The Research On The Legal Problem Of Creditor's Participation In Corporate Governance

As a financial provider for a company like a shareholder who is protected by the limited liability under the belief of"shareholder priority", a creditor find it hard to have a share in the company's operation and control despite the risk he takes in the management of the company. The passive and follow-up attributes are characteristics of the interest protection of a creditor, whose rights and risks are not comparable, which goes against the equality conception of legislation. Along with the appearance of the stakeholder theory, stakeholders'function are given more importance in the corporate governance. As an important stakeholder for a company, a creditor should be involved in and have an active impact on corporate governance. However, in our country, some legislative problems are not quite satisfactory: the legal right of a creditor is just administered in the first item of the business law without any explicit approval of a creditor's right in the corporate governance. The Commercial Bank law also restrains bank creditors from holding shares of the company. This essay explores the problem of creditor's participation in corporate governance and proposed several specific solutions in this aspect.This essay is divided into four chapters:Chapter one explains the necessity of creditor's participation in corporate governance by means of defining what is corporate governance. And discuss the stakeholder's theory. There are several major theories in this aspect: system theory, interaction theory, strategy mechanism theory, organization framework theory, people concerned protection theory and so on. The author believes corporate governance is to resolve the problems of corporate control and decision-making which are not mentioned in contracts by employing normative systems, with its essence laying in the right distribution and check-balance-mechanism for the company's stakeholders and the construction of a scientific, reasonable and quick decision-making system to reduce the trade-off cost caused by the deficiency of contract in the process of establishment and operation of the company, so as to maintain the social relationships generated from the interaction between economic effects and security-preference power. On the side of static state, the corporate governance appears an arrange of right and obligation among board of shareholder's board of directors and board of supervisors. While from other side of dynamic state, it appears a process of mechanism. The creditor's participation in the corporate governance means to arrange the creditor's right in the board and make them play a role in the process of corporate governance. The stakeholder theory holds that a company is more than a collection of physical assets, but a combination of various investment. Shareholders are nothing but the providers of physical investment. Apart from them, other stakeholders such as employees and creditors also make some investments to the company operation, which, just like stock, are also under risk. As a result, the company's stakeholders would also take some residual risks, or even greater risks than those shareholders in some circumstances. Therefore, a company's resources should be used to meet the needs of all people who literally make investment to the company and take risks from it. And furthermore, those stakeholders should be endowed with certain rights of residual control and be integrated into the corporate governance. Although it is still impossible to make an agreement as to the defined scope of stakeholders, employees and creditors are generally taken as stakeholders. A company relies much on a bank creditor, which therefore is the most important stakeholder to the company for the high risks it takes and the great influence imposed on the company.Chapter two analyzes on the value of creditor's participation in corporate governance from the perspectives of creditor, debtor and equality of law. It is claimed that the participation in corporate governance can make up the protective deficiency for creditors, avoid interior control and reduce agent costs for companies. Speaking of the value of law, it can enhance the harmony relationship of different interest groups and implement the equality concept of law.Chapter two analyzes the international mold of creditors'participation in corporate governance. In some western countries, America in particular, the security markets are developed well, asset-liability ratio is comparatively low, and the stock ownership are highly decentralized, which attributes to the indirect and passive mode of participation with the characteristic of director's credit obligation to the creditors, and the creditors are indirectly endowed the influence on the corporate operation, while those bank creditors play a minor role in the corporate management. As for Germany and Japan, the asset-liability ratio is high, and the stock ownership are highly concentrated, which attributes the direct and active mold of participation, with the characteristic of the bank creditors'participation in corporate operation as both big creditors and large shareholders who are important in company management. Along with the globalization in international economy, the distinctions of the two molds still exist, but they are learning from and integrating into each other. This essay holds that we should take in the positive parts of the two molds in accordance with our specific national conditions and forbid ourselves from following up blindly. Every nation has its own way of resolving the governability problem among managers, owners and stakeholders, and creates the country-specific molds during several generations. There is no such a thing as the best corporate governance mold which we can take without any adjustment, while it is accepted to look for the corporate governance mold which best fit in with our own operational needs.Chapter three involves the possibilities for Chinese creditors to take part in operating a company. It includes factors of systemizing to be considered and detailed advice on legislation. Firstly, the author believes that the precondition for the systemization is to take into consideration the existing financing structure of Chinese companies and the motives and abilities of different creditors to take part in the operation. Concerning the former factor, financing structure is the basis of the operating structure of a company, and different financing structure lead to different operating models. Whether the financing structure is mainly equity financing or debt financing directly decides who will be stronger in power collocation, stockholders, or creditors (mainly banks). It is the financing structure featuring bank debt financing and the fact that companies depend on bank loans that cause Chinese creditors involving themselves in operating a company. Meanwhile, considering companies with different financing styles, this system must be flexible. Besides, different creditors have different motives and abilities in taking part in operating a company, so methods on operating a company must be designed in different way. Basically, company creditors refer to backs, structural investors and bondholders. Based on the analysis of operating motives and abilities, the author holds that banks and structural investors can co-operate a company through sending employees to a company organization, acting as assignee in creditor's right's trusteeship and derivative suit; bondholders can take part in operating a company through bondholders'meeting or derivative suit.Based on the above analysis on systemizing creditors'taking part in operation of a company, the following legal advices are thus proposed: firstly, the author suggests that creditor meeting system be added to Chinese business law, and at the same time voting items in creditors'meeting be strictly confined in a company's normal operation. Secondly, in order to qualify creditors to attend conference as shareholders and to keep pace with chief operating policies and to have their voice heard, banks should be allowed by Commercial Bank Law to hold certain amount of shares. Thirdly, the provisions of right of nomination for director should be added to business law and give it to creditors to afford path for creditors to participate corporate's governance.Fourthly,"a certain number of bank representatives may be included in supervision institution"can be added to the part with membership of supervision institution in the business law.. Fifthly, the author suggests that shareholder derivative suit be learnt and creditors should be included as plaintiff in derivative suit, which will enable creditors to supervise operations of a company and take indirectly part in it.