A comparison on Separation of Ownership and Management between Australian Company Law and Chinese Company Law

刘红宇

Abstract：This article discusses the different positions taken by Australian company law and Chinese company law on the issue of decision-making powers currently and tries to reveal the legal grounds and legislative intents behind them. Lastly， the author attempts to make a guess at the development of Chinese company laws attitude towards the principle of separation of ownership and management based on the previous discussion.

Key Words：Ownership power;Management power;Decision-making organs

Ⅰ.Introduction

“The power to make decisions may be divided into those that relate to the management of the affairs of the company， and those that affect control of the company."[1]（Harris 245） Typically， the power to manage the affairs of the company is vested in the board of directors of the company while the power of control is granted to the members in a general meeting. Although in both Australian and Chinese company law， the management power is given to the board of directors in principle， the default distribution of decision-making power of company in these two laws varies significantly. To be more specific， when faced with the question that whether the directors are bound to follow the directions of the majority of members in a general meeting， Australian law and Chinese law take up different attitudes towards this question： Australian company law says absolutely not while Chinese company law takes an ambiguous stand on this matter and does not provide a clear answer.

Ⅱ.Position of Australian Company Law

This case heralded the legal notion that if management power is conferred on the board of directors by the company constitution， the members in a general meeting cannot usurp that power by passing resolutions compelling the board to follow their instructions on management issues. The principle embodied has been applied in Australia on numerous occasions. Current Australian law “gives management authority to the board as a default， and cases such as Capricornia Credit demonstrate that this position will be difficult to shift” （253）.[3] Judicial decisions valued the independence of management power exercised by the board of directors from members general resolutions， even at the expense of certain restrictions on members right to change the constitution. Australian company law attaches a significant importance on the separation of management and ownership.

Ⅲ.Position of Chinese Company Law

For Chinese company law， it is another matter entirely. Company Law of the P.R.C provided that the shareholders meeting is the authority of the company and shall exercise its powers according to the law. Come back to the leading question whether the directors are bound to follow the directions of the majority of members in a general meeting， Chinese Corporation Act remains noncommittal， which means judges have tremendous leeway in deciding specific cases. The absence of judicial interpretation on this issue indicates the lack of consensus from judicial system. The current consensus on this issue among Chinese scholars is that the shareholders meeting is the super authority organ to which the board of directors is responsible to and shall follow its instructions as well as enforce its resolutions.

Ⅳ.A Brief Analysis of the Underlying Reasons for Different Positions Australian Law and Chinese Law Take on This Issue

The predominant reason for Australian law to preserve a clear demarcation of powers between the decision-making organs of the company is the commonly held belief that the separation of ownership and management inures to the benefit of the company per se. The corporations act and the general law requires that directors exercise their powers and discharge their duties with due care and diligence and in good faith， in the interests of the corporation， and for a proper purpose.[4] The independent exercise of management power by the board of directors is regarded as an indispensable premise for directors to effectively fulfill their obligations under the law and the company constitution. Directors performance of their duty to act in the interests of the corporation requires the inability of members to issue directions to the board.

The reason for Chinese company laws ambiguity on the subject is difficult to deduce. Generally if an issue is kind of controversial both in theory and practice， the legislation branch tends not to give a clear answer and leaves it to the discretion of the judges so that they can make the proper decisions depending on the situation. However， given the current prevailing notion among Chinese scholars that the shareholders-directors relationship is a principal-agent relationship by its very nature， which means shareholders are the owners of the corporation with the board of directors acting as their agent， the Chinese company laws ambiguity is in reality an attitude. It is not difficult to understand that the legislation branchs declination to adopt the general doctrine at present implies an implicit negative attitude towards this doctrine.

Actually， this general doctrine has been challenged by more and more scholars arguing that the traditional interpretation of agency role of the board fails to adapt to the management of massive public companies with scattered equity structure. Under the circumstance that a few major shareholders actually control the company with a large number of small retail shareholders who lack influence and supervision on the management of the company， the boards compliance with the members directors can lead to unacceptable consequence. At its worst， the board of directors may even function as means to expropriate the interests of minority shares. Given the deficiency of this now prevailing doctrine， it wont surprise me if a radical change of commonly held attitude among Chinese scholars towards this issue. Furthermore， we may not have to wait too long for a clear answer provided by Chinese corporation law to the question that we have discussed above.

Works Cited

[1]Jason， Harries. Company Law Theories， Principles and Applications. Sydney： LexisNexis Butterworths， 2015.

[2]許可：《股东会与董事会分权制度研究》，载《中国法学》2017年第2期。

“SEC 198A： Powers of Directors.” Australian Corporations Act 2001. 14 May 2020.

[3] Ibid.

[4] Jason Harries， p253.