On Creditor Protection In Corporation Captial Reduction System

A company is a business entity,aiming at making profit and gaining maximum benefits in business activities.A company could increase shareholders' interests by increasing or decreasing capitals,however,capital reduction would harm creditors' interests.How to protect creditors' interest is the focus of this paper.The first part of this paper introduces a recent capital reduction dispute case to make a point that capital reduction is quite controversial in legal practices,especially after capital subscription system reform.Then this part goes to different capital reduction systems and their effects on creditors.The second part of this paper analyzing cases of recent years,and puts forth the confusion confronting judicial judgment.There remains still vague legal standards concerning the legal validity of the capital reduction decision if the reduced capital has certain defects,the legal validity of capital flight,and to what extent should illegal capital contributors take legal liabilities,all of which may lead to inconsistent judicial judgment and inadequate protection of creditors.The third part of this paper assesses three capital reduction systems.German system stresses on equity and strict protection of information disclosure.US system accentuates efficiency and a company's ability to pay debts.While UK's system emphasis on equity and efficiency,supplemented by legal intervention.This paper suggests that the most desirable capital reduction system for China is the German one.However,the existing laws are too simple and hard to implement requires improvement.From the perspective of how to protect creditors,the paper put forward the suggestions of improving China's capital reduction,including differentiating the nature of capital reduction,normalizing conditions and notification obligation of capital reduction,improving the procedures of company information disclosing and prepayment.