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Studies In The Balance Of Interesties Of Bond-Related Parties

Posted on:2008-07-01Degree:DoctorType:Dissertation
Country:ChinaCandidate:J XiFull Text:PDF
GTID:1116360218961323Subject:Civil and Commercial Law
Abstract/Summary:PDF Full Text Request
Corporate bonds are one of the essential sources of financing in the capital market, and play vital roles in the economical development. However, corporate bonds are a newly-developed finance instrument in China. As a newly-born baby needs special care, corporate bonds need regulated environment to develop. Thus, it is a significant task to rethink criteria and approaches of how to construct such framework.Corporate bonds are regulated by corporation law, securities law, contract law and bankruptcy law, and there are limited academic papers on this issue. Therefore, this article studies on the legal framework for the balance of interests of bond-related parties, especially bondholders, shareholders, management, though economic analysis, comparative and empirical approaches.The main body of this article is divided into six parts.Partâ… is an introduction which briefly outline the purport of the paper by pointing out that the balance of interests is a permanent theme in corporate framework and the significance of constructing legal institutions of corporate bonds.Partâ…¡examines interests'relationship of bond-related parties, which provides the legal basis for the paper. From an economical aspect, Partâ…¡reexamines theories of independent legal entities, the limited liabilities of shareholders, and externalities of corporate risk, and concludes that among the voluntary creditors of corporations, bondholders have different legal status from others and are similar to un-controlling shareholders. Consequently, this part analyses the conflicting interests between bondholders and other parties.Partâ…¢explores a contractual mechanism to protect the interests of bondholders. By empirical approach, this part examines the importance of bond contracts, the special process of contract negotiation, and the content and function of traditional bond contracts, then concludes that contractual freedom should be limited because of inefficient capital market, information asymmetry, agency costs and innovation externalities. Meanwhile, the existing legal framework for corporate bonds is lack of specific protections for bondholders. In order to change the situation, two mainly proposed reforms are: the mandatory restrictive covenants and the special judiciary contractual interpretation.Partâ…£focuses on the interest balancing of bond-related parties in the context of corporate governance. By analyzing the relationship between corporate financing and corporate governance and the insufficient protections for bondholders provided by traditional contact law and corporation law, this part suggests that a corporate information disclosure system should be established, and that directors should have a fiduciary duty to protect bondholders as well as shareholders.Partâ…¤discusses interest balancing mechanisms outside the context of corporations. This part studies the potential frameworks for bondholders'interest protection and bonds management. After observing disadvantages and advantages of different methods, such as self-examine, audit, etc, Partâ…¤proceeds to propose that a bond credit rating system is a practical way to protect the interests of bondholders and the establishment of such system in China. Further, roles and responsibilities of the bondholders meeting and bondholders'trustee are explained, as well as the relationship between the two parties. Thus, new rectified tools are provided to bonds management.Partâ…¥explores instruments of the balance of interests of bond-related parties under event-risk situations. Under the circumstances of M&A, spin-off, or other corporate restructuring and bankruptcy, the existing balance of bond-related parties is disappeared, and a new game starts. This part analyses shareholders'and directors'opportunism under the circumstances of, bond recapitalization and bankruptcy, then tries to find out solutions. Particularly, creation of event risk protective covenants, application of fiduciary duty and the important roles of the bondholders meeting and bondholders'trustee is discussed.
Keywords/Search Tags:Corporate Bonds, Bondholders, the Conflict and Balance of Interests
PDF Full Text Request
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