The Disregard Of Corporate Personality System And Application Thereof Inprc Judicial Practice

Originated in the United States, the Disregard of Corporate Personality System refers to a legal measure that, being established with the intention to prevent shareholders from abusing the independent personality of the corporate and to protect legal interests of creditors of the corporate and social public interests, disregards the personality of the corporate independent from its shareholders and the limited liability of the shareholders basing on certain facts in the legal relations, and orders the shareholders of the corporate (including both natural person shareholders and legal person shareholders) to be directly liable to creditors of the corporate or the social public interests, in order to fulfill the requirements of equality and justice.As the theories and the Disregard of Corporate Personality System being developed and consummated, more and more countries adopted this system as case law or written law. China adopted this system in the legislation by editing the Company Law on Oct. 27, 2005 and introduced this system into its judicial practice formally, which brought significant influences to the civil legislation and civil and commercial adjudication. Based on the current status of the legislation of company law and relevant procedure, this work takes domestic and overseas theories of Disregard of Corporate Personality, the lately edited version of PRC Company Law and some experimental trials in the PRC judicial practice as objects of study, summarizes and then analyses the relevant theoretic and practical issues on which disputes exists, and puts forward the author's opinions and conceiving on the procedural problems arising from the application of this system in judicial practice.This work consists of foreword, text and epilogue. There are 5 chapters in the text: 1. Overview of Disregard of Corporate Personality System, 2. Signification and applicable circumstances of Disregard of Corporate Personality System, 3. Essential elements of application of Disregard of Corporate Personality System, 4. Procedural issues of Disregard of Corporate Personality System in judicial practice, and, 5. Some conceived plans on consummation of Disregard of Corporate Personality System in PRC.This work engages in the innovation in the following aspects and obtains certain achievements:1. With regard to the essential elements of application of Disregard of Corporate Personality System, the representatives of public interests shall be qualified as subject besides the creditors of the corporate. The defendants sequent to abuse of independent personality of the corporate shall include, besides controlling shareholders, parent companies on a contractual basis, administrative departments in charge and establishing units only existing in PRC. But directors or managers of the higher management shall not become defendants in such a case.2. In judicial application procedure of Disregard of Corporate Personality System, the plaintiff(s) shall make application to add proper party/parties who abuse(s) the independent personality of the corporate as defendant(s) no later than the end of debate in the first instance. The application of Disregard of Corporate Personality System shall be strictly limited within the extension of the judgement by the People's court. It shall not be extended to the enforcement procedure, or the commercial arbitration. 3. Contents that shall be included in the future judicial interpretations are summarized as many as possible, regarding such contents the opinions of the author are also provided.Sequent to the study, this work leads to the following conclusion: as remedy and supplement afterwards, the Disregard of Corporate Personality System shall be applied cautiously, and shall not harm the basis of the company law. The facts of actual cases shall be reviewed strictly according to the essential elements of application, that is, it shall be the creditor of the corporate who suffers actual damage seeks judicial remedy on his own initiative, and makes application to add the controlling shareholder(s) who abuse(s) the right as party/parties of the action in proper instance and requests the court to apply the Disregard of Corporate Personality System. Nobody except for the creditor is entitled to make such application. This system is only applicable to the controlling shareholder(s), parent company, etc but not applicable to the higher management or the non-controlling shareholder(s). In the event of application of this system to the controlling shareholder(s), essential element of consequence is a must besides the essential element of act, which means there shall be causality between the act of abuse by the controlling shareholder(s) and the damage of the creditor(s), furthermore, the corporate is incapable to recover the damage of the creditor(s) independently sequent to the act of abuse by the controlling shareholder(s). Whether the controlling shareholder(s) is/are subjectively malicious or not is of no concern.