Research On Substantive Consolidation In Corporate Group Bankruptcy

Presently, corporate group, as an important participant in market, plays a special economic role in the industry reorganization, resources allocation and risks controlling. However, the financial crisis or even bankruptcy of some members of a corporate group could impact other members of the group, which will damage the delicate inner structure of the corporate group and thus cause chain-reaction bankruptcy.Because of the specificity of the corporate group compared with the single enterprise, there happen many complicated relations between bankrupt enterprises and the non- bankrupt enterprises as well as among the creditors of the different group members. Since the great majority of domestic have no insolvency provision for the effective liquidation or restructuring of groups, the absence of legislative authority or judicial discretion to intervene in insolvency means that each entity has to be separately considered and, if necessary, separately administered in insolvency, which makes an serious obstacles to realize the aim of fair treatment of creditors in bankruptcy.Substantive consolidation is invented by the courts of the United States to deal the cases related to corporate group bankruptcy. Substantive consolidation combines the assets and liabilities of two or more related companies so that they are treated as a single entity to distribute the pooling of assets to all creditors of the corporate group. It eliminates inter-entity claims and guarantees of the debtor and its consolidated affiliates and treats all assets of the debtor and its consolidated affiliates as a common pool of assets. Therefore, the boundaries between the corporate group members are eliminated. The claims of creditors against the debtor and its consolidated affiliates are treated as claims against the common assets of the entire debtor and its consolidated affiliates. Besides the United States, substantive consolidation is slowly applied by some other countries. As an important remedy to corporate group bankruptcy, substantive consolidation gets growing concern. This thesis analyzes how to introduce this doctrine to the bankruptcy legal system of our country.Except introduction and conclusion, the thesis is considered 4 chapters:Chapter 1 simply summarizes. This chapter introduces the creation of substantive consolidation from the case of Sampsell to the development of the doctrine. Compared with"procedural consolidation","Disregarding of the Corporate Personality","Equitable Subordination"and"the right of bankruptcy rescission", substantive consolidation has its own features. There are two other related doctrines that are rightly encompassed by the doctrine of substantive consolidation: deemed consolidations and partial consolidations.Chapter 2 analyzes the factors of substantive consolidation, including the object, principle and conditions. By learning the experience in America and other countries, I know more clearly about when and how to apply this doctrine. The integration of corporate group and the protection of the whole interest of the creditors are the main concerns. The application principle determines the scope of using substantive consolidation. There was a debate on universal or exceptional application. Since substantive consolidation has a great influence, the court always be cautious to apply this doctrine. Corporate groups in China are still in development stage, exceptional application is more suitable.In the United States, bankruptcy courts developed factor tests or checklist approaches to substantive consolidation, and later Appellate Courts in vented the Balancing Tests. These practices as well as the rules in other countries make more clearly about when and how to apply this doctrine. The integration of corporate group and the protection of the whole interest of the creditors are the main concerns.Chapter 3 discusses the function of substantive consolidation. Substantive consolidation will have different effect on different creditors. It involves pooling the assets of different group members, consolidation may not lead to increased recovery for all creditors, but rather operate to level the recoveries across all creditors, increasing the amount distributed to some at the expense of distributions to others. However, substantive consolidation still has its unique advantages over other three doctrines as"Disregarding of the Corporate Personality","Equitable Subordination"and"the right of bankruptcy rescission". As a most tough remedy, substantive consolidation disregards the corporate personality and limited liability of the company. It has rationality and justifiability in the term of protecting the creditors'whole benefit. Moreover, when applying substantive consolidation, there's no need to distinguish the asset of different group members or examine the cross-guarantees in inner corporate group, which can greatly promote the efficiency of the bankruptcy procedure.Chapter 4 presents the reality of the corporate group bankruptcy in our country. By studying some case of corporate group bankruptcy in our countries, I find that substantive consolidation is also necessary to our bankruptcy legal system in order to control many illegal or unreasonable behaviors in corporate group bankruptcy. Attaching importance to the real situation of China,I argue the proceedings of adopting the doctrine, including the start of the procedure, the jurisdiction of the court, the acceptance and hearing and the coordination of the procedure.