Creditors In The Path Of External Supervisors Involved In Corporate Governance

Under China's legal system of company, creditors are in a disadvantaged position, which is a stark fact facing us. If creditors'position in the interests pattern under the company system should not be adjusted appropriately, they would have much concern in the business contact with company, which would undermine the company's function as an important player in market economy.The traditional legal system of company consists of a couple of institutional measures like company capital system, openness of corporate affairs, disregard of corporate personality, and insolvency liquidation system. These mechanisms can protect creditors'interests, but their function is limited as they exclude creditors from corporate governance. Thus they could ensure no more than passive and ex-post protection.This paper reckons that in order to effectively protect creditors'interests, the conception of excluding them from corporate governance should be changed; rather they should be encouraged to participate in corporate governance. In institutional design, the ideal approach is that the creditor assumes the company's external supervisor. This design would help creditors get access to corporate governance in a position conforming to their role. Furthermore, the supervisory board, which exists in name only so far, would be able to implement its duty through this design.