Research On Particularity And Regulation Of Insolvency Concerning Corporate Groups

â… Purpose of ResearchAs a result of socialization of production, corporate groups have been playing an important role in the development of economy from one state to another. Every member of the corporate group, which has separate legal personality, should run and take full responsibility on its own in principle. But different members of the same corporate group actually always have close relation to each other and to the group. Their unanimous actions sometimes put the external creditors in a disadvantageous position. Especially in the insolvency procedure of one or two members, other corporations of the group usually have the start of external creditors in the aspect of being paid. The corporate group can also arrange its member or members to come into the strategetic insolvency procedure in order to shift the commercial risk to the market or gain unreasonable benefits. The superiority of corporate group comes from the priority of getting information among the group members. Generally speaking, the members can more easily master the financial situation of the internal corporations and more easily arrive at an agreement on discharge between each other. Therefore it is useful to research how to protect the external creditors fairly when we must encourage the development of the corporate groups.â…¡Main ContentThe first part of the article generalizes the attributes of corporate groups, discusses their inevitable, rational appearance and possible adverse influence they may bring about, and points out the difference between the internal and external creditors in the observance of information about the corporations in debt. The article also sets forth the need of regulation when one or two members of the corporate group are confronted with insolvency. At present some authorities have attached special importance to or even constituted specific regulations for the corporate groups in the corporation law. However, many states have not given particular treatment to the corporate groups in the insolvency law.With regard to the insolvency of the multinational corporate groups, I did not mention too much because of the article capacity limit.The second part of the article introduces the golden rules of regulation in the insolvency procedure of the corporate groups. We should try to maximize benefits of every party in the procedure, as well as to give them fair protection. We should get the ones in fault take their responsibilities. And whenever there is no party in fault or it is difficult to find out whether a party has fault, we also should have the parties reaping benefit pay the cost. We need to decide whether and in what degree to let the controlling corporations take unlimited responsibilities according to situation in every particular case. In order that every party can make a reasonable anticipation, we should set forth as specific bound of responsibility as possible. Intensify the liability to disclose important information, specify the right of the custodian to investigate and the right of the creditors to know, and establish specific punishment against fraud. State fund should act in the rescue of the corporate groups involved in the insolvency. Try to exert the advantage of the corporate groups to run as a whole, even in the insolvency procedure. Give different treatment to different group members according to different situation.The third part summarizes the present regulations. Firstly, the rule of Secondary Claim can prevent putting forward inveracious debts to damage the benefits of external creditors. But it also has immanent shortcomings. The rule itself is oppugned according to the legislation policy. And it does not bring radical solution to stop the vicious infringing upon external creditors either. Secondly, the rule of Piercing the Corporate Veil allows the court to demand the mother corporation to take unlimited responsibilities for the subsidiary corporation, but the rule has not been applied a lot by far. And the rule only regulates the vertical relationship without concern of horizontal relationship, e.g. the relationship between the sister corporations. And the plaintiff has to prove there is situation for application of the rule, which is usually very difficult for him. Thirdly, the rule of Joint Responsibility regulates both vertical and horizontal relationship, which highly improves the protection of external creditors. But it will threaten the principle of limited liability and discourage the development of corporate groups at the same time. Moreover, the article appraises the rule of Subordination, Fiduciary Duties of the Controlling Shareholders, and Substantive Consolidation Doctrine.In the fourth part of the article, I reached the conclusion that we should exercise all the related rules to regulate the insolvency of corporate groups. Concretely speaking, the corporate group and its members should bear strict liability to disclose important information; set up rules of forecasting the insolvency related to corporate groups; the controlling corporations should bear liability of introduction and guarantee when the internal members are going to trade with the external parties; when one or two members go into the insolvency, other members, especially the controlling corporations should take joint responsibility for the fraud they participated in; adhibit the Rule of Secondary Claim in some degree. At the same time, we should take advantage of the existing civil law, commercial law, economic law, and even principles of criminal law to protect every party fairly.