Research On The Application Of "Disregard Of Corporate Personality" In Subsidiary Company’s Bankruptcy

Affiliated enterprises have become one of the main economic bodies in themodern market. Due to interrelated interest, bankruptcy of affiliated enterprisesnormally generates more complicated problems compared to the one of singleenterprises. The existing Company Law and Bankruptcy Law however regulatemainly single enterprises, and there is no consideration of how the bankruptcyproceedings are carried out under the circumstances of mutual control and influenceamong enterprise. There are also some illegal applications of affiliated enterprisesbankruptcy in practice. These all bring challenges to our current legal system,especially for two cornerstone theories of the traditional company law that are“corporate personality independence” and “limited liability”.In order to prevent controlling company of the affiliated enterprises using“corporate personality independence” system which is beyond the legitimate controlover the subsidiary company’s bankruptcy and results in damage to interests of thecreditors of the subsidiary company. This paper is based on the subsidiary company ofthe affiliated enterprise that goes bankrupt but the controlling company is notbankrupted. By means of comparative studies and normative analysis to reveal theplight of China’s existing legal system in the regulation of subsidiary company’s bankruptcy, the author analyzes the present systems in our legislation and point out itslimitations, investigates the application of the “disregard of corporate personality”(or“Piercing the corporate veil”) theory in case of subordinate company goes bankrupt,and puts up with my ideas on our legislation about affiliated enterprise bankruptcy topropose better protections on the subordinate creditors of the company andshareholders’ interests, in order to achieve the spirit of fairness within the BankruptcyLaw.