| Preferred stock straddles the line between equity and debt. In the hybrid of equity and debt, the convergence in the economic interest of equity and debt as well as the overlapping of mechanisms for the exercise of preferred rights in organic law and contract law bring about complex interest competition among shareholders. And the scope of preferred stock contractual rights is either squeezed by or inflated in the organization, thus leading to dual disorder of contract and organization. Preferred stock is equity instead of debt, and the boundary of preferred stock contractual rights shall be defined in the framework of organic law. As a standard, fiduciary duty matches the innovation of financial instruments as well as the enabling character of corporate law, the key of which lies in the method used by judges to apply the vague legal standards and approach complex commercial transactions. The primary and core methodology of judicial review of fiduciary duty is to ensure the fairness of corporate decisions through the fair decision-making process of directors. What's more, combined with the distribution of the burden of proof, the fairness of interest distribution between preferred and common shareholders may also be analyzed and judged by valuation. Therefore, a possible approach to responding to the interest competition in the hybrid of debt and equity and improving the micro-fit of fiduciary duty in China is as the following:at the procedural level, to upgrade the understanding of decision-making process in corporate governance from that of normative format in the context of legal act to that of fair procedure in the context of commercial transaction; and at the valuation level, to re-recognize the significance of corporate valuation in the quantitative judicial thinking mode. |
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