Study On "Deep-Rock" Doctrine

The traditional company model has been changed dramatically with the rise of the business organization of parent-subsidiary companies. In the company group, the phenomenon that the parent company transfers its risk to its subsidiary as well as the subsidiary's creditors by way of affiliated transaction happens often in the real world. While the corresponding legislation is unfortunately lagged far behind, which is to a large extent consist with the lack of further study on the relevant theory and the absence of creation sprit in legal theory. The new company law in which many of us put great hope has taken effect for a long time, but it still left blank in the regulation on the relationship of parent-subsidiary companies, and its projection on the creditor's benefits is also not sufficient, which materially doesn't meet the legislation's object of seeking equality and justice. In the new company law, except some articles for the regulation of related trade, there has no articles to regulate the parent-subsidiary companies. Especially, when the subsidiary is in a situation of insolvency, the new company law doesn't give us guidance to deal with the credit-debt dispute among the parent-subsidiary companies. Based on the above situations, this article attempts to analyze the"Deep Rock Principle"in the company law theory.For the structure of this article, it includes four chapters:Chapter I. The creation and structure of"Deep Rock Principle". This chapter includes two sections. Section I introduced the creation of"Deep Rock Principle". The"Deep Rock Principle"was created in the case of Taylor v. Standard Gas Co. in the US in 1939, and it was finally established through other two cases of Pepper v.Litton and Comstock v.Group of Institutional Investors. Section II introduced the structure of"Deep Rock Principle". This section mainly discusses argument between the theory of automatically subordination rule and the theory of equitable subordination rule, and the relationship between substantial combination principle and"Deep Rock Principle". Firstly, it introduces different opinions among the arguments between the theory of automatically subordination rule and the theory of equitable subordination rule, and it comes to the conclusion that the equitable subordination has more practicality via comparative analysis. In the following, the author comparatively analyzes the substantial combination principle and"Deep Rock Principle". The author believes these two principles is similar to a certain extent in terms of the elements of application and consideration, but the substantial combination principle can't be regarded as"Deep Rock Principle", as they are quite different in the precondition of application, evidence proof and value orientation.Chapter II. The theoretical foundation of"Deep Rock Principle". The theoretical foundation of"Deep Rock Principle"lies in the idea of equity and fiduciary obligation rule. This article firstly expound the idea of equity, and the author believes the basic value of law is to realize social equity and justice, which is the institution value of"Deep Rock Principle". Secondly, this article presents a detailed demonstration that fiduciary obligation is the theory base of"Deep Rock Principle". The belief that the parent company has fiduciary obligation on the subsidiary company comes from the parent company's actual control over the subsidiary company, and the source of this obligation is parent company's execution of the control power over its subsidiary. The essence of the control power is one kind of influence and dominator. Once the parent company implements control power, it should bear the legal liability triggered by the action of control. Applying this liability to"Deep Rock Principle"is to subordinate parent company's creditor's right to its subsidiary.Chapter III. The basic application conditions and effect of"Deep Rock Principle". This chapter uses two sections to analyze the application conditions and effect of"Deep Rock Principle"in the United States.Section I mainly analyzes the application pre-condition of"Deep Rock Principle". This pre-conditions include four elements: application subject, action, result and subjective. Firstly, it expounds the application subjects of"Deep Rock Principle". This authors believes that the"Deep Rock Principle"not only applies to parent-subsidiary companies, but also to affiliated companies, followed by the analysis of the action element of"Deep Rock Principle". The action element of this principle is that the parent company takes unfair action against the subsidiary. The author lists the following situations through summing up the US's judicial application of this principle: 1. apparently insufficient of capital; 2.frauduant; 3. the mix of assets; 4. unjust management. Finally, this article analyzes whether the liability resulted from"Deep Rock Principle"is has character of penalty or not, and concludes: as the liability resulted from"Deep Rock Principle"is not penalty remedies, so the liability of resulted from"Deep Rock Principle"should be equal to the harm of the parent company's unjust action caused to the subsidiary and its creditors.Section II mainly inquires the effect of applying"Deep Rock Principle". Through analyzing the parent company's priority and set-off right in the process of the subsidiary's insolvency, the conclusion of applying"Deep Rock Principle"is to negative the parent company's priority and set-off right. Chapter IV The reference of"Deep Rock Principle"in our country. This chapter includes three sections.Section I is mainly to review the reality of the insolvency of the affiliated companies in our country. First, responding to the our country's current legislation and judicial activity, it specifically discusses how to empower the judges with proper discretion in dealing with the subordinate creditor's rights dispute, followed by the author's suggestions of how to design the subordinate creditor's right rule in the future amendments to the company law.Section II analyzes the status quo of our country's legislation. The author realizes protection system for the interest of creditor in our new company law is rather frangible, esp. there lacks effective measures to regulate the large shareholder's power. For the parent company's infringement on its subsidiary with the development of the market-orientation economy, our country's current laws and regulations apparently lacks sufficient corresponding measures.Section III mainly analyzes the reference of"Deep Rock Principle"in our country. Firstly, the auther discusses the legislation spirit of"Deep Rock Principle"and how to harmonize this principle with other laws, and especially analyzes how to regulate"Deep Rock Principle"in our country's future company law. The author's analyzes the justification of the value of"Deep Rock Principle", and believes equity and justice is the principle's theory base; the author further believes"Deep Rock Principle"should be stipulated in company law via demonstrating the harmony of different laws; finally, the author puts forward some suggestions on the applicability of"Deep Rock Principle"from the aspect of legislation technique in our country.