Research On The Legal Institutions Of Affiliated Enterprise Bankruptcy

As the mainstay of the market-oriented economy, enterprises must strengthen their own power in order to accommodate the flourishing development of the market-oriented economy. When the administrative cost used to expand scale of operation is tremendous, enterprises will choose the business combination——affiliated enterprise——to resist market risk. If enterprises are eliminated and go into the bankruptcy proceedings after market competition, there will be big differences between affiliated enterprise bankruptcy and monomer enterprise bankruptcy. Some traditional basic theories regulating monomer enterprise bankruptcy, corporate personality independence and limited liability, are all faced to big challenge, even they become the excuse to evade bankruptcy credits and escape debts argued by the enterprises. In the meantime, the interested parties involved are so much complex when the affiliate enterprises go bankrupt, not only including the creditor and debtor of the bankruptcy enterprises, but also the creditor and shareholder of the non- bankruptcy enterprises in the affiliated enterprise, there lie so many interlaced conflict of interest among them. The function of law is to reconcile the conflict of interest between the parties and maintain fair and justice of law.The thesis uses for reference theories of some other countries and regions and combines them to our country's practice through the research method such as normative analysis and economic of law, it tries to resolve the conflict of interest during the affiliated enterprise bankruptcy proceedings by the practicability and systematization thinking method. The thesis is composed by five chapters:The first chapter is"the regulated objects in legal institutions of affiliated enterprise bankruptcy". Affiliated enterprise is a form of independent enterprise combination in which enterprises each other hold shares, or can bring to bear on other person involved, or can directly control other company's business, personnel and financial affairs. Affiliated enterprise can be established because of the demand during its growth, the choice of the business operators and some other factors. When subsidiary company of the affiliated enterprise goes bankrupt but the controlling company doesn't go bankrupt, there would be the conflict of interest between the shareholders of the controlling company and creditors and minority shareholder of the subsidiary company; when the controlling company goes bankrupt but subsidiary company doesn't go bankrupt, there would be the conflict of interest between the creditors of the controlling company and shareholds of the subsidiary company; when the controlling company and subsidiary company both go bankrupt, there would the conflict of interest between the creditors of the two companies; when two or more affiliated enterprises dominated by one enterprise at the same time go bankrupt, there also would be the conflict of interest among the creditors of the bankruptcy company and the conflict of interest between the creditors of the bankruptcy company and shareholders of the non- bankruptcy company. No matter which one mentioned above, it can threaten the law mainly regulating the monomer enterprise: the corporate personality independence system would become the harbor of refuge for the bankruptcy debtor of the affiliated enterprise; limited liability system would become the tools the bankruptcy debtor of the affiliated enterprise used to escape the debt.The second chapter is"the regulating ends of the legal institutions of affiliated enterprise bankruptcy". One of the effects of law is regulate the conflict of interest. When the two parties of the conflict are not right or wrong on its face, it is more recommendable to adapt a kind of compromise or adjust each other than"chose one between two". Equitable pay off is the soul of the bankruptcy law and the rule of collective receive is the more effective way to realize the equitable pay off. As a business system, bankruptcy need to content the maximized bankruptcy efficiency, so it must content the efficiency when it pursues the equitable pay off. Because the conflict of interest involved in the affiliated enterprise bankruptcy is more complex and wide range, equitable norms should be used to effectively resolve the conflict of interest in the bankruptcy proceedings of the affiliated enterprises, in guide of the polyphyletic legislation targets of bankruptcy law.ChapterⅢis"Some basic legal institutions to regulate affiliated enterprise bankruptcy". The basic legal institutions are not specially designed for the affiliated enterprise bankruptcy, but those institutions'applicative fields are quite wide and they have some effects on the regulation of the affiliated enterprise bankruptcy. Firstly the institutions of repeal rights in bankruptcy and bankruptcy void, At the time of one affiliated enterprise turning into the bankruptcy proceedings, if the affiliated revoked, If there are some acts absolute nullity, they can also be denounced invalid. Due to the institutions about the critical period of repeal rights in bankruptcy and the complicated and covert relation"coat", the application of the institution become difficult. Secondly the system of lifting the corporate veil. A company's independent personality can be neglected on account of specific incidents, although it originally has it, and shareholders should be jointly liable for the debts of the company. The affiliated enterprise bankruptcy in principle is applied to monomer enterprise and only at the time that the company utilize incidence relation, implement improper control or transaction and at result threaten creditor's interest, law will pierce the corporate veil. The institution of piercing the corporate veil mainly is applied to regulate the improper conduct between the bankrupt company and its shareholders and become helpless to other improper conducts, so is its limit.ChapterⅣis"specific institutions applied to affiliated enterprise bankruptcy". Firstly the equitable subordination. It means that among the affiliated enterprises if the controlling corporation does some improper conducts to the subordinate corporation, the controlling corporation's claim must be next to other's claim to be repaid in the liquidation or reorganization, whether it has such priority as the right of exclusion or not. The function of the equitable subordination is remedy not punishment. Secondly the institution of substantive consolidation. It is a such procedure that when the affiliated enterprises go into the bankruptcy proceedings at the same time or in succession, the affiliated enterprises those consistently or as a entirety will be classified into same bankruptcy proceedings and merge their property and debt, on the other hand the common creditor of bankruptcy of all the affiliated enterprise will be used the same liquidity ratio. The equitable subordination and substantive consolidation are specially designed for the affiliated enterprise bankruptcy, so the effects are quite good. But the two institutions are both equitable and give judges loose discretion and as result they should be used cautiously.ChapterⅤis"perfect legal institutions of affiliated enterprise bankruptcy in China". Although the piercing the corporate veil is explicitly written into our company law, the law is too fundamental and short of manipuility. The thesis denounces that there lie three situations among affiliated enterprise such as capital is insufficient, companies'personality is confuse and over control, and those situations bring about serious damage to bankruptcy subsidiary, when it goes into bankruptcy trustee in bankruptcy can claim piercing the corporate veil, and ask for the controlling company to bear joint responsibility to the bankruptcy subsidiary. If the controlling company's control to the subordinate company is not so severe, the equitable subordination can be used to lower status the controlling company's creditor coming from its control to the subordinate company. The substantive consolidation can be used when controlling company and subordinate company goes into bankruptcy at the same time or at succession; when the two companies'property, financial management and personnel are so confused to divide; when the expensive fund to distinguish the property, financial management between the controlling company and subordinate company has used up the bankrupt' estates. The substantive consolidation can make combine the property, financial management of the controlling company and subordinate company and apply the same liquidity ratio to all the creditors. Only in this way can the bankruptcy law's legislation end"fairly protect legitimate interests of all creditors of bankruptcy"be reflected.