On The Obligation Of Directors To Put Forward The Liquidation

Liquidation is a necessary process to terminate companies, except those mergered or divided. In broad sense, liquidation is caused by dissolution and bankruptcy. When a company comes with the cases to liquidate, it must carry forward the liquidation timely. However, there are some problems in the start-up of liquidation process. On one hand, many unreasonable and illegal facts happen to the dissolved companies. The voluntary dissolution is left to exist at will; the company, whose business license is revoked or who is ordered to be closed down or dissolved according to law, disappeared unnoticeable; the company, which is dissolved by the people's court according to law, has no one to take the duty. All of these causes the depreciation, loss, damage, disappearance or maliciously dispose of company properties, even to be concealed, transferred or illegally possessed. On the other hand, the insolvent company may continue to make business as an independent legal person with the losing assurance by assets and credit, which is not restricted by the law in China. So companies dare to risk the business beyond their debt capacity, some of which end with little debt repaid. The companies that should be liquidated make fraudulent trading without competency or assets assurance. They don't only harm the interest of existing creditors, but also the potential creditors, which destroys the order and security of trade like potential bombs. The present rules like compulsory liquidation system can't harness the behaviors effectively. So the paper presents the obligation of directors to put forward the liquidation, makes it clear that the directors should put forward the liquidation timely according to the rules to make sure that the companies start the liquidation process timely. To deal with the disorder in liquidation after dissolution, the judicial circles form the theory of obligators for liquidation, who bears the duty to start and organize the liquidation. The paper considers the failure in the start-up of liquidation in a broad sense including the liquidation after dissolution and the liquidation for bankruptcy, focuses the timely start-up stage, in order to link the cases of liquidation and the liquidation process. The obligation of directors to start up the liquidation is called the obligation of directors to put forward the liquidation.The paper firstly discusses the phenomenon and reasons for the failure to carry forward liquidation, as the realistic need to specify the obligation of directors to put forward the liquidation. Secondly, it analyzes the obligation from the fiduciary duty, duty of reasonable care and principle of capital maintenance and protection of company asset and makes analysis on the value. Thirdly, it generalizes the conditions, contents and legal consequences. Finally, it makes proposals about the legislation and the establishment of relative systems. The aim of the paper is to regulate the behavior of the directors of companies in the cases for liquidation, and promote the companies carry out the liquidation timely, so that to protect the interests of shareholders, creditors and others.