advanced Unit 5

Director Conflict Memo

Directors, Officers, Supervisors, and Controller Duties

Facts

A director of a manufacturing company owns 40 percent of a supplier. The director does not disclose this interest and persuades the board to approve a long-term supply contract. The controlling shareholder knew about the conflict and pressured two directors to vote yes. A senior manager later moves part of the company’s procurement business to a competing affiliate, and the supervisor hesitates to act because the controller appointed them.

Questions

  1. Which persons may owe duties or bear responsibility?
  2. What disclosure, approval, and fairness facts matter?
  3. What should the supervisor or audit committee do if the board refuses to sue?
  4. How would a comparative Caremark or Van Gorkom argument differ from a Chinese Company Law argument?

Hints

Make a responsibility table for directors, senior officers, supervisors, controllers, and the company. Do not treat all comparative fiduciary-duty vocabulary as interchangeable.

Discussion Guide

Students should identify loyalty, diligence, related-party transaction, competing-business, supervisor-action, controller influence, and remedy questions. Comparative discussion should be used to sharpen analysis, not replace Chinese statutory reasoning.

Exercise sources

Linked resources

law Mainland China English version

Company Law of the People's Republic of China (2023 Revision)

中华人民共和国公司法

The core statute for Chinese companies, covering legal personality, registration, capital, corporate organs, directors' duties, state-invested companies, bonds, accounting, restructuring, dissolution, liquidation, and liability.

Authority
National People's Congress
Citation
Revised 29 December 2023; effective 1 July 2024
Date
2024-07-01
judicial interpretation Mainland China Translation unavailable

SPC Company Law Interpretation V

最高人民法院关于适用《中华人民共和国公司法》若干问题的规定(五)

Judicial rules focused on shareholder protection, including related-party transaction liability, removal of directors, and implementation of profit distribution resolutions.

Authority
Supreme People's Court
Citation
2020 amendment
Date
2020-12-29
judicial interpretation Mainland China Translation unavailable

SPC Interpretation on the General Provisions of the Civil Code Contract Book

最高人民法院关于适用《中华人民共和国民法典》合同编通则若干问题的解释

Judicial interpretation on general contract rules under the Civil Code, including Article 20 on contracts concluded by a legal representative or responsible person beyond authority.

Authority
Supreme People's Court
Citation
Fa Shi [2023] No. 13; effective 5 December 2023
Date
2023-12-05
case Mainland China English summary

Zhengzhou Siwei Supervisor Representative Action on Related-Party Transactions

郑州思维物业管理服务有限公司、河南易元置业有限公司公司关联交易损害责任纠纷案

A supervisor-filed representative action challenging related-party transactions and alleged company-interest harm, useful for linking conflict transactions, derivative procedure, and internal supervision.

Authority
Zhengzhou Intermediate People's Court / Anyang Intermediate People's Court
Citation
Zhengzhou Intermediate People's Court (2021) Yu 01 Min Zhong 4901; Anyang Intermediate People's Court case analysis, 4 August 2022
Date
2022-08-04
case Mainland China English summary

Shenzhen Competing-Business Liability of Senior Officers and Supervisors

董事、高级管理人员另立公司经营同类业务,是否应当承担责任?

A company-interest harm dispute in which company personnel, including supervisors, were held responsible after setting up a competing business and diverting business opportunities.

Authority
Shenzhen Judicial Bureau / Nanshan District People's Court
Citation
Shenzhen Judicial Bureau case note, 22 July 2021; Nanshan District People's Court judgment, 11 October 2018
Date
2021-07-22
case Mainland China English summary

Shanghai Fluid Equipment Corporate Opportunity Case

上海某流体设备技术有限公司诉施某某损害公司利益责任纠纷案

A general manager and director diverted a valve-supply opportunity to a company he controlled; the court treated the opportunity as belonging to the company and awarded the company the diverted contract spread.

Authority
Shanghai Qingpu District People's Court
Citation
People's Court Case Database reference case 2023-08-2-276-003; Shanghai Qingpu District People's Court (2019) Hu 0118 Min Chu 17485
Date
2021-01-28
case Mainland China English summary

Shangu Turbine Related-Party Transaction Duty Case

某甲公司诉高某某、程某公司关联交易损害公司利益纠纷案

A Supreme People's Court retrial treated undisclosed related-party procurement through directors' affiliated company as company-interest harm where the transaction structure caused benefits to flow out of the company.

Authority
Supreme People's Court
Citation
People's Court Case Database reference case 2023-16-2-276-001; Supreme People's Court (2021) Zui Gao Fa Min Zai 181
Date
2021-08-31
case Mainland China English summary

Modern Avenue Shareholder Derivative Action for Controller Fund Occupation

投资者保护典型案例:投保机构股东代位诉讼摩登大道资金占用案

A shareholder derivative action by an investor-protection institution over controlling-shareholder fund occupation at a listed company.

Authority
China Securities Regulatory Commission
Citation
CSRC investor protection typical cases, 15 May 2024
Date
2024-05-15
case United States English original

Smith v. Van Gorkom

A Delaware duty-of-care case focused on whether directors adequately informed themselves before approving a merger.

Authority
Delaware Supreme Court
Citation
488 A.2d 858 (Del. 1985)
Date
1985-01-29
case United States English original

Guth v. Loft, Inc.

Foundational Delaware corporate-opportunity decision requiring a fiduciary to account where an opportunity falls within the corporation's line of business, the corporation has an interest or expectancy, and the fiduciary's appropriation conflicts with duty.

Authority
Supreme Court of Delaware
Citation
5 A.2d 503 (Del. 1939)
Date
1939-04-11
case United States English original

Sinclair Oil Corp. v. Levien

Delaware Supreme Court decision applying intrinsic fairness review where a controlling shareholder receives a benefit to the exclusion and detriment of minority shareholders.

Authority
Supreme Court of Delaware
Citation
280 A.2d 717 (Del. 1971)
Date
1971-06-09
literature Mainland China English summary

Unified Regulation of Interest-Conflict Transactions in the New Company Law

新公司法上利益冲突交易的统一规制

Analyzes how the revised Company Law unifies regulation of related-party transactions, corporate opportunities, and competing business under an interest-conflict framework.

Authority
Wang Xiangchun
Citation
Wang Xiangchun, Jurists Review, 2024, no. 1
Date
2024-01-15
literature Mainland China English summary

Controlling Shareholders in Corporate Governance and Their Legal Regulation

公司治理中的控股股东及其法律规制

Analyzes controlling shareholders as a central issue in Chinese corporate governance and argues for legal constraints on control rights, tunneling, and excessive intervention in company decision-making.

Authority
Zhao Xudong
Citation
Zhao Xudong, Chinese Journal of Law, 2020, no. 4, pp. 92-108
Date
2020-07-15