A Comparative Research Of The Subordination Of Shareholder's Loan In Bankruptcy

When a company is lacking sufficient funds,it has in principle two ways to obtain funds.It can either obtain infusion of capital from the shareholders,or it acquires loans from outside financial sources.But a shareholder can also offer a loan to the company,which it called "shareholder's loan".Compare to the way of increase the registered capital,the shareholder can raise the property of the company easily and at low risk through offering shareholder's loan.In most instances,it is difficult for a company in financial trouble to get outside financial support since adequate security is not available,so that shareholder' s loan became a popular method among the shareholders.The relevant provisions unter German law is set in Articals 39 and 135 of the "Insolvenzordnung(Bankruptcy Law)",which persribe that the Shareholder's loan should be subordinated in the distribution of bankrupt's estates.The law of the U.S.is developed from the Court of Chancery,which also persrribes the subordination of Shareholder's claim. Although the law of the two countries is based on different law concept, they bring almost the same result.In this paper the author introduces and analyses the concerned legal rules of shareholder's loan in German Law and Law of the U.S., especially the rules of claim subject to subordination clause and the equitable subordination rule.Then its feasibility in our Chinese "Bankruptcy Law" is discussed.