Circular of the Supreme People’s Court Concerning Opinions on Providing Judicial Safeguards to Improve the Business Environment(Mainland China)

Yenchu Chen

On August 7, 2017, the Supreme People’s Court issued a circular concerning its Opinions on Providing Judicial Safeguards to Improve the Business Environment (the “Opinions”) to all court levels. According to the explanation in the Opinions, this circular was issued primarily to improve the investment and market environment to create a stable, fair, and transparent business environment, and provide stronger judicial services and safeguards in accelerating the development of a new open economic system. The Opinions incorporate actual trial experiences and primarily cover five aspects in the equal protection of market participants, the development of a new open economic system, the protection of fairness and justice in market transactions, improvement of the bankruptcy system, and the promotion of the social credit system. Please refer to the following article for details.
I. Equal protection for market participants
The Opinions recognize that the protection of the lawful rights and interests of market participants is necessary in order to improve the investment environment. Therefore, Article 1 states that the regulatory system for legal persons should be improved, the protection of small and medium shareholders should be enhanced for sound corporate governance structure. In this regard, the court stressed that laws should be correctly applied in the handling of cases involving the validity of corporate resolutions, the shareholders’ right to know, profit distribution rights, right of first offer/refusal and derivative actions to better protect the right of the shareholders.
II. Development of a new open economic system
Article 2 of the Opinions indicates that judicial trials should serve the development of a new open economic system. To that end, the article provides guidance on creating a healthy rule-of-law environment for the One Belt One Road regime through discussing the appropriate law to apply after the reformation of the registered capital subscription registration system; keeping up on the ever-changing contents of the negative list for foreign investment; other application of law issues in foreign investment access restrictions and shareholding restrictions during the gradual liberalization of foreign invested areas; and the international judicial assistance for countries along the One Belt One Road strategy. Meanwhile, the Opinions also indicate that cases in pilot free trade zone should be fairly and efficiently adjudicated to protect institutional innovation in those pilot free trade zones.
III. Protection of fair and just market transactions
The Opinions reasons that keeping market transactions fair and just market transactions is favorable to the creation of a healthy business environment. Pursuant to Article 3, this would be primarily achieved through enhanced protection of intellectual property rights, respect for the freedom to contract, adjudication and review of financial cases and intellectual property rights cases in accordance with the law, regulation of inappropriate competitive and monopolistic acts and improvement of the judicial enforcement system.
IV. Improvement of the bankruptcy system
Article 4 of the Opinions holds that improvements to the bankruptcy system and mechanism will enhance the relief and exit mechanisms for socialist market participants. Therefore, it is proposed that the mechanisms for activating the bankruptcy process and identifying the bankrupt enterprise should be improved; the bankruptcy reorganization and settlement system should be improved; valuable enterprises in distress should be encouraged to be reborn, and there should be better coordination between the peripheral mechanisms to a bankruptcy (such as establishment of a dedicated fund for bankrupt expenses, inclusion of bankruptcy proceedings into the overall development of the social credit system, etc.). Meanwhile, the court should also strictly combat all kinds of debt evasion via the bankruptcy system.
V. Development of a social credit system
According to the Opinions, promoting the development of a social credit system will also contribute to the optimization of the business environment. To that end, Article 5 promotes the establishment of mechanisms for collecting, sharing and utilizing judicial big data pertinent to market participant credit information; greater joint incentives for good faith conduct and greater punishment for the opposite; as well as punishing false litigation while promoting the establishment of trust and good faith in litigation.
The above specifics indicate that the Chinese government is currently conscientiously creating an investment environment friendly to investors. The above opinions of the Supreme People’s Court at least suggest that the courts will give greater respect the free will of contracting parties in resolving disputes and apply laws more rigorously to enhance the reliability in the application of Chinese law. For enterprises, this would help in increased predictability of the legality of business decisions made, even though the risk of assuming liabilities in consequence of such decisions will also increase.