Study On The Creditor's Protection System For Affiliated Company

The conditions provided by social economic environment, decide the structure of commercial enterprise. The latter one develops with the development of the prior one. Nowadays, the market competition is gradually fierce; one of the paths chosen by most enterprises is the joint, through various methods in order to survive in competition. Affiliated enterprise is the inevitable outcome adapted to the objective economic environment social mass production, which caused the enterprise from single shape to joint. While such shapes of enterprise as share corporation, limited company, partnership business and foreign capital enterprise, etc. are just one of them. To establish the affiliated enterprise can share resources, reduce the competition, operate multiply and reduce the business risk, etc. The negative effect of affiliated enterprise is more and more concerned by people as its significant role in economic life. There is no doubt that the control and under-control relations in affiliated enterprise increase the risk of creditors in subsidiary company. For the rights and interests of all or parts of the parties, the control enterprises which partly or wholly grasp the power of management of subsidiary enterprises, are probable to make the subsidiary enterprises operate unconventionally by abusing their control position. Even worse, they transfer the profits of the latter one among the parties of affiliated enterprise. So the economic status of subsidiary enterprise shall be affected and infringed and the power of solvency shall be declined, all of which would injure the interest of creditors in subsidiary enterprise. By contrast, when subsidiary enterprise is company, the creditors'rights are more likely to be infringed by control enterprise because of their legal status, but control enterprise can evade its liability with the excuse of limited liability. So it is important to rule the relationship between control enterprise and subsidiary enterprise in legislation and to protect the rights and interests of creditors and subsidiary enterprise. So far, many states have echoed for this and have achieved the effect in form of legislations and precedents. There are no special provisions in Chinese law .The issue of affiliated enterprise has been referred in new Corporation Law 2005, but it is not complete. There are special regulations in the 7th chapter of《Suggested Draft of Estate Law》edited by Wang Baoshu, but they are just advices of some scholars. I just discuss the situation that both control enterprise and subsidiary enterprise are companies, in view of majority legal status of affiliated enterprises are company. I try to introduce the situation that the creditors'rights in affiliated enterprise are easy to be infringed, the current situation of protection by Chinese law and foreign advanced experience. I propose my imagining that protect the creditors'right in subsidiary enterprise, combining the actual conditions of our country so that people can understand this issue clearly. There are 4 chapters in this article. First chapter examines the necessity of protection of creditors'rights in subsidiary enterprise. First of all, I introduce the legal conception and characteristic of affiliated enterprise making reference to advanced legislative experience of some states in two legal systems. Second, I analyze the necessity of protecting the creditors'right through analyzing the phenomenon that creditors'right in subsidiary enterprise is infringed in economic practice.Second chapter mainly discusses the relationship between limited liability and protection of creditors'right in subsidiary enterprise. Through discussing limited liability system, formative procedure of legal person hold share and conditions for exercising limited liability, I make conclusion that the infringement of creditors'right in subsidiary enterprise is not due to the limited liability system but is due to the abuse of limited liability by control enterprise and control shareholders. To exercise limited liability must conform to its prerequisite, unless the relevant liable person shall bear responsibility for the damage he makes.Third chapter introduces the advanced experience of protecting creditors'right in subsidiary enterprise in main states of two legal systems in legislation. The representative experiences are the principle of the piercing the company veil, and the deep stone principle in America. And the special article about affiliated enterprise in Germany Law of Share Corporation, including the systems that raise the supreme number of legal preserved funds and profits, bear loss and tender guarantee for creditors.Fourth chapter discusses how to the protect creditors'right in subsidiary enterprise. I think we shall refer to the successful foreign legislative experience, combing the actual conditions of our country. We shall formulate special articles about affiliated enterprise in Company Law and make several regulations to protect the creditors'right in subsidiary enterprise, including protection in advanced and relives afterwards. There are such protection in advanced as formulation of affiliated enterprise reports, good faith obligation of the control company, the principle of damage compensation, system of creditors'conference and rule of rotate and make investment. Relives afterwards mainly including the principles of piercing the company veil, deep stone principle, individual liability of control shareholders,directors or managers and the right of bringing lawsuit directly given by creditor.