Legal Research On Swaps Of Debt To Equity

Harmful loan is the main problem, which troubles banks all over the world. In China, this problem is the Damocles Sword, which is hanging over the four state-owned commercial banks. Harmful loan will lead to systematical financial risk and collapse the social credit system at any time. At the same time, it will stimulate social instability and hold back the economical development. So, specialists and scholars of all walks of life put forward dozens of ways to handle with the risk.I, the author has been a financial worker for a long time, knowing that how difficult and long the task of abolishing harmful loan will be. I think that there are many questions of "swaps of debt to equity", which need to be clarified and studied, so far as law is concerned. This thesis is the achievement achieved by me in this way.The thesis can be divided into three parts .The focus of the first part is the connotation, basic function and risk of "swaps of debt to equity". In China, -swaps of debt to equity" is adhered to policy. That is, the state's financial department raised the money and registered the company to control the capital, and then the bank took the harmful loans away from enterprise's loans, and then changed them into equity. The capital controlling company became the shareholder then it could realize the interests over the owners of enterprise. Let's put it into a simple way: capital -controlling company turn harmful loan into equity. The reason that "swaps of debt to equity" is concerned by many people is that it is really functional: it can deal with the harmful loan, shatter the financial risk, help the state-owned enterprise to over come difficulties, accelerate the reform of state-owned enterprise and bank, establish the real modern enterprise system, and so on. Mean while, we should admit "swaps of debt to equity" is very risky, which can be traced as risk credit, risk of inflation, system risk and lost of state-owned capital.The second part of this thesis analyzes the jurisprudence foundation and juristic relation of "swaps of debt to equity". Jurisprudence foundation refers to the juristic theory interrelated to "swaps of debt to equity", including creditor's right, theory of selling creditor's right, elimination of debt and emergence of shareholder's right. Only when we clear up the jurisprudence foundation of "swaps of debt to equity", can we realize it according to the law. There are two juristic relations involved : the relation between bank and capital-controlling company, the relation between capital-controlling company and enterprise. We must clear up the juristic relation between them.I discussed conflicts and how to conquer the conflicts "swaps of debt to equity" between the laws today. There are conflicts and contradiction between "swaps of debt to equity" and Law of Company, Law of Guaranty, Law of Bond and so on. We can only exterminate those conflicts, perfect related laws, regulations and establish a better juristic environment, then we can turn debt into equity, successfully avoid risk and achieve settled aim. I think, "swaps of debt to equity" may be achieved from six aspects: First, affirming the position of capital-controlling company. Second, allowing commercial bank to directly turn debt into equity. Third, developing capital market and perfecting withdrawal mechanism. Fourth, strengthening principle of "Open, fairness, and justice". Fifth, establishing the special protection system of "swaps of debt to equity". Sixth, legislating law to remit taxes brought by turning debt to equity, and making preferential policy and regulation of administration system reform, social endurance, ownership reform, distribution of bond and drawing capital from outside China.