US legal system can be a trial for Chinese firms

Taishan Gypsum Co, a State-controlled company, agreed to pay the damages awarded to seven Virginia families. The judgment against Taishan dates back to 2010 when a US federal judge ruled that the company was liable for $2.6 million to fix the homes of the seven families.

Stephen Radin of Weil, Gotshal &Manges LLP, talked about corporate governance issues and the challenges facing directors of Chinese companies. He pointed to a case involving Puda Coal in the Delaware Court of Chancery.

"Delaware law rules corporate governance in the US," he said. "The judge in the Puda case made it clear that rules and laws of the US also apply to Chinese companies that access US capital. Directors of those companies should better be in China a lot and know the assets of the company."

Radin said that Chinese directors of companies should familiarize themselves with US and Delaware law and understand the importance of having competent lawyers and accountants.

The panel also discussed the pending securities case against Alibaba Group Holding Ltd. A US law firm has filed a class-action suit against Alibaba claiming that the company did not disclose meetings with a Chinese regulator prior to its $25 billion initial public offering on the New York Stock Exchange last summer.

Kayvan Sadeghi of Morrison &Foerster LLP said this dispute and others involving Chinese companies highlight transparency issues.

"Chinese companies need to develop consistent disclosure policies in the US and China that minimize discrepancies," he said.