Protection Of Affiliated Companies’ Creditors

Being a main form of economic behavior in modern life, Affiliated Companiesentails a kind of special relationship. They enjoy the advantage provided bycorporation personality system and the limited liability, which, to some extent,reduces the risk and cost of transaction. However, unfair connected transactions,which transfer asset away from subsidiaries by parent companies, usually take placeamong Affiliated Companies, which derived from the controlling network amongthose Affiliated Companies, bringing risk to those creditors whom have not been fullyrepaid yet.Different countries have different regulations, when dealing with this problem. InGerman and Taiwan, specific regulations are made to deal with this problem, whichmakes the regulation concerning creditors’ protection more consist. While China, likeJapan and France, codifies such regulations into different department laws, such asCompany Law and Insolvency Law. This article will try to find out how to protect thecreditors, by comparing Chinese law with other countries’ law and learn from othercountries’ legal practices, against Affiliated Companies’ misbehaviors, throughinformation disclosure, re-assuming liability and the allocation of asset duringInsolvency.This article contains4chapters,6parts and over30000words. This articlebegins with an introduction, which illustrate the sense of this article as well as the way,in which this article is composed, and ends with a conclusion.The first chapter illustrates the specificity of protecting creditors’ againstAffiliated Companies by defining what are Affiliated Companies and the relationshipamong them. This chapter also illustrates, through considering the impact oncreditors’ investment decision due to unqualified information disclosure, and the creditors’ unable to receive their payment due to the unfair connected transactionsbetween Affiliated Companies, in what circumstance will the creditors be damagedThe second chapter, focusing on the information disclosure, describes, throughanalysis the investment status and connected transactions among AffiliatedCompanies, the regulation and the legal practices of creditors’ protection, in and outside China. Comparative analysis of different regulations is used to learn from foreignregulation and re-think about how China could perfect its regulation through makingthe disclosure of the shareholders’ information more detailed and the inversed burdenof proof.The third chapter, focusing on the assuming of liability among AffiliatedCompanies, illustrates the challenge, brought by the relationship among AffiliatedCompanies, to the corporation personality system. This chapter also illustrates,through comparative analysis, that the key to the protection of creditors is “piercingthe corporation’s veil”, and analysis the wider of directors’ duty in Common Law andCivil Law, giving suggestion on perfecting Chinese corporation personality system.The fourth chapter, focusing on the allocation of asset during insolvency,illustrates that the main reason why creditors cannot be fully repaid is the insolvencyof subsidiary company, and analysis the problems within legal practices. This chapteralso analysis, through comparative analysis, the importance of the EquitableSubordination Doctrine, the substantive consolidation doctrine and the regulation,concerning invalidity of the transaction before insolvency, and gives suggestions toour country.