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China’s Landmark Shareholder Derivative Action: Chinese Investor Protection Centre Secures $ 48.6 Million

Wed, 07 Jun 2023
Categories: China Legal Trends

On 2 Mar. 2023, through a shareholder derivative lawsuit in the Shanghai Financial Court, China Securities Investor Service Centre Co., Ltd. (hereinafter the “Investor Protection Centre”) successfully compelled the executives of Shanghai DZH Limited (hereinafter the “DZH”), a listed company, to pay CNY 335 million (approx. USD 48.6 million) in compensation to DZH.

The Investor Protection Centre is an investor protection agency established by the China Securities Regulatory Commission (CSRC).

DZH was punished by CSRC in 2016 due to misrepresentation. Since then, thousands of investors have filed claims against DZH and its executives. As of 16 Feb. 2023, DZH has paid investors a total of CNY 335 million in compensation in accordance with the court judgments.

On 3 Apr. 2021, the Investor Protection Centre sent a letter to DZH, advising DZH to recover the compensation from its executives, but DZH did not take action.

On 8 Sept. 2021, the Investor Protection Centre, as a shareholder, initiated a shareholders’ derivative litigation on behalf of DZH against its executives before the Shanghai Financial Court, requesting them to indemnify DZH for the loss of CNY 335 million (hereinafter the “Investor Protection Centre Case”).

Two months later, DZH itself also sued the executives in the Shanghai Financial Court for such loss (hereinafter the “DZH Case”).

Finally, in the DZH Case, its executives agreed to compensate DZH for that loss. Correspondingly, in the Investor Protection Centre Case, the Investor Protection Centre also agreed to withdraw the action.

 

 

Cover Photo by David Veksler on Unsplash

 

 

 

Contributors: CJO Staff Contributors Team

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