The New Securities Law (Securities Law 2019 Revision) in China represents a significant overhaul of previous legislation. AIG’s paper with Chinese law firm JunHe LLP discusses the new law’s implementation, potential changes to the risk exposure of listed companies and their directors, and suggested adjustments to the emerging risks.
Significantly, the New Securities Law, provides for specific provisions on securities class actions. Securities investors may elect a representative to proceed with a litigation if the following three conditions are met:
The implementation of the New Securities Law together with the introduction of western-style securities class actions to China could mean that listed companies, as well as their directors, officers and supervisors, may have much greater exposure to litigation and investigations. The pressing question for directors and officers of listed companies is, “How can we best manage these risks?” The following are some suggestions:
The New Securities Law represents a necessary evolution in the development of China’s capital markets and is a great leap forward for investor rights. It could, however, result in added risks for listed companies and their directors and officers. Management decisions particularly in this current environment can be challenging – add on to this the New Securities Law, and new challenges could mount. As the standards of care required by directors and officers for shareholders of listed companies become higher, it is important you understand the implications.