Verdict significant for protection of shareholders’ rights

Shanghai No. 1 Intermediate People’s Court has finally delivered a verdict on the case of the prime lot in the Bund, which has been watched closely by the industry. This case shows the Chinese court’s understanding of the scope of protection for shareholders’ pre-emptive rights, and it will affect how shareholders transfer shares in future.

Zendai Real Estate entered into a co-operative investment agreement respectively with Forte (Group), Hangzhou Greentown Hesheng Investment, and Shanghai Stone Investment Management, agreeing to establish a joint venture company, Haizhimen, which acquired the development right of the plot later. In 2011, the parent company of Zendai Real Estate and Greentown Hesheng made equity transfer agreements respectively with subsidiaries of SOHO China and sold all the shares they held in Zendai Real Estate and Greentown Hesheng, which saw SOHO China acquire half of the control power of Haizhimen. Forte Group filed a suit to render the above equity transfer agreement invalid.

It was agreed in the co-operative investment agreement entered into by Zendai Real Estate, Forte Group, Greentown Hesheng and Stone Investment that “unless otherwise stipulated in the agreement, neither party shall transfer all or part of its rights and obligations under the agreement without prior written consent of the other party. However, either party may designate its subsidiaries within the territory of China to exercise and perform its rights, responsibilities and obligations under the Agreement”. Article 6.2 and article 6.3 of the articles of association of Haizhimen provided basically the same pre-emptive rights of other shareholders as paragraphs 2 and 3 of article 72 of the Company Law.

The author, Xu Defeng, is an arbitrator at the Beijing Arbitration Commission and associate professor of the Law School of Peking University