Liability for Disclosure of Information by Independent Directors – China

ASection 82 of the Securities Act (2019 Revision) provides that directors and officers of an issuer must give written confirmation opinions on securities issue documents and periodic reports; the issuer’s supervisory board must review the securities issue documents and periodic reports drawn up by the board of directors and issue written review opinions; and supervisors must also sign written confirmation notices.

Zhang Arrow
Grandway Law Firms

Directors, supervisors and senior management of an issuer must ensure that the issuer discloses information in a timely and fair manner, and that the information disclosed is true, accurate and complete. If they cannot give such assurances or if they oppose it, they must express their opinion and justify them in the written confirmation, which the issuer must publish. If the issuer refuses to do so, directors, supervisors and senior management can directly request this disclosure.

The new securities law has established the legal basis for a system of opposition to the disclosure of information. According, since the law’s implementation, at least 23 A-listed companies have disclosed that their independent directors abstained from voting or voted against periodic reports because they could not guarantee their authenticity, accuracy and their completeness. These independent directors have never been subject to administrative sanctions or regulatory measures. This article analyzes the administrative liability for objection to disclosure of information by listed companies and identifies the duties of independent directors.


Independent directors are legally required to ensure that information provided by listed companies is timely, fair, truthful, accurate and complete. When they cannot do so, they must give their opinion and motivate after having fully implemented the verification procedures. Therefore, the objection to the disclosure of information does not amount to a simple declaration of disloyalty.

The Measures for the Administration of Disclosure of Information by Listed Companies (2021 Revision) specifies that directors who are unable to guarantee the authenticity, accuracy and completeness of the information disclosed, or who have objections, must cast a negative vote or abstain from voting and give their reasoned opinions during the deliberation of the Board of Directors.


It was clarified in the case of Shenzhen Sunrise New Energy that the directors had a duty to verify the disputed content and reflect it in the annual report. They should not view the accounting firm’s audit opinions and failure to review the annual report as grounds for “disloyalty” to avoid personal and joint liability for disclosure.

According to the Disclosure Measures Review Notes, the responsibility of independent directors to ensure the authenticity, accuracy and completeness of periodic reports is not limited to expressing opinions, and the fact that they s perform their duties faithfully and diligently will determine the ultimate administrative responsibilities.

The rules for determining administrative responsibility for disclosing illegal information require full consideration of “other circumstances” in deciding administrative sanctions, leaving room to verify the functions performed in complex circumstances.

Full implementation of audit procedures, objection to disclosure of information and prudent voting are conducive to being seen as independent directors fully performing their duties. That is to say, the system of objection to the disclosure of information allows an exemption from liability.


The prerequisite for independent directors to participate effectively in corporate governance is a thorough understanding of how the business operates. In the case of limited channels to obtain information and restricted means of verification to determine whether they have been diligent and conscientious in their work, it is necessary to fully examine their access to information and the verification procedures carried out, as well as the conditions for an independent due diligence.

Article 85 of the new securities law stipulates that if an information debtor fails to disclose information in accordance with regulations, or if there are false records, misleading statements or material omissions in the documents of issuance of securities announced, periodic reports, interim reports and other disclosed information causing investors losses in securities transactions, the debtor shall be liable for compensation.

The controlling shareholders, beneficial controllers, directors, supervisors, senior officers and other persons directly responsible for the issuer, as well as the sponsors, and the securities underwriting company and its directly responsible persons, will be jointly and jointly and severally liable with the issuer, except for those who can prove that they are not at fault.

The securities law also stipulates that the principle of assigning the liability of directors is the principle of presumption of fault. That is to say, once the failures to disclose information are committed, directors are first presumed to be at fault unless they prove that they have done everything possible to fulfill their duties.

However, the tightening of the moderate liability exemption will place ultimate liability on all directors affected by the principle of liability without fault, whether they are at fault or not. Once that happens, there will be a chilling effect on the capital market to treat short-term information disclosure seriously.

Nevertheless, in the long term, the constraints of the legal obligation to inform independent directors greatly exceed their incentive, which will gradually upset the balance of the constraints and the incentive mechanism and will dissuade them from exercising their functions, resulting in a sharp increase in corporate governance costs.

However, the objective circumstances mentioned above do not modify the guarantee liability of the independent directors. As trustees of all shareholders of listed companies, they should strive to act honestly in the interests of their principals and minimize agency fees, which is their duty.

As the A-share market ushers in the era of “enhanced accountability”, comprehensive verification procedures, opposition to disclosure of information according to law, prudent abstention or dissenting votes, and the accurate recording of opinions and reasons in minutes and resolutions are always administrative obligations of independent directors.

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