The Study On Equitable Subordination Rule Of The Creditor's Rights Of Controlling Company

一, Significance and Purpose of the ThemeThe maximal character of affiliated enterprise is the "controlling" or "uniform management" of controlling company, which imposed on the subsidiary. For the rights of controlling company and the whole affiliated enterprise, controlling company often sacrifices the subsidiary's rights in order to achieve the maximizing of the interest of affiliated enterprise when it makes decisions. Thus the subsidiary's rights must be damaged, and undoubtedly add the risk to the creditors of the subsidiary. Furthermore, controlling company may endanger the creditor's rights through such methods as controlling the decision of the subsidiary, transferring price and margin, shifting good assets from the subsidiary, using up the assets and abusing limited duties, so that it can evade its obligations of law and contract, and avoid its law liabilities. Especially, according to our realistic instances, there are many examples that controlling company makes use of its controlling power and the affiliated relations to disserve the creditors' interest.When the subsidiary becomes an instrumentality for the rights of controlling company and the whole affiliated enterprise, law should intervene and adjust it and emphasize the protection to the creditors. However, there lacks related regulations and rules for affiliated enterprise. The present regulations allow the existence of affiliated enterprise, but they haven't offered relevant resolutions, thus the approaches to protect the creditors are very limited. So it is worthy of studying how to protect the creditors by law.There are most law cases of affiliated enterprise in America, so we can learn experience from their. American courts usually settle such cases with "piercing the corporate veil" law, substantive consolidation doctrine and equitable subordination rule. The scholars in our country have studied more about "piercing the corporate veil" law, and there are many works on it. But only "piercing the corporate veil" lawis not enough for the creditors' protection. So Taiwan introduced equitable subordination rule, which came from Deep Rock Doctrine, into Corporate Law whenmodified it. The rule can answer the questions------when the subsidiary isinsolvent, controlling company as a creditor of it, whether admit the creditor's rights of controlling company, whether allow controlling company distributing the assets of the subsidiary with other creditors, or whether should hang the creditor's rights behind other creditors?According our factual situations, it has huge practical significance to introduce equitable subordination rule into our country by learning Taiwan's legislation.I, Methods and Reasoning of the StudyThe article analyzes and discuses equitable subordination rule through logic method, comparative method and positive method. Logic method is mainly used to analyze the theoretic foundation, meaning and application of equitable subordination rule, and the necessity and feasibility of its introduction into our country. In order to understand the meaning of the rule deeply, and know its application well, it is compared with "piercing the corporate veil" law and substantive consolidation doctrine systemically in this article by comparative method. With positive method, the article discusses the meaning and application of the rule through American law cases. Of course, the uses of these methods are not absolute. Many questions are studied with the combination of them so that they can be explained deeply and set forth ideas at large.With the beginning of analyzing the meaning and the theoretic foundation of equitable subordination rule, the article studies its material application by comparing it with "piercing the corporate veil" law and substantive consolidation doctrine. Basing on its application, consulting the legislation of Taiwan, the article discusses the necessity and feasibility of the introduction of the rule into our country, and gives suggestion about our legislation.E> Framework and Main ContentThere are six parts in this article. Besides prolegomena and summary, there are four chapters: chapter 1, the theoretic foundation and the meaning of equitable subordination rule of the creditor's rights of controlling company; chapter 2, the comparison between equitable subordination rule and other relevant theories; chapter 3, the study on the application of equitable subordination rule; chapter 4, the study on the introduction of equitable subordination rule into our country.Chapter 1 discusses the establishment and meaning of the theoretic foundation------"Deep Rock Doctrine" and the meaning of equitable subordination rule ------unpunitive and conditional, and explains the way of its realization-------constructive distribution rule. The rule is compared with other relevant theories in chapter 2, based on which the evaluation is given. The objects, range, conditional factors, onus probandi and efficacity are introduced in chapter 3. Thereinto, conditional factors are very important because it is rather difficult to master in practice and there are many controversies about it. In chapter 4, consulted the legislation in Taiwan, advice about our legislation is given on the base of discussion on the necessity and feasibility of its introduction.E9 ? Main Standpoints and OpinionsDuring the process of corporate law's innovation in China, on the view of the fact that the present corporate law only regulates the single corporation, many scholars suggest adding a chapter of affiliated enterprise into the corporate law so as to resolve the problems arises from it. Because of the internal relationship among affiliated enterprise, law should put attention on the protection for the creditors. Nevertheless, considering the requirement of promoting economy and strengthening the competition of our enterprise, when protecting the rights of the creditors, law shouldn't impair the association of corporate. Equitable subordination rule offers us a better approach to resolve such problems, and arrives at the balance of their interests. On the ground of our practical conditions, the author thinks it is necessary and feasible to introduce the rule into our country.Whereas it is difficult to make certain the conditional factors of the applicationand easy to cause confusion, it must be watchful when legislated. The author suggests that the legislation in Taiwan is an good example for us. At the same time, we must ensure basic concepts, such as affiliated enterprise, controlling company, the subsidiary, and so on.