China’s top court backs legal action against corrupt firms amid equity markets rally
The court’s initiative marks ‘a positive sign that the market would sustain its upward momentum’, hedge fund manager Zhou Ling says
Beijing is encouraging equity investors to pursue representative action against unscrupulous listed or delisted firms in an apparent effort to bolster confidence in the country’s stock markets, as trading resumed on Tuesday following a 10-day break.
“People’s courts are taking an active stance on representative actions against multiple firms and companies already delisted,” Wang Chaohui, deputy chief judge of the Supreme People’s Court’s No 2 Civil Adjudication Tribunal, told reporters. “We hope Chinese courts can fine-tune our systems to facilitate investors to claim their losses at lower costs.”
The court’s comments referred to “special treatment” companies, which trade on the mainland’s stock exchanges and posted net losses for at least two consecutive years.
A representative action, also known as a representative proceeding, allows one or more individuals to act for a group of people with the same interest to sue or be sued collectively. It is a form of multiparty litigation – used to efficiently handle claims, often in consumer or shareholder cases – which can save time and lawyers’ fees for investors during the legal procedures.
Such legal action can also be pursued by investors who are deceived by companies’ fraudulent earnings or cheated by the price-rigging practices of powerful funds.