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Case 3: Determination of the validity of company resolutions of Sino-foreign joint ventures
—An Israeli company sued an environmental protection company in Beijing

Updated: December 23, 2022

Disputes over the validity of resolutions of foreign-related joint venture companies are caused by conflicts in internal management of legal persons, and the choice of the applicable law shall be determined in accordance with the personal law of legal persons in the place where the joint venture company is registered. According to the principle that a special law prevails over provisions of a general law, the court applied the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures and other provisions in reviewing the validity of resolutions during the five-year transitional period.

On July 25, 2014, an Israeli company signed a joint venture contract with a technology company not involved in the case, agreeing to establish an environmental protection company in Beijing. The joint venture company's articles of association clearly stipulated that the board of directors is the governing body of the company and it has the highest governing authority, and any resolutions made by the board of directors when the number of directors does not meet the requirement are invalid. On November 3, 2019, the environmental protection company in Beijing passed a directors' resolution and a shareholders' resolution without the participation of its foreign shareholders. The resolutions were intended to disqualify the Israeli company as a shareholder, reduce the registered capital, and abolish the company's original articles of association. The Israeli company sued, claiming that both resolutions were invalid. The court held that the disputes over the validity of the resolutions of the foreign joint venture company are caused by conflicts in its internal management, and the applicable law should be determined in accordance with the law of the place where the joint venture company is registered. Therefore, the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures and other provisions should be applied in reviewing the validity of the resolutions. Although the Chinese-foreign equity joint venture law and the articles of association of the joint venture company clearly stipulated that the board of directors is the highest governing authority, the joint venture company resolved to remove the foreign shareholders and to reduce capital and amend the company's articles of association in the form of a shareholders' meeting without the participation of the foreign shareholders. The court held that those resolutions violated both the articles of association of the joint venture company and the legal provisions, so it entered a judgment that they were invalid. In addition, the resolution of the board of directors was invalid because the number of directors did not reach what stipulated in the articles of association.


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