CASE STUDY | The Stock Buy-back Shall Be Chosen with Extra Caution
In 2018, SUMMIT was retained by a joint-stock company who was sued for stock buy-back. The origin of the case was that Wu, an investor, spent more than RMB 1 million to buy the stock of the company in 2016. To avoid the risk, Wu also signed an Agreement for the stock buy-back with the company. Wu requested the stock buy-back later when she figured that the company was in default of the Agreement.
While the case was considered in the court, experienced Summit’s team analyzed the legislative spirits of the “Company Law” on basis of the intension of stock buy-back. The clauses of the stock buy-back in the Agreement shall be invalid due to lack of legal legitimacy and contradicting legislative spirits of stock buy-back in laws. The illegal stock buy-back would also jeopardize the company and creditors.
Stock buy-back is a business conduct that a joint-stock company repurchases all or parts of its issued stocks under certain conditions and procedures. It is strictly regulated and limited by the relative Chinese laws. The stock buy-back is permitted under the conditions regulated by the law only. Thus, the stock buy-back shall be chosen with extra caution.
Taking into account that judgement would not be in favor of the investor, Wu withdrew the law suit and the judge granted her withdrawal after the investigation. The stock buy-back case, valued more than 1 million, ended up with the withdrawal of the plaintiff.
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