Exploring The Legal Issues Of Merger And Bankruptcy Of Affiliated Enterprises

An affiliated-enterprise model is a product of rapid development of market economy and increasing intensification of market competition. Compared with the single-enterprise model, affiliated enterprises have relatively significant advantages in respects of enhancement of resource integration, increase in transaction efficiency and reduction of operating cost, etc. However, the special operating mode of affiliated enterprises brings about many problems for existing legal institutions and judicial practice, especially in the field of bankruptcy law. Since there are generally commingled relationships between affiliated enterprises in assets and personnel matters, it would be more difficult for an administrator to liquidate assets and clarify debtor-creditor relationships; if the described issues are handled in accordance with bankruptcy of a single enterprise, not only may a situation where legitimate interests of a creditor are harmed exist, but also there would be no guarantee of a high bankruptcy efficiency.There are corresponding institutions existing in China’s company law and bankruptcy law that can regulate fraud in bankruptcy of affiliated enterprises, for example, disregard of corporate personality, repeal right in bankruptcy and bankruptcy void; these institutions can, to some extent, restrain illegal activities between affiliated enterprises, but cannot properly and fully solve the substantive issues on assets liquidation, subject distinction, protection of creditor’s rights, etc., caused by bankruptcy of affiliated enterprises. In recent years, courts across the country have made active attempts in trails of bankruptcy cases of affiliated enterprises; many courts chose to adopt the manner of consolidated bankruptcy and achieved good legal effects and social effects. However, at a theoretical level, because of lack of a consolidated bankruptcy institution, these practices are still in a predicament of "no legal basis". Therefore, there is a need for making provision for consolidated bankruptcy by means of improving the bankruptcy law and related legal systems, thereby effectively regulating legal issues in bankruptcy of affiliated enterprises.The introduction part of this thesis briefly expounds the research significance and theoretical and practical values of consolidated bankruptcy of affiliated enterprises from following four aspects: purpose of research, research overview, research methodology and research innovation. Detailed discussion is made as follows in the text part.The first part is consolidated bankruptcy of affiliated enterprises and the present situation of legal regulation thereof. In this part, the topic of the present thesis is raised with taking fundamental conceptions and features of affiliated enterprises and consolidated bankruptcy as the starting point; in addition, through an evaluation on China’s legal institutions of bankruptcy of affiliated enterprises, the present situation of lack of a consolidated bankruptcy institution is emphasized.The second part is necessity analysis of consolidated bankruptcy of affiliated enterprises. In this part, through pros and cons analysis on consolidated bankruptcy, theoretical and practical significance of consolidated bankruptcy is emphasized; hence, construction of a consolidated bankruptcy institution in China has a practical necessity from both legal norm and judicial practice perspectives.The third part is feasibility analysis of consolidated bankruptcy of affiliated enterprises. This part tells the theoretical and practical basis of consolidated bankruptcy in the China’s legal environment, so as to lay the theoretical and practical foundation for construction of a consolidated bankruptcy institution with good operability.The fourth part, named construction of a consolidated bankruptcy institution for affiliated enterprises, is the core of the present thesis. The construction of the institution can be divided into four aspects, i.e., legislative style, substantive norms, procedural norms, and improvement of relevant institutions. First, it is made clear that the consolidated bankruptcy institution, from the legislative style perspective, should be supplementary provisions established based on the existing institutions of the company law and bankruptcy law and make improvements on the original basis of legal norms. Secondly, in aspect of substantive norms, the objects, conditions and principles of application of the consolidated bankruptcy institution and the legal consequences in the consolidated bankruptcy institution are stipulated; these substantive norms are required to be strictly adhered to first in order to implement the institution. Thirdly, in aspect of procedural norms, the application of the consolidated bankruptcy institution is discussed from seven aspects, i.e., initiation mode, subject of bankruptcy petition, competent court, selection of administrator, sharing of burden of proof, examination and voting mode, remedy approach for objecting party concerned. Finally, in addition to the construction of the main institution, opinions on improvements of relevant institutions are further raised, including improvements of the institutions such as disregard of corporate personality, repeal right in bankruptcy and bankruptcy void as well as introduction of the equitable subordination rule.The last part, conclusion, is a summary of the viewpoints and content of the present thesis. It indicates that there is a strong demand in judicial practice for constructing a consolidated bankruptcy institution for affiliated enterprises in China, so as to provide remedy in time for vacancies in existing laws. A system of legal norms that is mainly supported by the consolidated bankruptcy institution and supplemented by relevant institutions ought to be established based on the present situation of theories and practices in China. Also, it must insist on overall responsibility as the foundation, and fairness and efficiency as the goal.