Kaifeng Intermediate Case: Related-Party Identification and the Limits of Resolution Rescission

Shanghai Investment Center v. Biotech Co., Ltd. (Resolution Rescission and Related-Party Identification)

The court emphasized that the law does not ban related-party transactions, only unfair ones that harm the company. A cousin relationship between a participating director and the purchaser's shareholder was insufficient, without more evidence of control, to establish a company-law related-party relationship. In a resolution-rescission action, the court focuses on the meeting procedure, voting method, and consistency with the charter rather than using the rescission claim as a catch-all vehicle for every dispute over the commercial consequences of the transaction.

Holding

The court emphasized that the law does not ban related-party transactions, only unfair ones that harm the company. A cousin relationship between a participating director and the purchaser's shareholder was insufficient, without more evidence of control, to establish a company-law related-party relationship. In a resolution-rescission action, the court focuses on the meeting procedure, voting method, and consistency with the charter rather than using the rescission claim as a catch-all vehicle for every dispute over the commercial consequences of the transaction.

Issues

identification of related-party relationshipsrescission of board resolutionsdistinguishing kinship from controlscope of review for unfair related-party transactions