Research On The Legal Problems Of The Substantive Consolidation Of The Affiliated Companies Under The Background Of Enterprise Bankruptcy Reorganization

In 2018,the Supreme People's Court issued the Minutes of the National Bankruptcy Trial Work Conference(hereinafter Minutes),and the sixth part of the Minutes contains a total of eight provisions concerning the substantive consolidation of affiliated companies.During the booming period of China's enterprises,the number of affiliated companies,especially large-scale and group-owned affiliated companies,has been increasing.However,during the development of such enterprises,for the purpose of improper transfer of interests,it has led to the confusion of corporate personality among corporate members.The inability to truly and accurately identify the assets and liabilities of various affiliated companies in the bankruptcy process ultimately resulted in the inability to guarantee the rights and interests of various creditors.In order to maximize the creditor's fair settlement interest in the bankruptcy process,and to play the role of the bankruptcy law,it has borrowed from foreign affiliated companies' substantive consolidation.However,since the substantive consolidation of affiliated companies challenges the independent status of the corporate personality in Corporate Law,this rule is quite controversial in both theory and practice.Therefore,in 2018,the Supreme People's Court did not show the rules through judicial interpretation but through the meeting minutes.At this stage,the affiliated company's substantive consolidation rules have changed from “not accepting” at the beginning to “prudently applying” later,which also shows that in the development process of China's bankruptcy field,the rules need to be applied to guarantee the interests of bankruptcy creditors.Moreover,the rule is still in its infancy,and a systematic and complete rule system has not been established.Therefore,it is necessary to study the rule in depth.This thesis focuses on the definition,applicable standards,typical problems in practice,and corresponding suggestions of the substantive consolidation of affiliated companies.The first part mainly defines the meaning of affiliated enterprises and the substantive consolidation of affiliated enterprises,analyzes the source of the system behind them and proposes the significance of the rules of substantive consolidation.The second part mainly discusses the three major standards applicable to the substantive consolidation of affiliated companies.Firstly,there is a high degree of legal personality confusion among members of various affiliated companies,and the loss of property independence is discussed from the perspective of qualitative analysis and quantitative analysis of highly confused personalities.The loss of independence of will should mainly consider the confusion of personnel,the organization and the management.Secondly,the cost of distinguishing the assets and liabilities of members of various affiliated companies is too high.It is judged by considering the factors that are difficult to restore and the cost of distinguishing the affiliation of affiliated companies is too high.Thirdly,it seriously damages the creditor's fair settlement interests.It is presumed that the creditor's interests are seriously harmed if it meets the standards of the former two,and the interests are measured before and after the substantive consolidation is applied.The third part analyzes five obvious practical problems in China at this stage.The fourth part puts forward reasonable suggestions for the lack of substantive consolidation conditions of the affiliated companies in the second part and the five practical problems in the third part.Firstly,the conditions for the rules of affiliated companies cannot cover the general issues of practice.For instance,affiliated companies have "subjective malicious intentions" to hide assets or liabilities to other companies,causing serious damage to the interests of creditors,etc.Therefore,the “fraud factor” needs to be incorporated into the regulations as another independent condition.Secondly,for the legislative and judicial issues applying the substantive merger rules,China does not have a higher-level legal or judicial interpretation as an authoritative regulation at this stage.And the stakeholder's trust in the rule is reduced,and judicial discretion is also challenged.Furthermore,this rule needs to be incorporated into the judicial interpretation of the bankruptcy law.Thirdly,the jurisdiction of the rule.In the minutes,the jurisdictional conflict resolution method will increase the burden on the Supreme and High Courts.Therefore,it is necessary to establish a special bankruptcy court and a special bankruptcy circuit court,in order to solve the problems of other courts' lack of experience in bankruptcy trials,jurisdictional conflicts,difficult government coordination,and higher trial costs.Fourthly,the related issues of the investor group setting.Related to the adoption of the reorganization plan,it is necessary to establish the legal basis for the establishment of the investor group and adopt two methods of combining the establishment of the investor group and the separate establishment of the investor group,and analyze the specific issues.Fifthly,the existence of the "consolidation" of enterprises in the Minute.The principle of merging affiliated enterprises into one enterprise after reorganization is stipulated,with the exception of individual enterprise separation.However,the "consolidation" in the Minute is to treat the assets and liabilities of corporate members as a whole in the process of bankruptcy.After the reorganization process is completed,enterprises with mixed legal personality will be restored as independent legal persons.Therefore,it is recommended to correct the understanding of the consolidation in the minutes and to give the company's relevant stakeholders free choice.Sixthly,the lack of substantive consolidation supervision mechanisms.Lack of external oversight bodies to counteract internal oversight during and after the actual merger and reorganization.There is still no post-mortem supervision after the end of the substantial consolidation and reorganization.For instance,whether the independent status of the members of the affiliated company is restored after the fact,and whether potential problems are exposed after the implementation of the reorganization plan,etc.,need to be monitored by the after-the-fact supervision mechanism.Therefore,the establishment of an external monitoring agency,the post-event accountability system and the information disclosure system constitute a comprehensive monitoring mechanism during and after the event and safeguard the interests of all parties.