Creditor Protection Of Capital Reduction In The UK Company Law And Its Enlightenment To China

In 2013,China set out a series of reforms in the capital system of Company Law,removing the minimum registered capital and paid-in capital restrictions.The reformation has benefited a lot of small business owners.However,with the unrestricted capital reduction provisions,many companies made false capital increase,and then reduced their capital in a short period of time,using the false nominal capital as credit to trade in the market,which greatly damaged the interests of creditors.Capital reduction provisions in the UK company law shows an effective way in creditor protection.Before the Companies Act 2006 was enacted,the reduction of capital by companies in the UK required confirmation by the courts.This policy was aimed at safeguarding the interests of creditors.However,due to the complexity of the process,many experts and scholars have proposed an alternative way for private companies to reduce capital.As a result,the Companies Act 2006 provides private companies an efficient procedure to reduce capital supported by solvency statement,but still set provisions to avoid the damage of creditors' interests.Therefore,from the perspective of creditor protection,the author tried to analyze what the kind of logic and rules that the UK company law uses to protect the interests of creditors and to explore whether it can provide a reference for China's related system.There are two parallel capital reduction systems under Companies Act 2006.One is the reduction of capital supported by solvency statement which only applicable to private companies,and the other is the reduction of capital confirmed by the court applicable to both private and public companies.This makes the UK company capital reduction a unique system.The feature also lets the system reflect the balance of various value orientations.The system not only protects the creditors' funds,but also balances the interests of creditors and shareholders,meanwhile improves economic efficiency.The reduction of capital supported by solvency statement requires that company directors must make an honest solvency statement,making a false statement or provide it without legal procedures can lead to criminal liabilities.The reduction of capital confirmed by the court requires that the company can only reduce the capital when there is an order confirmed by a court.There are three ways in this kind of capital reduction providing protection for creditors,the creditor's right of objection,the offence of the dishonest company officer,and the liability to creditor in case of omission from list of creditors.A few problems in China's company capital reduction system make it didn't work well in creditor protection,such as no integral capital reduction system,lack of strict procedure,no harsh punishment for violations and the liability to creditor in case of omission from list of creditors.Such problems reflect on judicial practice too.Without direct statutes,the court can only use other legal provisions to adjudicate the case,which makes some of the same cases come out in different results,and the responsible subject is relatively single.Through the study of capital reduction system and creditor protection provisions in the UK company law and the situation in China's related area,the author proposed three measures,which are to strengthen the information disclosure system,to stipulate legal liability for company executives that violate regulations and reduce capital,and to add the liability to creditor in case of omission from list of creditors,tried to provide a reference for the improvement of relevant systems in China.