The Theory Of Disregard Of The Corporate Entity Is Applied In Liquidation For Dissolution

Disregard of the corporate entity is the exception to the basic principles of the company law. It effectively remedies the defect of the limited liability and the corporate entity. This theory has been effectively applied in many fields, such as one man company, parent company and sub-company, related business and liquidation for dissolution. In this article, the problem which the theory of disregard of the corporate entity is applied in the liquidation for dissolution is researched from the angle of judicial explanation for company law.There are four main parts in this article. The first is to raise the problem. The second and the third is to analyze the problem from the angle of theory and practice. The fourth is to solve the problem.Chapter one briefly discusses the two systems of disregard of the corporate entity and liquidation for dissolution. Although there are many differences between them, the functions of them are mutually contradictory, overlapping and supplementary on balancing the interests of shareholders and creditors when the company comes into the condition of dissolution.Chapter two discusses the problem from three aspects: legal doctrines, principles and values. When the shareholders do not perform their duty of liquidation, the creditors can safeguard their rights and interests according to the two theories of disregard of the corporate entity and tort of credit. The use of the two theories contributes to maintain the security of market mechanism. In order to properly apply the two theories, three legal principles which include equal treatment, giving priority to liquidation and attaching importance to efficiency should be followed. Chapter three analyses the defects which exist in the practice of legislation and judicature. The defect of the current judicial explanation for company law is to strictly limit the requirements of applying the theory of disregard of the corporate entity. It provides that the theory can be used only when the company can not be liquidated. This rule reflects the character of"punishment after the event". It doesn't not only balance the interests of shareholders and creditors in time but also contribute to the practice of liquidation. Besides, there are two analyses of cases in this chapter. They reflect the difficulty about how to balance the interests of shareholders and creditors in the practice of liquidation.Chapter four summarizes and improve the relevant legal rules. The most important substantive rule is that the shareholders should pay for the creditors′loss according to their mistake. The most important procedural rule is how to start and suspend the legal proceedings. A proposal is raised that the law should not only allow the creditors to start legal proceedings against shareholders in time but also require the judge to suspend the proceedings according to suitable conditions. This design of proceedings reflects such a guiding ideology of"instructing first and punishing second".The key view is summarized according to the above-mentioned content at the end of the article. Being careful to apply the theory of disregard of the corporate entity in the liquidation for dissolution does not mean that the shareholders can′t apply it in time. Applying the theory in time does not mean abusing, either. Only by applying the theory in time can the creditors fully safeguard their interests. Of course, although the creditors can take legal proceedings against the shareholders, the judge should positively guide them to solve their issue in the normal liquidation procedure. The basic principles of company law can be fundamentally defended only by not lifting the veil of the corporation. So the legislative body should makes laws according to the idea of"preventing in advance and punishing afterwards".