
Basic Facts 
Plaintiff Li Jianjun alleged that: The facts and grounds based on which the resolution of Shanghai Jiadongli Environmental Protection Technologies Co., Ltd. (defendant, hereinafter referred to as "Jiadongli Company") removed its general manager were unfounded and the procedure for convening the meeting of the board of directors, the manner of voting and the content of the resolution all violated the Company Law. Therefore, he requested the court to revoke the resolution of the board of directors according to law.
Defendant Jiadongli Company argued that: The procedure for convening the meeting of the board of directors, the manner of voting and the content of the resolution all complied with laws and company bylaws and therefore the resolution of the board of directors was valid.
In trial, the court found that: Li Jianjun was a shareholder and the general manager of Jiadongli Company. In the shareholding structure of Jiadongli Company, Ge Yongle held 40% of the Company's shares, Li Jianjun, 46%, and Wang Taisheng, 14%. These three shareholders jointly constituted the board of directors, in which Ge Yongle served as the chairman and the other two served as directors. As stated in the company bylaws, the board of directors exercised powers including appointment and removal of the company's managers; the quorum for a meeting of the board of directors was 2/3 or more of all directors; and a decision of the board of directors on matters deliberated was valid only when it was voted for by directors accounting for 2/3 or more of all shareholders. On July 18, 2009, Ge Yongle, the chairman of the board of directors of Jiadongli Company, convened and presided over a meeting of the board of directors, which all the three directors attended. At the meeting, a resolution that "in view of huge losses caused by general manager Li Jianjun for his trading of stock at the secondary market with funds of this company without the consent of the board of directors, Li Jianjun is hereby removed from his position as general manager, effective immediately" was adopted. Ge Yongle, Wang Taisheng and company supervisor affixed their signatures to the resolution. Li Jianjun did not sign it.
On February 5, 2010, the People's Court of Huangpu District, Shanghai Municipality issued a civil  (No. 4569 [2009], First, Civil Division II, Commercial, Huangpu) to revoke the resolution of the board of directors of Jiadongli Company dated July 18, 2009. Jiadongli Company appealed. On June 4, 2010, the No. 2 Intermediate People's Court of Shanghai Municipality issued a civil  (No. 436 [2010], Final, Civil Division IV, Commercial, Shanghai) to: (1) revoke the civil  (No. 4569 [2009], First, Civil Division II, Commercial, Huangpu) of the People's Court of Huangpu District, Shanghai Municipality; and (2) dismiss the claims of Li Jianjun.
Judgment's Reasoning 
In the effective , the court held that: According to paragraph 2, Article 22 of the Company Law of the People's Republic of China, the causes for revocation of a resolution of the board of directors included the following: (1) The procedure for convening a meeting of the board of directors violated laws, administrative regulations or company bylaws. (2) The manner of voting violated laws, administrative regulations or company bylaws. (3) The content of a resolution violated the company bylaws. In view of the convening procedure, the meeting of the board of directors of Jiadongli Company on July 18, 2009 was convened by Ge Yongle, chairman of the board, with all three directors present at the meeting. The procedure for convening the meeting of the board of directors did not violate laws, administrative regulations and company bylaws. In view of the manner of voting, as stated in the bylaws of Jiadongli Company, a decision on matters deliberated was valid only when it was voted for by directors accounting for 2/3 or more of all shareholders. The resolution of the board of directors at issue was voted for by two of the three shareholders (also directors). Therefore, the manner of voting did not violate laws, administrative regulations and company bylaws. In view of the content of the resolution, as stated in the bylaws of Jiadongli Company, the board of directors had the power to remove managers of the company. The statement in the resolution of the board of directors, "huge losses caused by the general manager Li Jianjun for his trading of stock at the secondary market with funds of this company without the consent of the board of directors," was the reason for the board of directors to remove Li Jianjun from his position as general manager. The content of the resolution on removing Li Jianjun from his position as general manager did not violate the company bylaws.
Even if the reason for the resolution of the board of directors to remove Li Jianjun from his position as general manager did not exist, it still did not give rise to the revocation of the resolution. First, the Company Law respected corporate autonomy. Generally, the internal legal relations of a company should be regulated through the corporate autonomy mechanism, and the judicial authorities should not intervene in the internal affairs of a company. Second, the bylaws of Jiadongli Company did not set forth any limitations on the power of the board of directors to remove managers of the company and did not provided that that there must be some reason for the board of directors to remove a manager of the company. The company bylaws did not violate the compulsory provisions of the Company Law and should be deemed valid and effective. Therefore, the board of directors of Jiadongli Company may exercise its powers vested by the company by laws to decide removal of a manager of the company. The court should respect corporate autonomy and would not examine whether there did exist a reason for the board of directors of Jiadongli Company to remove a manager of company. In other words, the court would not examine whether the facts based on which the resolution was made were true and whether the grounds were well-founded. In sum, the claims of Li Jianjun for revoking the resolution of the board of directors were unfounded and should be dismissed according to law.