On Legal Responsibility Of The Parent Company To Subsidiary Companies Creditors

The development of parent and subsidiary company groups has tremendously increased the risk faced by creditors of the company. Under the protection of limited liability, parent companies control and dominate the business of the subsidiaries, and use them as tools to realize their own or the whole group's business strategy and policies, immune from liabilities for injuries caused to the subsidiaries. This has led to unjust and unfairness to creditors of the companies. To establish the legal liabilities of parent companies for the debts of their subsidiaries has become an urgent task faced by most countries in the world. The laws and regulations of China have till now failed to respond to this issue and Chinese laws are cut out only for single company entity. The courts, with no laws to resort to, have been helpless in particular parent-subsidiary liability cases and failed to provide remedies to the creditors for the injuries suffered by them. This dissertation focuses its main attention on the study of the legal liabilities of the parent companies to the creditors of the subsidiaries and tries to find ways to establish or improve the parent-subsidiary liability system suitable to Chinese culture and reality.A study on the present practices of the countries in the world has shown that there are mainly two modes to impose legal liabilities on parent companies for the debts of the subsidiaries. First, to impose legal liability on parent companies by piercing the corporate veil by courts, which is common to the United States and English experience. Second, to establish parent-subsidiary debt liability system through legislation, which is exemplary of German experience. Through a detailed study on these two modes, the article put forward some legislative suggestions to establish or improve the parent-subsidiary debt liability system in China.