Reflections On The Introduction Of Equitable Subordination Doctrine

Equitable Subordination doctrine uses the method that improper debts are in asecondary position. It forcibly set that the control company is in a secondary positionwhen paying for the debt of its associated company by forbidding the unfairbehaviors between the control company and its associated companies. This approachin the regulation of associated transactions had a very good effect. It is a goodexample for other countries to marshal the associated transaction. Our country is acivil law country which is not as flexible as America’s jurisprudence mechanism.Under this background, it is difficult to design the law which can play the best effectof the principle of equitable subordination in order to achieve the equity as abankruptcy law. This article begins with the analysis of Equitable Subordination,combining with Chinese Law to acclaim the importance and feasibility of usingEquitable Subordination doctrine. Then, try to make some recommendations to theapplication of Equitable Subordination doctrine.Firstly, this paper describes the production and use of Equitable Subordinationdoctrine in the United States in part one. Starting from the limited liability ofshareholders, describes the reason for Equitable Subordination’s generation--LimitedLiability alienation. After that, the analysis of three classic examples shows clearlyhow the Equitable Subordination doctrine generated and established. Secondly, thepaper discusses the necessity and feasibility of using Equitable Subordination methodin Chinese Law in part two and part three. The Law of protection of creditors is notgood enough. At the same time, China has the basic legal principle to recommendEquitable Subordination doctrine. The Supreme Court also introduced the principle ofequitable subordination to try and do the relevant bedding. Thirdly, the paper givesthe recommendations to the application of Equitable Subordination doctrine andsuggestions about the construction of Legal System both in entity construction andprocedure construction in the last part.