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Articles of applications in a reverse takeover of a listed company and its legal regulation

Author: NieHongMei From: www.yourpaper.net Posted: 2010-05-29 04:54:54 Read:
[Abstract] Articles of Association of the Company is the company's constitutional documents. The target company in the acquisition of listed companies, usually through the formulation of the Articles of Association of the Company, in order to prevent or resist the hostile takeover. Due to the provisions of the Companies Act and other laws and regulations on the reverse takeover of a listed company is relatively small, lead to more significant practice in the use of the Articles of Association to implement anti-acquisition anomie. This paper attempts to analyze the behavior of the implementation of the anti-takeover, and the constitution of the use of the company proposed regulatory recommendations.
[Keywords] reverse takeover of listed companies in the Articles of Association Legal Regulation

The 1993 Po Ting events "opened the prelude to the acquisition of listed companies in China, also unveiled the acquisition of listed companies in China with a history of anti-takeover. Po extension after the events, many listed companies a high degree of attention to the problem of anti-takeover, has taken a series of anti-takeover precautions, such as the implementation of the house employee stock ownership plan to launch the financial new varieties (such as convertible bonds through the distribution of shares, etc. ) increase the share capital, etc., but the most commonly used is the addition of the anti-takeover provisions in the articles of association of the company, such as restrictions on the number of board elections, the company repurchased shares. Of the most typical case in this regard is the Dagang oilfield White Ace blocked. [1] Ace reverse takeovers, although not all successful, but preserved the results of its directors and executives, Ace remarkable focus in the stock market.
Similarly Aishigufen, Founder Technology is also on the stock market in China "three noes stocks." Several other companies to join forces by Beijing Yuxing placards acquisition of Founder Technology, triggered by the equity dispute Founder, Beijing Yuxing other companies can not the White Founder Technology acquisition failed and ended a hubbub of equity control war temporarily come to an end. [2] Founder acts against the acquisition of the Board of Directors legality has also sparked controversy.
The above two cases, both involving the question of the effectiveness of anti-takeover provisions in the articles of association of the company. Called the Articles of Association, are the provisions of the fundamental rules of the organization and activities of the company, can be described as living in the status of the Constitution, Whether it is a basic interest in the relationship between organizational structure of the Company, are required to be determined through the articles of association, to take for the employees of the company, shareholders, creditors or even the general public produce a regulatory role. According to the the countries legislative or judicial general practice, the Articles of Association as important legal documents, both for the company and its shareholders, directors, managers' behavior has a direct binding effect. [3] For listed companies, the meaning of the Prospectus is particularly significant, because corporate governance and corporate control over changes may have a significant impact on the securities market matters usually be organized through the Articles of Association. With the split share structure reform in China, the successful completion of the major changes in this securities market and the arrival of the circulation times, acquisition and reverse takeover is bound to be increasing. In this process, the articles of association inevitably become a tool of the original shareholders, potential acquisitions, management, and other parties to wrestle. In practice, unite in anti-takeover measures, usually through the company's articles of association to make arrangements. The applications typically anti-takeover in the Articles of Association of the Company are as follows:

To drive shark agents Terms of
The so-called drive-shark agent, is the company for the purpose of anti-takeover, set in the articles of association of the company as the terms of the acquisition barriers, also referred to as the "the porcupine Terms" or "anti-takeover provisions. "To drive sharks agent provisions appear in the instance of the reverse takeover of listed companies in China, following two:
1.1 to limit the terms of the terms of the shareholders' voting rights and the qualifications of directors [4]
The core content of the right to vote is the highest decision-making power of shareholders, including the election of the Board members voting rights is the most important. Therefore, the practice limits the voting rights of large shareholders usually linked with the terms of the qualifications of directors. Qualifications of directors refers to the provisions of the qualifications of the directors and non with certain conditions may not serve as directors of the Company. Certain conditions by the directors' qualifications to restrict the acquirer after the acquisition occurs, the Board, thereby preventing the acquirer to obtain control of the company. Such as the case of a new continent. [5]
Qualifications of directors is a director of the conditions is a prerequisite for a person's ability to enter the Board, but also the legal and established a system of preventive To prevent disabilities have no just no German director of a mixed board of directors abuse. Therefore, most countries of the qualifications of directors made a positive the qualification and negative qualifications two limited. Directors positive qualifications of directors serving must have the condition, the such as shareholdings condition, the condition of nationality, identity conditions and age conditions. Directors negative qualification refers to the conditions and circumstances that may not serve as directors' duties, such as conduct conditions, part-time conditions.
Article 147, paragraph 1, of the China's "Company Law" negative qualification of directors made it clear that provisions, but not positive qualifications of the directors. This should be pursued in accordance with the Companies Act, the spirit of the legislation to strengthen the company's autonomy, that the law allows a listed company to make further limited in the case of the mandatory provisions of the public order and good morals does not violate the law, by the Articles of Association of the Directors' qualifications. Therefore, China's listed companies to adopt anti-takeover measures. [6]
The 1.2 grading installments Board Terms
Grading and staging of the Board [7] can be referred to the Board of Directors to round election system, the replacement of the directors of the Articles of Association of the Company each year only to re-election in which a certain percentage (such as 1/2 or 1/3, etc.). In the case of the implementation of the Board of Directors round election system, even if the acquirer acquired a sufficient amount of equity, the Board can not make a substantive reorganization, because the majority of the Board of Directors or the original directors, they still hold the majority of voting rights, and thus control company.
Practice of listed companies in China, a new continent for the implementation of the anti-takeover amendments to the Articles of Association to increase the following: the annual replacement and re-election of the Board, the number of directors up to 1/3 of the total number of the Board of Directors. This is a simple application of the system of grading and staging of the Board of Directors of the above alleged. Very clear, the intent of this measure is to ensure that the company has actual control firmly in control of the right to speak, to increase the potential acquirer acquisition difficulty. Therefore, the terms of the grading and staging of the Board significantly slow down the process of the acquisition of control of the board of directors of the target company, the Offeror had to think twice, which is conducive to resist hostile takeovers. This reduces the intentions of the acquirer's acquisition, and financial support to improve acquisition difficulty, but its drawback is only delayed control the speed of the board of directors can not ultimately prevent the acquisition of control of the company. Overall, the Board round election system is an impact on stock prices is small but very powerful anti-acquisition strategy. But practice shows that the number of companies using this strategy in recent years is declining.

2 "scorched earth policy"
The so-called "scorched earth policy", the company encountered a hostile takeover and unable to fight back, take the sale of high-quality assets, or even take the initiative to increase the purchase of low-quality assets to liabilities and other means to worsen the company's financial position in the short term, thus eliminating the acquirer acquisition intentions measures. For such measures, the company usually also the Articles of Association of the Company to make specific provisions. The scorched earth policy contains sale "crown beads and puffiness tactics". The so-called crown beads, refers to a part of the assets of the company an attractive acquisition value. Crown beads sold or mortgaged, you can eliminate the incentive of the acquisition. For example, entered into an agreement with a white knight to make the white knight "crown beads" white knight did not get all of the shares of the target company in a takeover battle. As described above, this approach is referred to as "lock transaction." The puffiness tactical diverse practice, including the purchase of irrelevant or poor profitability assets, a substantial increase in the company's liabilities, ineffective and long-term investment. "Scorched earth policy" in fact is a lose-lose, the Offeror is unable to complete the purpose of the acquisition of the target company financial position deteriorated sharply in the short term. These two methods can prevent the acquisition. The acquisition of those who want to take advantage of the target company to make up for its acquisition spending is impossible, the target company may be in debt, the acquisition did not make sense.
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