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2021 | OriginalPaper | Chapter

The Role and Future of Self-Regulation in the Market for Corporate Control: A Comparative Narrative of the Two Models in the UK and China

Authors : Zhaohui Shen, Linyao Tang, Charlie Xiao-chuan Weng

Published in: Takeover Law in the UK, the EU and China

Publisher: Springer International Publishing

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Abstract

There are three different modes of market regulation for corporate control. The US adopts a court-centered mode based on the fiduciary principle which combines court trials of directors’ behaviour with formal federal examination of tender offers. The UK has adopted a self-regulatory mode where the non-governmental Takeover Panel has replaced ex-post adjudication with fair and swift ex-ante conciliation. China operates government CSRC centralism. With the emergence of a series of hostile takeovers in China, CSRC centralism is problematic because the government has a natural bias in favour of state-owned listed companies. The Chinese courts are neither independent, efficient, nor sophisticated enough to handle corporate control disputes. Although the formation of China’s regulatory frameworks has gone through unique historical contexts with political manipulation and institutional evolution, these factors have together shaped legal schemes with different path dependence features and regional characteristics. The result is that the self-regulation institutions have great potential in China. China should learn something from the UK model, it should force considerable change to the institutional environment and make the self-regulatory institutions work in the market for corporate control.
Footnotes
1
See Garnaut et al. (2014).
 
2
See Jiang and Yao (2017), pp. 15–17.
 
3
See Huang (2013), pp. 757–758.
 
4
See CSRC, Annual Report of the CSRC (2014); CSRC, Annual Report of the CSRC (2015); CSRC, Annual Report of the CSRC (2016).
 
5
See Carpenter et al. (2017).
 
6
“ST-companies” in China are listed companies that are labelled with “Special Treatment” by the Stock Exchange because of bad performances over the past years.
 
7
See CSRC, Annual Report of the CSRC (2017).
 
8
See Sun et al. (2017), pp. 186–199.
 
9
For various reasons, a large portion of the State shares in Chinese Listed Companies was still restrictive from the sale even after the Share-split Reform. These shares are entering the market very slowly (and yearly) until they are fully released. See Liu et al. (2014), pp. 339–342 and 345.
 
10
See Shi (2016).
 
11
From July to December 2015, Baoneng and its affiliations acting in concert one share after another acquired Vanke—A Share from the stock market. By 17th December 2015, Baoneng group collectively held approximately 24% of total shares of Vanke, exceeded the China Resources Corporation and became the largest shareholder. Baoneng funded its acquisition through issuing corporation bond and the highly-controversial Universal Life Insurance. Baoneng’s sudden attack has shocked the whole securities market. See The driving force behind Baoneng’s assault on Vanke, available at http://​www.​scmp.​com/​business/​article/​1990310/​driving-force-behind-baonengs-assault-vanke (last visited 24th July 2019).
 
12
There are, of course, more hostile takeovers than those listed above. However, these are the ones that drew the most attention. See Fu (2017), p. 227.
 
13
Id, p. 226.
 
14
See Chen (2014).
 
15
Id, p. 20.
 
16
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part I18, Rule 21.1(a).
 
17
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part I18, Rule 21.1(b).
 
18
Companies Act, 2006, Part 17, c.2, §549–551.
 
19
Companies Act, 2006, Part 17, c.3, §560(1).
 
20
Association of British Insurers (1995 & Updated 2009).
 
21
See Armour and Skeel Jr (2006), pp. 1756–1765.
 
22
Companies Act, 2006, Part 10, c.1, §168(1).
 
23
Companies Act, 2006, Part 15, c.5, §415, §417.
 
24
The Large and Medium-sized Companies and Groups (Accountant Reports) (Amendment) Regulations 2013.
 
25
Financial Reporting Council. The UK Corporate Governance Code. D1.5 (2012).
 
26
Armour and Skeel Jr. (2006), pp. 1756–1765.
 
27
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Introduction, 2(a).
 
28
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part E11, Rule 6.
 
29
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part H1, Rule 14.
 
30
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part H3, Rule 16.
 
31
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part F1, Rule 9.
 
32
Benati (2004).
 
33
Id.
 
34
Armour and Skeel Jr. (2006)//City Notes: The J. Sears Offer, TIMES (London), Feb. 5, 1953, p. 10.
 
35
Armour and Skeel Jr. (2006)//Battle for the Savoy, Economist, 12th December 1953, pp. 831–832.
 
36
See Sheppard (2013), pp. 1880–1966.
 
37
Armour and Skeel Jr. (2006), p. 1739.
 
38
See Roberts (1992), pp. 183–200.
 
39
Bank of England et al. (1959), p. 4.
 
40
Armour et al. (2011), p. 219.
 
41
See Wardley (1991), pp. 268–296.
 
42
Armour and Skeel Jr. (2006), p. 1760.
 
43
See Johnston (1980).
 
44
In the first year after the promulgation of the City Code, there were near 600 takeover cases for the Takeover Panel to decide. Excluding the public holidays, that would be approximately two cases per day.
 
45
See Deakin et al. (2002).
 
46
Hartley William Shawcross, barrister, politician and businessman. He was the Chief U.K. Prosecutor of the International Military Tribunal in Nuremberg from 1945–1946 and was the President of the Board of Trade since 1951.
 
47
Edward Holroyd Pearce, a reputable British Judge, born in February 1901, he was the Lord of Appeal in Ordinary from 1962–1969.
 
48
See Armour and Skeel Jr. (2006), p. 1769.
 
49
Armour and Skeel Jr. (2006), pp. 1750–1760.
 
50
See Steinmo (1994), pp. 9–17.
 
51
See Dong and Ozkan (2008). See also Khan (2006).
 
52
See Goergen and Renneboog (1998).
 
53
Id.
 
54
Id.
 
55
See Cheffins (2001).
 
56
See Jenkins and Nations Unies (2001).
 
57
Armour and Skeel Jr. (2006), p. 1775.
 
58
See Deakin et al. (2002).
 
59
Armour and Skeel Jr. (2006), pp. 1730–1745.
 
60
See Fox and Sklar (2009).
 
61
Armour and Skeel Jr. (2006), p. 1727.
 
62
R.v.Panel on Take-Overs and Mergers [1987] Q.B. 815, 841, 842.
 
63
Armour and Skeel Jr. (2006), p. 1750.
 
64
Armour and Skeel Jr. (2006), pp. 1756–1770.
 
65
See Michie (2012).
 
66
Armour and Skeel Jr. (2006), p. 1765.
 
67
Huang (2005), p. 145.
 
68
Adopted at the Fifth Session of the Standing Committee of the Eighth National People’s Congress on 29th December, 1993; amended for the first time in accordance with the Decision on Amending the Company Law of the People’s Republic of China adopted at the 13th Session of the Standing Committee of the Ninth National People’s Congress on 25th December, 1999; amended for the second time in accordance with the Decision on Amending the Company Law of the People’s Republic of China adopted at the 11th Session of the Standing Committee of the Tenth National People’s Congress on 28th August, 2004; Revised at 18th Session of the Standing Committee of the Tenth National People’s Congress on 27th October, 2005; and amended for the third time in accordance with the Decision on Amending Seven Laws Including the Marine Environment Protection Law of the People’s Republic of China adopted at the Sixth Session of the Standing Committee of the 12th National People’s Congress on 28th December, 2013.
 
69
Adopted at the 6th Meeting of the Standing Committee of the Ninth National People’s Congress on 29th December 1998; amended in accordance with the Decision of the Standing Committee of the Tenth National People’s Congress on Amending the Securities Law of the People’s Republic of China adopted at its 11th Meeting on 28th August, 2004; and revised by the Standing Committee of the National People’s Congress on 2005 and 2014.
 
70
First promulgated by CSRC in 2002, then its newer edition was promulgated by CSRC on 31st July 2006 and effective from 1st September 2006, amended in 2008, 2012 and 2014.
 
71
Promulgated by CSRC in December 1997, amended in March 2006, May 2014, October 2014 and September 2016.
 
72
Tang (2017a), pp. 108–115.
 
73
Sangtong (2016) 600 A-share Companies Revised Their Bylaw: Shareholders Became Outsiders Due to Over Defenses. Xinhua News Agency. 2016-09-26. Available at http://​news.​xinhuanet.​com/​fortune/​2016-09/​26/​c_​1119625379.​htm.
 
74
Wen (2017).
 
75
See Bai et al. (2004). See also Cai (2012).
 
76
Tang (2017b), p. 164.
 
77
2014 Company Law, Article 98.
 
78
Id, at Article 126. Some originally-born-in-China companies achieved the ownership structure by re-incorporating in the Cayman Islands and having their IPO either in HKSE or NYSE, for instance, Alibaba.
 
79
Id, at Article 103.
 
80
2014 Securities Law, Article 13.
 
81
2014 Company Law, Article 142.
 
82
2014 Securities Law, Article 16.
 
83
2014 Securities Law, Article 22 and Article 24.
 
84
Administrative Rules on Acquisition, Article 75.
 
85
2014 Securities Law, Article 47.
 
86
Administrative Rules on Acquisition, Article 8.
 
87
2014 Company Law, Article 147.
 
88
Guidelines on Article of Associations, Article 98.
 
89
2014 Securities Law, Article 88 and Article 96.
 
90
Administrative Rules on Acquisition, Article 33.
 
91
2014 Securities Law, Article 51.
 
93
Lee (2017), p. 832.
 
94
Huang and Shen (2009).
 
95
See Tang (2017c), p. 4. See also Wang et al. (2006).
 
96
Tang (2017c), p. 4. See also Wang et al. (2006).
 
97
Tang (2017b), pp. 179–182.
 
98
See Christmann and Taylor (2001).
 
99
2014 Securities Law, Article 8, 102, 174.
 
100
See Jordan and Hughes (2007), p. 205.
 
101
CSRC. Administrative Measures of Stock Exchanges, Article 22.
 
102
CSRC. Administrative Measures of Stock Exchanges, Article 23.
 
103
2014 Securities Law, Article 107.
 
104
CSRC. Administrative Measures of Stock Exchanges, Article 19.
 
105
CSRC. Administrative Measures of Stock Exchanges, Article 28.
 
106
See Wei (2005).
 
107
Sun and Qin (2009).
 
108
Sun and Qin (2009).
 
109
Armour and Skeel Jr. attributed the differences to the different roles of the institutional investors played in the formation of the law.
 
110
See Li et al. (2009).
 
111
See Kling and Gao (2008).
 
112
See Bailey et al. (2009), pp. 9–19.
 
113
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part M1–N3, Rule 30–35.
 
114
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part J2, Rule 24.1 (a).
 
115
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part M1, Rule 30.1.
 
116
The Panel on Takeovers and Mergers, The City Code on Takeovers and Mergers (12th ed. 2016), Part N1, Rule 35.1.
 
117
In September 1993, China Baoan Group initiated a takeover attempt of Yanzhong Industrial Ltd, which is the first hostile takeover in China.
 
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Metadata
Title
The Role and Future of Self-Regulation in the Market for Corporate Control: A Comparative Narrative of the Two Models in the UK and China
Authors
Zhaohui Shen
Linyao Tang
Charlie Xiao-chuan Weng
Copyright Year
2021
DOI
https://doi.org/10.1007/978-3-030-72345-3_4

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