Research On The Application Of ‘disregarding Of Corporate Personality’ Rule

In 2005, the rule of disregard of corporate personality was officially established pursuant to Item 3, Article 20 of the Company Law of the PRC. Where any of the shareholders of a company abuses the independent status of the legal person or the shareholders’ limited liabilities to injure the interests of any creditors, the rule shall be applied explicitly. This article is a result of the study on the application of this rule based on the cases heard in the recent 9 years.The main part of this article is discussed in 3 parts. The first part is a basic introduction of the source and general characteristic of the sample cases. Relevant 40 sample cases are mainly induced and chosen from the database on pkulaw.cn. It is found that cases ruled in accordance with the rule of disregard of corporate personality are limited among bulk of commercial litigation cases. As instance, there are only 3 capital withdrawing cases ruled in accordance with the rule of disregard of corporate personality among the total 336 cases found on pkulaw.cn through key words “capital withdrawing” searching. Generally, the application of the rule is uncommon in practice. On the other hand, most sample cases come from the east coast despite technical causes such as delayed database input being taken into account. Still, it is obvious that the application coverage of the rule in the east coast is larger than that in the Midwest.According to the case analysis, the problems which exist in the application of disregard ofcorporate personality rule include the following three aspects:1.Disregard of corporate personality rule do not have an unified standard.In the process of trial, to what conditions will be able to apply the rule exists different understanding and even different court is totally different for the same situation; 2.The burden of proof allocation is not reasonable. In the process of application in disregard of corporate personality rule, the judge put the heavier burden of proof to the plaintiff. However, the defendant(the company or shareholders) is the actual control of the company in real life, under the condition of information disclosure system is not perfect, the plaintiff is difficult to fully grasp the evidences that the defendant(shareholders or the company) abusing corporate personality. Moreover,the evidences can be adopted by the court only the plaintiff provide the complete chain of the evidences. Under the condition that the accused holds the company operation as well as a variety of financial data, this principle of distribution of evidential burden undoubtedly caused greater difficulties to the plaintiff. 3.The application of disregard of corporate personality rule is controversial. Whether the rule’s applicable objects will be able to expand to the parent-subsidiary corporation or associated company, or even to reverse the rule, are significant controversy in practice. This part of the discussion is focused on whether the rules can be reversed. Support that the disregard of corporate personality rule shall be applicable to the reverse case and nonsupport the rules shall be applicable to the reverse case both exist in practice.The second part of this thesis analyzes the reasons for these problems. There are three main reasons. First, judges apply the rule too prudently. In judicatory practice, the forms of the abuse of corporate personality are various. Meanwhile, these activities always have a wide-ranging effect. These two facts not only let judges very confused when they make judgments, but also force them to apply the relative rules more and more prudently because of their tendency to protecting the interest of shareholders. Second, the research on this rule is weak. The current research achievements failed to focus on the categorization and other relative theories of this rule, which is not able to offer enough support and guidance to juridical practice. Third, this rule has inherent weakness, which include the deficiency of legislation and the characteristics of the civil law system. In detail, the contents about the abuse of corporate personality in the corporate law of our country are too simple and maneuverabless for judges to apply. And the design of this rule also cannot cover different situations in practice. Besides, judges in the civil law system do not process the power of law-making which their colleagues have in common law system, which makes them can only apply rules passively. Thus, this rule cannot play its due role for sure.The third part of corporate personality deny recommendations in rules applicable in judicial practice practical. Include: First, making the connotation of corporate personality deny rules rethinking. Second, further research in this type of rule by detailed classification criteria. It can provide guidance to the standard practice in to be solved urgently applicable corporate personality denied. Third, making appropriate judicial interpretation at the legislative level. Fourth, typical cases must play a guiding role. Guidancing grassroots judicial practice guidance in the form of case trial before the introduction of judicial interpretation. Finally, emphasizing rules and disregard of corporate personality "Bankruptcy Law" convergence.