The Application Of Unlimited Shareholder Liability For The Protection Of Tort Creditors

The protection of creditors is one of legislative aims of corporate law,but corporate law does not further distinguish contract creditors and tort creditors,which causes that corporate law only pays attention to protect contract creditors rather than tort creditors.So corporations have incentives for excessive risk-taking,which makes tort creditors to burden the major risk cost of corporations' activities ultimately.From an economic point of view,corporations transfer the risk cost that will become social cost to the tort creditors,but there is no mechanism to reallocate this cost.It is unfair that shareholders get profits,but tort creditors have to burden relatively cost.Finally,the "Kaldor-Hicks efficiency" can not be achieved----the overall social welfare is reduced.The main view of this paper is that when the corporation faces with bankruptcy,which is the result that its compensation for damage is more than its own net assets,shareholders of the corporation should be unlimited liability for the compensation in accordance with their amount of contribution or stock equity.In this way,we can establish reasonable distribution mechanism of social cost of corporations behaviors to protect tort creditors in the private law system,which makes shareholders who gain profits under the tort assume the corresponding social cost,regulates shareholders to transfer excessive risk cost to tort creditors by limited liability,and ensure the investment efficiency as well as achieve the growth of social welfare.This paper utilizes the methods of normative analysis,case analysis,and economic analysis.The paper begins,in Part I,by clarifying the conception of contract creditors and tort creditors to indicate that there is no mechanism to lower the risk function in the corporation law,which causes the tort creditors to burden the cost of corporate torts.Part II,after a demonstration of the operation mechanism and system value of limited shareholder liability,various disadvantages involving the limited liability are investigated,first,it creates the incentive to transfer risk cost to tort creditors,second,hinders Tort Liability Law to reallocate the risk cost of corporate torts,then twist the real price of shares of listed companies.In brief,the limited liability becomes the tool to externalize the risk cost.Part ? explains why more modest reforms to regulate corporate torts,such as liberal veil piercing,debt repayment of bankruptcy law,and strict liability torts appear inferior to a general regime of unlimited shareholder liability.Part ? emphasizes that 1)the historical textual research and theoretical support of the unlimited shareholder liability,such as using Behavioral law and Economics to argument that investors will not give up investing;2)unlimited shareholder liability should be applied to all types of corporates and shareholders no matter who are controlling shareholders or minority shareholders,then this part formulates specific rules those are about unlimited shareholder liability to balance the cost against the benefit of limited shareholder liability.Part V focuses on the situation of current private law system to protect tort creditors.Because of limited shareholder liability,there is no special protection to tort creditors in the current bankruptcy law,and it is difficult to deal with the problem of mass tort accident compensation by applying strict tort liability,as for the"corporation personality denial",it is so uncertainty that judge seldom consider to deny large corporation personality.So it is time to make specific rules about pro rata unlimited liability in the corporate law in practice.In consideration of the socialist market economy with Chinese characteristics,such as China securities market and state-owned enterprises,there is no obstacle of the theory and practice.And the application of pro rata unlimited shareholder liability is able to solve the problem of mass tort efficiently and fairly.