The Research On Director's Duty To Creditor

The protection of corporation creditors'interests is one of the most important objects pursued by corporation law, protecting the interest of creditors sufficiently is quite crucial for the corporation's development. Before the limited liability was established, the interest of creditors has been widely protected, but since its formation, the situation is changed, the creditors lose the protection of unlimited liability, its interest has been greatly threatened. From the perspective of corporate governance structure, traditional corporation law holds that the directors of the corporation owe fiduciary duty to the corporation only, and the interests of the shareholders is the corporation's interests, namely the directors owe fiduciary duty to the shareholders as a whole, and owe no duty to creditors. However, when the corporation is in liquidation process or will fall into insolvency, how the directors perform their duties not only directly determines the amount of the estate the company, and directly affecting the interests of creditors. In response to this situation, the UK insolvency law has gradually established the mechanism that when a corporation is in abnormal business circumstances, the directors owe fiduciary duty to the creditors, and finally be fixed by the statute. The establishment of this mechanism expands the content of the obligation of directors, provides a powerful weapon for the creditors and their representatives- bankruptcy liquidator to safeguard the interests of creditors.In this area, China's legislation are relatively backward, some mechanisms in bankruptcy act, company act, civil act are unable to curb the action of fraudulent conveyance which are carried out by directors, the interests of creditors has been greatly infringed. The author tries to make a research on the practice and experience of UK, for the purpose of making some institutional improvements in Chinese company act and insolvency act and thus strengthening the protection of the interests of creditors more sufficiently.The thesis is divided into three parts. The first part deals with how the UK insolvency act defines the duty directors owing to creditors, namely directors are forbidden to carry out fraudulent trading and wrongful trading. When the corporation is in liquidation or in the vicinity of bankruptcy, if the directors carry on the business with the intent to defraud creditors, the liquidators are entitled to bring proceedings to court, and the court is entitled to order the directors pay a certain amount of property to the corporation. As to how to prove the intent to defraud in the fraudulent trading, the case law of UK gradually established the way of combining the subjective test and objective test. If the directors don't have the intent to defraud, but because of some misfeasance, such as failing to investigate, causing the damage to the creditor's interests, this trading is wrongful trading. There is no need to prove the intent to defraud in wrongful trading.The second part analysis the necessity of directors owing fiduciary duty to creditors. Protecting the interests of creditors is crucial for stabilizing the social order and the virtuous circle of economic operation, but in China's existing acts, such as company act, bankruptcy act and civil act, there are some limitations in the protection of creditors, such as the terms and conditions of application to piercing the corporate veil are too stringent, the right to avoid only focuses on how to avoid the reducing the corporate bankruptcy estate negatively. In addition, the principles of autonomy of will and liberty of contract can not adequately protect the interests of creditors either, what can really play a role in protecting the interests of creditors of the company is the establishment of the mechanism that the directors owe fiduciary duty to creditors, it can both prompt directors to manage the company with diligence and care in daily, and curb its presence in high-risk, high-profit investment area when company in danger of bankruptcy. In addition to the above-mentioned reasons, corporate social liability theory also requires companies to owe duty to employees, consumers, creditors and even environment and community, under the guidance of the theory, as the core of power, the board of directors of the company must owe fiduciary duty to creditors.The third part argues the specific construction of this mechanism after its introduction to China. As all of the acts of China don't deal with the duty that directors owe to creditors, the creditor's interests are often impaired in practice. The introduction of this mechanism is quite essential for the improvement of corporate governance structure. In specific aspects of the mechanism, the author discusses from several aspects. First, for the problem of when the directors need to owe duty to creditors, the author limits it to the time when the corporation is being into bankruptcy, and provides for a one-year retrospective time. Secondly, the subjective and objective elements of the duty are defined. The defraud element can be determined by the"badges of fraud", and the misfeasance can be determined by combining the subjective test and objective test. For the objective element of that responsibility, in the provision of fraudulent trading, the author proposes concrete actions may include, but limited to the following four categories, namely transfer the property with no charge,transfer the property at a unreasonable low price,discard the credit,preferential payment. As for wrongful trading, the author's opinion is that it can be generally set to this provision"where the company has been declared to be in bankruptcy by court, before the company became bankrupt the director has already been aware that the company has achieved bankrupt standers or should conclude that there is no reasonable prospect of the company avoid being bankruptcy, then the director is liable to directors". As for other types of wrongful trading, they can be summarized by the courts in judicial practice and prescribed by the Supreme People's Court in the form of judicial interpretation. Thirdly, the author defines the qualified applicant,the scope of the defendants. The author holds that the liquidators and creditors are entitled to bring proceedings, and provides a strict litigation procedure to creditors for the purpose of preventing the abuse of the right. The author expands the defendant to de-facto director and shadow director. Finally, the author establishes a guiding principle for the defense of directors, namely the principle of entity maximization, refining it by combining the business judgment rule.