Corporate Law Regime Research Articles

Reforming Shareholder Claims in Investor-State Dispute Settlement

Abstract Investor-state dispute settlement (ISDS) stands alone in empowering shareholders to bring claims for shareholder reflective loss (SRL)—meaning claims over harms allegedly inflicted upon the company, but which somehow affect share value. National systems of corporate law and public international law regimes generally bar SRL claims for strong policy reasons bearing on the efficiency and fairness of the corporate form. However, ISDS tribunals allow shareholders broad and regular access to seek relief for reflective loss. The availability of SRL claims in ISDS ultimately harms States and investors alike, imposing surprise ex post costs on States and various corporate stakeholders (particularly creditors), and creating perverse incentives likely to raise the cost of doing business ex ante. The article sets out the harms caused by allowing ISDS claims for reflective loss, as well as the possible justifications for allowing such claims in this specific context. Concluding that any potential benefits of SRL can be realized through less invasive means, we then canvas a number of plausible reform options, with an eye to their trade-offs.

Developments in Singapore Company Law in 2021

Singapore’s common law-origin corporate law regime ranks highly on corporate law and governance indices and is administered in part by superior courts served by judges with significant commercial expertise. As part of the Singapore Academy of Law’s Annual Review of Cases, this Paper reviews decisions of the Singapore superior courts (comprising the High Court and the Court of Appeal) decided in 2020. The cases reviewed feature a wide range of issues with domestic and international significance, including private enforcement of directors’ duties, corporate attribution, corporate veil piercing and shareholder disputes. This Annual Review will be useful for academics and lawyers who wish to stay up to date on legal developments in a leading Asian, common law jurisdiction, and on the reception of landmark common law cases in a leading Anglo-Commonwealth jurisdiction.

Collective Action Problems in Chinese Takeover Rules: Deficiency and Difficulty in Protecting Target Shareholders in a Hybrid Regime

China is in a process of upgrading its corporate law and corporate governance regime. The reform involves a learning process of incorporating corporate governance norms from other jurisdictions. In the field of takeover rules, China’s hybrid regime is a combination of some elements from both the US model and the UK model, reflecting China’s pragmatic approach towards rule of law and legislative reform. Though flexible and pragmatic, this transplant approach without taking into account China’s own economic, social and even political scenarios is of little help to address the agency problem embedded in China’s concentrated shareholding model faced by its SOEs and family–controlled enterprises let alone the shareholder protection rules investors are keen to have. A comparative study is conducted in this article to investigate the collective action problems the Chinse takeover rules fail to address. Autonomy of sport, Private International Law, Public-private Governance, Corruption, Transnational Legal Order, Sports Economy, Legal Status of Sporting Organisations, Audit, Managerial Transparency, Economic Monitoring, International Sporting Convention

THE COMPANIES ACT 2013 AND ITS SIMILARITIES AND DISSIMILARITIES WITH COMPANIES ACT 1956

The Companies Act, 2013 marks a paradigm shift in India’s corporate law regime, and has far reaching implications for both domestic Indian companies and overseas investors with a presence in India. This paper provides a brief analysis of some of the key changes that have been brought about by the 2013 Act which became largely effective on April 1, 2014. Some provisions, however, continue to remain inoperative and are likely to be made effective by the Indian government in due course. This piece makes it easier to understand the changes in the 2013 Act that affect multinational corporations having Indian companies or those looking to make investments in India. KEY TERMS: Domestic Indian Companies, Overseas Investors, Multinational Corporations &Investment

Corporate Purpose and the Separation of Powers

Despite its intense focus on inter-jurisdictional competition, corporate law scholarship has thus far overlooked the influence of inter-branch competition on business organizations. This Article shows how inter-branch struggles for control over corporations catalyzed the advent of modern corporate law and helped propel Delaware to its dominant position in the market for corporate charters. For centuries, the legislature, judiciary, and executive vied for the decisive role in dictating the means and ends of corporations. Through the nineteenth century, competition among the branches produced a dysfunctional and volatile relationship between government and private enterprise, with each branch successively assuming a leading role in corporate oversight, only to falter under the weight of its unique structural limitations. The resulting instability ultimately proved so intolerable as to prompt the creation of an entirely new paradigm of liberalized corporate codes at the dawn of the twentieth century. Delaware’s innovation of and rigorous adherence to corporate law’s newfound separation of powers gave it a crucial, yet previously unappreciated, edge in the competition for corporate charters. Moreover, modern corporate law’s system of checks and balances curbed longstanding abuses and ushered in an equilibrium among the branches that has served as a foundation for economic growth in the United States since. Beyond illuminating a novel factor in Delaware’s ascendency, corporate law’s separation of powers poses unappreciated problems and provides preliminary solutions for the ongoing debate over corporate purpose. A growing chorus of progressive academics and policy-makers has called on the government to impose and enforce corporations’ social obligations. This Article offers new grounds for skepticism towards these proposed reforms, because they would jeopardize corporate law’s hard-fought equilibrium among the branches by reviving the unilateralism and dysfunction that once plagued the United States’ corporate law regime. Accordingly, this Article contends that vesting the government with a proactive role in imposing and enforcing corporate purpose, whether at the state or federal level, is ill advised. Yet this Article also providers reform-minded progressives with a concrete framework for structuring an expanded power to enforce corporate purpose with minimal risk to corporate law’s separation of powers.

Pre-incorporation contract: A comparative analysis of the Canadian and Nigerian corporate law regimes

The question of how best to protect the interests of a promoter, a third party, and a company in pre-incorporation contracts is one that seems to have defied corporate law. Although this problem has its origin in common law, various countries have made efforts to address it through statutory reforms. The paper, therefore, examines the extent to which the Canadian and Nigerian legal regimes for the pre-incorporation contract have provided panaceas to the problem. This paper, through a comparative analysis, argues that although the legal regimes have made efforts to reform the common law rule on pre-incorporation contracts, they suffer patent defects. It also posits that notwithstanding the defects in the laws, the Canadian legal regimes offer more protection to parties to pre-incorporation contracts than Nigerian law. The paper suggests reforms in both regimes that would meet the reasonable expectations of the parties to a pre incorporation contract

Antitrust as Corporate Governance

Consumers have been left out of the great debate over the mission of the firm, in which advocates of shareholder value maximization face off against advocates of corporate social responsibility, who would allow management leeway to allocate profits to workers and other non-shareholder insiders of the firm. The consumer welfare standard adopted by antitrust law in the 1970s requires that the firm allocate its profits neither to shareholders nor to workers or other firm insiders. Instead, the standard requires that firms strive to have no profits at all, by charging the lowest possible prices for the best quality products. Such a profit minimization requirement, which, as federal law, binds all state-level corporate law regimes, preserves incentives for businesses to perform efficiently because any incentive payments necessary for efficiency count as costs, not profits, and can therefore be retained by firms.

Rethinking Corporate Law During a Financial Crisis

Since the Financial Crisis of 2008, most reform measures and discussions have asked how the law of financial regulation could be improved to prevent or mitigate future crises. These discussions give short shrift to the role played by corporate law during the Financial Crisis of 2008 and other financial crises. One critical regulatory tool during the crisis was “regulation by deal,” in which healthy financial firms (“acquirers”) would hastily acquire failing firms (“targets”) to mitigate the crisis. The deals were governed by corporate law, so corporate law played an outsize role in the response to the crisis. But few observers have asked how corporate law—in addition to financial regulation—should govern dealmaking in financial crises. To fill in this gap, this Article focuses on the role played by corporate law during the Financial Crisis of 2008, and asks whether corporate law should be different during a financial crisis than in ordinary times. Using an externality framework—failure of a systemically important firm can harm the entire economy, and not just the shareholders of the failed firm—this Article identifies a key problem with the current corporate law regime as applied in financial crises: the shareholder value maximization principle as applied to failing target companies. This principle, manifested in the form of shareholder voting rights on mergers and board fiduciary duties to shareholders, is inapplicable to systemically important target firms whose failure would have enormous negative externalities on the rest of the economy. This Article contends that corporate law as applied to systemically important, failing target firms during crises should change as follows: (1) replace shareholder merger voting rights with appraisal rights, and (2) alter fiduciary duties so that directors and officers of those failing target firms consider the interests of the broader economy.

Regulating close companies in Corporate Law

Close companies are the majority constituency in the corporate population across the globe. Yet little attempt has been made by corporate law systems explicitly to legislate for them. This is particularly so in the United Kingdom, where the courts have assumed the role of providing a customized corporate law regime for such entities. The Duomatic principle of unanimous assent, which is used to whitewash procedural irregularity, is the paradigm in this respect. This article reviews judicial attitudes in the common law world in this regard and evaluates the pros and cons of converting a globally recognized common law principle into a statutory statement of the law. It also considers the wider merits/demerits of a discrete regulatory framework for close companies and private companies in general.

Strengthening Domestic Corporate Activity in Global Capital Markets: A Canadian Perspective on South Africa's Corporate Governance

As a Canadian corporate law scholar who recently had the opportunity to visit South Africa, I was humbled by both the profound challenges and the immutable positive spirit of the South African people when it comes to thinking about their economic and social future. Hence while this paper is a reflective discussion on the kinds of challenges that exist and the strategies that could be deployed to enhance corporate governance in South Africa, it must be emphasized at the outset that it is for Sub-Saharan African nations to develop their own governance models. They are best positioned to adopt strategies that align with their social, economic and political goals, and it is not for the West to impose Anglo-American conceptions of corporate and securities laws on developing nations. While there are lessons, both positive and negative, from the North American governance experience, self-determination of optimal governance strategies for emerging economies will allow them to take account of both domestic needs and global capital markets. This paper is divided into four parts. The first part sets a context for the discussion, including an overview of the corporate law regime in South Africa and more generally, the challenges faced by Sub-Saharan Africa in terms of economic development. Corporate governance cannot be discussed without at least some appreciation of the challenges posed by foreign direct investment, the level of debt of these nations and broader development concerns. Much of the wealth of Sub-Saharan Africa has been mortgaged previously, creating enormous barriers to becoming independent in their economic policy choices. Part II then sets out a framework for thinking about corporate governance in Sub-Saharan Africa, briefly analyzing both shareholder wealth maximization and stakeholder models of governance. Part III shifts into a more specific discussion of corporate governance developments in South Africa. In this respect, South Africa shares much in common with Canada in terms of its capital structure, corporate law and challenges of being a host nation for many multinational enterprises (MNEs) headquartered elsewhere. The King II Report on corporate governance is examined in terms of its influence on shaping corporate governance policy in South Africa. A more fulsome conception of corporate governance for South Africa includes empowerment, equity and the inclusion of African value systems. Finally, Part IV looks forward, examining the possible benefits and limits of socially responsible investing through the new Johannesburg Stock Exchange SRI Index. It also briefly discusses areas of further research that may provide assistance in enhancing domestic corporate activity in South Africa.

Companies Act 2013 – An Overview

A new landmark Companies Act was introduced in 2013, which saw a number of important changes to the corporate law regime in India. The authors provide an overview of the changes arising from this new legislation.

State Ownership and Corporate Governance

State ownership of publicly-traded corporations remains pervasive around the world, and has been increasing in recent years. Existing literature focuses on the implications of government ownership for corporate governance and performance at the firm level. This Article, by contrast, explores the different but equally important question of whether the presence of the state as a shareholder can impose negative externalities on the corporate law regime available to the private sector. Drawing from historical experiments with government ownership in the United States, Brazil, China, and Europe, this study shows that the conflict of interest stemming from the state’s dual role as a shareholder and regulator can influence the content of corporate laws to the detriment of outside investor protection and efficiency. It thus addresses a gap in the literature on the political economy of corporate governance by incorporating the political role of the state as shareholder as another mechanism to explain the relationship between corporate ownership structures and legal investor protection. Finally, this Article explores the promise of different institutional arrangements to constrain the impact of the state’s interests as a shareholder on the corporate governance environment, and concludes by offering several policy recommendations.

The Unintended Consequences of State Ownership: The Brazilian Experience

Despite waves of privatization around the world, state ownership of enterprise remains significant. The focus of scholars and policymakers has accordingly shifted from the defense and promotion of privatization to the design and improvement of corporate governance practices in state-owned enterprises (SOEs). A broad consensus has emerged suggesting that state-owned firms should be corporatized, publicly traded and subject to the greatest extent possible to the same legal regime applicable to private firms. However, by focusing exclusively on what corporate and securities laws can do to increase the efficiency of state enterprise, this view ignores the other side of the problem: How does the presence of SOEs affect the efficiency of corporate and securities laws as they apply to private firms? Brazil’s long historical experience with SOEs suggests that state ownership of listed firms can have unintended consequences that go beyond the potential firm mismanagement if the state pursues political goals inconsistent with shareholder wealth maximization. The state’s financial interest as the controlling shareholder of listed firms can lead it to disfavor legal reforms that improve minority shareholder rights, thus impairing the ability of private firms to raise outside financing. In ignoring the conflicts of interest inherent in the state’s dual role as shareholder and regulator, the conventional wisdom has likely overestimated the aggregate benefits of a unitary corporate law regime for both state-owned and private firms.

State Ownership and Corporate Governance

State ownership of publicly-traded corporations remains pervasive around the world, and has been increasing in recent years. Existing literature focuses on the implications of government ownership for corporate governance and performance at the firm level. This Article, by contrast, explores the different but equally important question of whether the presence of the state as a shareholder can impose negative externalities on the corporate law regime available to the private sector. Drawing from historical experiments with government ownership in the United States, Brazil, China, and Europe, this study shows that the conflict of interest stemming from the state’s dual role as a shareholder and regulator can influence the content of corporate laws to the detriment of outside investor protection and efficiency. It thus addresses a gap in the literature on the political economy of corporate governance by incorporating the political role of the state as shareholder as another mechanism to explain the relationship between corporate ownership structures and legal investor protection. Finally, this Article explores the promise of different institutional arrangements to constrain the impact of the state’s interests as a shareholder on the corporate governance environment, and concludes by offering several policy recommendations.

How Does Corporate Mobility Affect Lawmaking? A Comparative Analysis

This paper examines the impact of increased corporate mobility on corporate lawmaking in the European Union (EU). More specifically, we seek an answer to a simple question: Has the increased mobility which arose from the implementation of the Societas Europaea (SE) and the path-breaking decisions of the European Court of Justice (ECJ) led to an outbreak of regulatory competition and the emergence of a Delaware-like member state in Europe? Two types of corporate mobility are distinguished: (1) the incorporation mobility of start up firms and (2) the reincorporation mobility of established firms. As to incorporation mobility, the Centros triad of cases makes it possible for start-up firms to incorporate in a foreign jurisdiction. Many entrepreneurs have taken advantage of this new freedom of establishment. However, recent data from Germany and The Netherlands indicate declining numbers of such foreign incorporations over time. Moreover, Centros-based incorporation mobility is a rather trivial phenomenon, economically speaking. The actors in question seek only to minimize costs of incorporation. National lawmakers have been responding, amending their statutes to lower these costs. But, because out of pocket cost minimization at the organization stage operates as only a secondary motivation of 'choice-of-business-form' decisions, there arise no competitive pressures that cause national legislatures to engage in thorough-going reform addressed to corporate governance more generally. As to reincorporation mobility, which concerns the migration of the statutory seat of a firm incorporated in one member state to another member state, the SE has opened the door, but not widely enough to serve as a catalyst for company law arbitrage. Reincorporation mobility is still far from generally available in the EU. As a result, competitive pressures do not yet motivate changes in the fundamental governance provisions of national corporate law regimes.

An Overview of China's Corporate Law Regime

This paper, a chapter of a forthcoming book, provides an overview of the corporate law regime in China, focusing on the newly revised PRC Company Law. It briefly examines the history of China's corporate law development, the structure of the company law, sources of law in the corporate law, corporate governance, corporate finance, and corporate social responsibility in China. It also discusses, for a law and development perspective, the purposes, principles and general trend of direction of China's corporate law system.

How Does Corporate Mobility Affect Lawmaking? A Comparative Analysis

This paper examines the impact of increased corporate mobility on corporate lawmaking in the European Union (EU). More specifically, we seek an answer to a simple question: Has the increased mobility which arose from the implementation of the Societas Europaea (SE) and the path-breaking decisions of the European Court of Justice (ECJ) led to an outbreak of regulatory competition and the emergence of a Delaware-like member state in Europe? Two types of corporate mobility are distinguished: (1) the incorporation mobility of start up firms and (2) the reincorporation mobility of established firms. As to incorporation mobility, the Centros triad of cases makes it possible for start-up firms to incorporate in a foreign jurisdiction. Many entrepreneurs have taken advantage of this new freedom of establishment. However, recent data from Germany and The Netherlands indicate declining numbers of such foreign incorporations over time. Moreover, Centros-based incorporation mobility is a rather trivial phenomenon, economically speaking. The actors in question seek only to minimize costs of incorporation. National lawmakers have been responding, amending their statutes to lower these costs. But, because out of pocket cost minimization at the organization stage operates as only a secondary motivation of 'choice-of-business-form' decisions, there arise no competitive pressures that cause national legislatures to engage in thorough-going reform addressed to corporate governance more generally. As to reincorporation mobility, which concerns the migration of the statutory seat of a firm incorporated in one member state to another member state, the SE has opened the door, but not widely enough to serve as a catalyst for company law arbitrage. Reincorporation mobility is still far from generally available in the EU. As a result, competitive pressures do not yet motivate changes in the fundamental governance provisions of national corporate law regimes.

The ECJ, Volkswagen and European Corporate Law: Reshaping the European Varieties of Capitalism

On 23 October 2007, the European Court of Justice handed down its much-awaited Volkswagen decision (Case C-112/2005), following a suit launched by the Commission against the Federal Republic of Germany in 2005. The Volkswagen statute, through which first the Federal government together with the Land (federal state) of Niedersachsen (Lower Saxony), later only Lower Saxony, had reserved a veto against majority acquisition while only holding a fifth of all shares, had come into the Commission's purview as part of its large-scale attempts at reforming and modernizing European company law. The preparatory steps in that regard had been the suits brought by the Commission with regard to other, 'golden share' provisions under Portuguese, French, Belgian and English company laws in recent years. Yet, the Volkswagen decision of the ECJ is of interest in more than one respect. Not only does it constitute a continuation and further accentuation of a line of argument that the Court has been unfolding over past few years with regard to the Member State provisions in conflict with the EC's guarantee of the free movement of capital as laid down in Art. 56 EC. In addition, the impact of the ECJ's new ruling will have to be assessed in the context of a high-powered regulatory field, in which member states, the Commission, and the Court have been finding themselves in an ongoing negotiation and contestation of historically grown company law regimes and the pressures of globalizing capital markets. In that regard, the Volkswagen decision raises a host of questions relating to the Commission's future agenda of corporate governance reform on the one hand and the persisting differences among member states' corporate law regimes on the other. The following article lays out the Court's reasoning, before observing both the immediate and the more long-term effect of the decision.

Virtual Shareholder Meetings and the European Shareholder Rights Directive - Challenges and Opportunities

Member States are required to adopt the European Directive on the Exercise of Certain Rights of Shareholders in Listed Companies until [December 31st, 2009]. Based on a comparative analysis of the existing rules on the Internet-based exercise of shareholder rights within the European Community [hereinafter EC] and beyond, this paper assesses the impact of the new Directive on the corporate laws of EC Member States. Examining the corporate law regimes that govern shareholder meetings in Canada, France, Germany, the U.S. (DelGCL & RMBCA), the UK and Switzerland, this analysis reveals that the transition into the digital world is as yet incomplete. However, the Shareholder Rights Directive is unlikely to finalize the transition from the physical into the Internet world. More legislative steps will be necessary. While competition may further development within the EC Member States as far as most of the traditional functions of shareholder meetings are concerned, the identification and authentication of shareholders requires mandatory legislation at the European level. This paper suggests four measures that I deem most urgent in order to achieve a smooth digital exercise of shareholder rights in Europe.

How the Old World Encountered the New One: Regulatory Competition and Cooperation in European Corporate and Bankruptcy Law

The European framework for creditor protection has undergone a remarkable transformation in recent years. While the ECJ's Centros case and its progeny have given EU businesses free choice with respect to the state of incorporation, and hence to the substantive corporate law regime, the European Insolvency Regulation has introduced uniform conflict of laws rules for insolvencies. However, this regime has opened up some forum shopping opportunities for corporate debtors. Both regulatory competition in corporate law and forum shopping in bankruptcy law have been discussed in the US for years, while they are relatively new territory in the EU. This article attempts to pull together the two emerging discussions and analyzes possible consequences for the relationship between shareholders, managers and creditors in European corporations. We argue that, in the absence of evidence of either a race to the top or the bottom, we cannot rule out adverse consequences of either regulatory competition in corporate law or forum shopping in bankruptcy. However, the discussion so far has largely considered only the consequences of the first type of regulatory arbitrage while neglecting the second. Hence, the issue of the insolvencification of corporate law rules has been brought up in order to enable national policymakers to impose their respective ideas about creditor protection on firms. We suggest that such attempts may be futile. First, relabeling is possible only to a rather limited degree, and second, while restricting the scope for corporate law arbitrage, it increases the incentives for forum shopping in bankruptcy. Ultimately, it may even backfire, leading to a higher degree of bankruptcy forum shopping to avoid the very rules that have been insolvencified.