Research On The Substantive Consolidation Bankruptcy Institution Of The Affiliated Enterprises

Faced with the existence of a large number of property conflation,enterprise personality confusion,improper association transactions and other acts that harm the interests of creditors,Chinese courts are increasingly adopting the substantive consolidation bankruptcy of the affiliated enterprises.The advantage of this system is that it seeks fair settlement of creditors of affiliated companies through a unified bankruptcy procedure.The disadvantage is that it ignores the independent corporate personality of each affiliated company in the affiliated enterprise and the different settlement rates of corporate creditors.In March 2018,the Supreme People's Court of China clearly defined the substantive consolidation bankruptcy of the affiliated enterprises in the Minutes of the National Court Bankruptcy Trial Work Conference,and advocated the prudent application of the substantive consolidation bankruptcy of the affiliated enterprises,but the relevant rules still need to be further improved.This paper mainly starts with the applicable principles and conditions of the substantive consolidation bankruptcy of the affiliated enterprises,and analyzes the substantive consolidation liquidation of the affiliated enterprises and the substantive consolidation reorganization of the affiliated enterprises.On this basis,this paper proposes a useful system design for improving the substantive consolidation bankruptcy of the affiliated enterprises.This article is divided into four parts:The first part is the principle of the substantive consolidation bankruptcy of the affiliated enterprises and the conditions for acceptance.The principles mainly include: the principle of fair settlement,the principle of saving the enterprises in danger and difficulties,the principle of prudent application,the principle of economy and efficiency and the principle of legal intervention.The substantive consolidation bankruptcy of affiliated enterprises is applicable only when the affiliated enterprises have substantial relationship,together with ubiquitous existence of confusion in the aspects of property,personnel,business management,creditors' rights and debts,etc.,which causes a high degree of legal personality confusion.Where there are alternative systems to resolve the issue and the affiliates are state-controlled,the affiliated enterprises shall not apply substantive consolidation bankruptcy.The second part is the effectiveness of the substantive consolidation bankruptcy of affiliatedenterprises.The creditor's rights and debts between the members of each affiliated enterprise will extinguish,and the property of each member will become unified bankruptcy property after the merger,and the creditors of each member will be fairly compensated in the same procedure in accordance with the statutory order.The classified disposal of foreign investment of affiliated enterprises will be filed for bankruptcy liquidation for holding enterprises that have no business value or salvage value;and the holding and shareholding enterprises with salvage value will be reorganized.The affiliated enterprises management that adopts the substantive consolidation method for reorganization should take “the debtor's own business as the main”.prepackaged bankruptcy of affiliated companies can take the “1+N” mode,i.e.,the parent company prepackaged bankruptcy plan and the N subsidiary prepackaged bankruptcy plan.In order to ensure the success of the reorganization of affiliated companies,it is necessary to strengthen the active intervention of public rights to private rights.The third part is the procedure design of the substantive consolidation bankruptcy of the affiliated enterprises.The trial of a bankruptcy case of an affiliated enterprise shall apply different jurisdictional principles according to the different degrees and patterns of the affiliated relationship.In the case of the substantive consolidation bankruptcy of the affiliated enterprises,the burden of proof should be designed separately.The application by the bankruptcy administrator to initiate the bankruptcy proceedings is more conducive to ensuring the fair compensation to the creditors of the affiliated enterprises.To respond to the demand for the substantive consolidation bankruptcy of the affiliated enterprises of China's practice of bankruptcy law,China should formulate legal regulation on the merger and bankruptcy of related enterprises as soon as possible.