Legal Issues On Creditors' Participation In Corporate Governance

There are enormous books and papers that have been published on corporate governance, however, most of them focus on the internal corporate governance structure, only few concerned the stakeholders outside the corporation. In practice, since the absence of well-developed creditor-participated system in corporate governance, as an important stakeholder, the interest of the creditor has been badly harmed, and the banks are under the greater pressure of bad debts. In this thesis, we are mainly talking about creditors'participation in corporate governance Undoubtedly, the banks are the most important class of creditors in China, its participation in corporate governance is more typical and meaningful for the practice.This thesis is divided into four chapters:Chapter one discusses the foundations for the justice of creditors'participation in corporate governance. This chapter begins with the explanation of the concept of"corporate governance", then several popular opinions are described, from which we can conclude that corporate governance should be consisted of both internal and external governance. The concept itself suggests that the stakeholders also have the right to participate in the corporate governance just as the shareholders. Then by analyzing the limitation of"Shareholder Primacy Theory", introducing the breakthrough of the"Stakeholder Theory", we can make the conclusion that some modifications should be made to the traditional system of corporate governance. Specifically, beside the shareholders, the stakeholders also have the right to be involved in the corporate governance. Furthermore, we restrict the object of the research to banks, and then the advantages and efficiency of the bank creditors'participation in corporate governance are discussed.Chapter two describes the systems of creditors'participation in corporate governance in British, USA, Germany, and Japan, emphasizing the features, origins, and the procedures. Advantages and disadvantages of each system are also mentioned. Then we can easily reach the conclusion that each system has its specific background, so when constructing the system of bank creditors'participation in corporate governance, it is essential to take the development level of market and its corresponding external situation into consideration.In Chapter Three, we analyze the bank creditors'participation in corporate governance under our own domestic background. First, the current conditions of bank creditors'participation in corporate governance are analyzed, especially the five currently available approaches, which are contact protection, main bank mechanism, debt-to-equity swap, the protection from the revised Corporate Law, and bankruptcy mechanism. Since major revisions have been made to the Corporate Law and Bankruptcy Law, we emphasize the highlights of them on protection of the creditors'interest. Second, the flaws and the causes of bank creditors'participation in corporate governance are elucidated, and then we summarize three most prominent ones which include the limited independence of the banks, lack of courage from the government, and the deep influence of the"Shareholder Primacy Theory". In a word, a good system of bank creditors'participation in corporate governance has not been established in our country.Chapter Four proposes the ways to improve the mechanism of bank creditors'participation in corporate governance. In this chapter we suggest five approaches, including: 1) Using the leverage(debt-to-assets)as the standard for determining whether the bank should participate into the corporate governance. 2) Permitting the bank representatives to enter the supervisor council. But the decision should be made through negotiation between the bank and the corporation, and it is not suitable to permit the bank enter to the board of directors. 3) Restricting the corporation by the clauses of the loan contacts, for instance, Acceleration Clause and Green Loan Policy, to affect the corporate governance indirectly. Meanwhile, careful examination to the repayment is also necessary. 4) Utilizing Corporate Reorganization Mechanism to intervene the corporate governance. 5) Strengthening the supervisory power of the banks to the trustee. We point out finally that the construction of bank creditors'participation in corporate governance also requires the reform of the bank and to enhance the awareness to participate. In addition, a capital market which is increasing mature is a necessary environment for the development of bank creditors'participation in corporate governance.