Research On The Assumption Of The Individual Liability By Directors To Creditors Of Company

The traditional theories to the company law persists the principle of the directorinternal liability, which means the company shall bear the liability to the external anddirector will not assume the individual liability. Nevertheless the economictransactions in the contemporary society have become unprecedentedly frequent andthe competition has gradually been drastic, both of which result in the appearance ofdebt crisis to a great many companies. When a company is not able to repay itsexpired debts and thus faces bankruptcy, and in the event the creditors can merelyclaim the repayment from the company’s asset, then the creditors’ legal right might beseverely damaged. The individual liability assumed by directors to the company’screditors tends to give the right of claim alleged by creditors to the directors in fault,and therefore better protects the benefit of the creditors who appear in weak position,and consequently, the fairness and efficiency of the society will be maintained.The main body of this paper will be divided into four chapters.In the first chapter, the topic will be introduced by three cases starting from thestatus and responsibility of the directors in a company, which emphasize the vital rolethat directors play in the current companies. In combination with the disadvantage ofthe Organization Theory and the Stakeholders Theory, this paper will analyze the legalbasis for the individual liability borne by directors to the company’s creditors. Theultimate section of this chapter will chiefly illustrate the significance of the individual liability to directors. The aim of this chapter is to present the fundamental introductionfor the following discussion.The content of the chapter two will be the analysis of comparative laws inconnection with the individual liability. It initially introduces the individual liabilitysystem established from the cases or statute laws in civil law countries. After which,the chapter will focus on the laws and regulations in regards with the individualliability of directors with a few typical common law countries as paradigms. The finalpart will be the related regulations in China’s commercial law. In a manner ofspeaking, the principle of protecting the benefit of creditors and the central idea toimpose specific liability taken by directors to creditors are consistent in both civil lawand common law regimes as well as in both case law and statute law regimes.Chapter three will chiefly present an analysis on three famous bankruptcy casesincluded in the preface for the purpose of further indicating the scenarios thatdirectors bear individual liability with factual cases. The case of Enron reflects theliability upon directors who make fraud to creditors, even the annual insurance benefitcan be involved in the range of indemnification, which manifests the high emphasis tocreditors’ benefit in western countries. Whereas in the case of Taizinai and Sanlu, itaims to embody the constitutive requirements of the individual liability, whichdetermine whether or not an individual is subjectively accountable. Whether or notany personal benefit is obtained shall not be a standard, and it derives BusinessJudgment Rule as a reasonable defense for directors in order to maintain the directors’daily management power.Chapter four contains the discussion with regards to the assumption of theindividual liability by directors to creditors of company. In spite of the provisions inrelation to the criminal and administrative liability in China’s laws, the unique role ofdirectors’ civil liability serves to be extraordinary. With respect to the assumption ofcivil liability, it shall be analyzed on a case by case basis and shall emphasize theusage of joint and several liability. In terms of the improvement of the system, theurgent issue upon resolved is the establishment of civil liability system and civillitigation mechanism, which contribute to the goal that the creditors have the right to seek compensation directly to the responsible directors in order for the remedy to theirlosses.