The Application Of The Substantive Consolidation Rule In The Bankruptcy Of Affiliated Enterprises

There are no clear regulations on the bankruptcy and substantive consolidation of affiliated enterprises in the Company Law and the Enterprise Bankruptcy Law in our country,while the rule of substantive consolidation,as a special method of dealing with the bankruptcy of affiliated enterprises,has the advantages of improving judicial efficiency,protecting the legitimate rights and interests of creditors and maintaining justice.In judicial practice,it is not uncommon for the rule of substantive consolidation to be applied to the bankruptcy of affiliated enterprises.According to the National Enterprise Bankruptcy Information Disclosure Platform,the rule of substantive consolidation was applied in 102 bankruptcy cases which involve affiliated enterprises from 2016 to 2019.The existing typical successful cases have objectively produces better social effects,but this does not mean that the rule of substantive consolidation can be universally applied in the bankruptcy of affiliated enterprises.In view of the fact that the rule of substantive consolidation violates the independent personality system of company law,may impair the liquidation interests of some creditors and excessively pursue efficiency is not conducive to the realization of fair value,the application of this rule must follow the principle of prudence,strictly restrict the applicable standards,clarify the applicable procedures,and effectively prevent the abuse of this rule.The standards of the substantive consolidation rule in the bankruptcy cases of affiliated enterprises,which are the high degree of confusion of legal personality,the high cost of distinguishing the property of each affiliated enterprise member,and the serious damage to the fair liquidation interests of creditors,must be met at the same time,which are indispensable,and judicial personnel should be examined and prudently determined when judging whether the rule of substantive consolidation is applicable.First of all,the condition of high degree of confusion of legal personality is usually carried out from two aspects which are serious loss of independence of legal person’s will and property.In addition,taking the value of efficiency into consideration,the exorbitant cost of distinguishing the property of each affiliated enterprise member is because of the confusion of management,the real situation of assets and liabilities is often difficult to determine,and the process of property’s clarification,which has been delayed for too long,is liable to delay the opportunity for restructuring.Last but not least,the serious damage to the fair liquidation interests of creditors must be proved to be caused by the high confusion of legal personality.When the rule of substantive consolidation is applied in the bankruptcy cases of affiliated enterprises,judicial personnel should adhere to the principle of prudence,examine whether each applicable standard is met strictly,and in this process,it can assist the determination by combining the professional opinions of service institutions such as accounting firms.In addition,it is necessary to fully respect the stakeholders’ right to know and the right of dissent relief,stakeholders shall have the right to understand the situation of specific bankruptcy cases,provide evidence and express their opinions.For the bankruptcy cases of affiliated enterprises which do not strictly conform to the three applicable standards of substantive consolidation,the court can improve the efficiency of bankruptcy through the mode of formal consolidation on the premise of respecting the independence of legal personality of affiliated enterprises and ensuring that all creditors receive fair compensation.