The Study On Substantive Consolidation Doctrine When The Affiliated Enterprise In Bankruptcy

Affiliate enterprise, as a new corporate organizational model, can effectively expand the economical scale, lower transaction costs, and improve the companies’ overall competitive. However, in judicial practice, due to the defect of legal norms of our country, it’s very common for the controlling company of the affiliated enterprise to transfer assets, avoid debts and damage the interests of creditors, making improper use of its special status. When affiliated enterprise comes across bankruptcy, the existing legislation has appeared to be inadequate to deal with such problems as how to sort out the assets and how to fairly protect the interests of creditors. Therefore, the author of this paper proposes to establish the principle of substantive consolidation legislatively, to guarantee the realization of the lawful rights and interests of all creditors in the affiliated enterprise. The principle of substantive consolidation is a remedy created by American courts in order to achieve fairness and equity in their practice, which is eventually set up through a series of cases. In China, there are no relevant provisions in legislation, but in practice, the principle has successfully solved several bankruptcy cases of affiliated enterprises, and it has become a trend to adopt it as a regulation. Based on the introduction of its application and development in foreign countries, and combining the current development of affiliated enterprises and relativelegislation in our country, this paper demonstrates the need of establishment of the principle. Meanwhile, it proposes corresponding legislative suggestions on the entity and procedures inevitably involved in the principle.This paper can be divided into three parts, i.e. introduction, body and conclusion.The Introduction deals with the research background and significance, methods, innovations and other basic issues, which paves the way for further discussion. There are four chapters to discuss it in main body.The first chapter mainly studies the evolution of Substantive Consolidation Doctrine during Affiliated enterprise bankruptcy and its basic theory. Firstly, the evolution process of Substantive Consolidation Doctrine will be introduced. After Substantive Consolidation Doctrine was gradually perfected through a series of cases and established in the United States, it was quickly followed by other countries and regions. Although not be directly stated in legislation, Substantive Consolidation Doctrine has been used in judicial practice. Secondly, the basic theory of Substantive Consolidation Doctrine will be introduced. With "business entity" theory as foundation, Substantive Consolidation Doctrine is no longer constrained by one enterprise form, but focus more on the independence in the actual running and management. In view of this, the essence of Substantive Consolidation Doctrine is further specified to the justice in philosophy of law, the ban of abuse law in civil law and the principle of good faith.The second chapter is to analyze the necessity to establish Substantive Consolidation Doctrine during bankruptcy of Affiliated Enterprise. First of all, reasons for opposing to establish Substantive Consolidate Doctrine in legislation of our country will be collected and reviewed. Although some reasons from opponents can not be ignored, the Substantive Consolidation should not be completely refused. The difficulty should be overcome once Substantive Consolidate Doctrine is established.Secondly, the significance to establish Substantive Consolidation Doctrine in solving the special legal problems in bankruptcy of Affiliated Enterprise will be discussed. Substantive Consolidation Doctrine could improve the bankruptcy liquidation efficiency and fairly protect the interests of all parties if facing problem as serious confusion of assets for Affiliated Enterprise and so on.The third chapter is about system construction of substantive consolidation doctrine in the affiliated enterprise bankruptcy. First, the chapter analysis the legislative style arrangements principle of substantive consolidation.The author believe that China can amend the Company Law and Bankruptcy Law to interspersed the principle of substantive consolidation provisions in it. This style of arrangement is conducive for the convergence of the principles of substantive consolidation and existing laws, and is conducive to law enforcement. Second, the chapter analysis the substantive and procedural system principle of substantive consolidation doctrine. China should learn from foreign countries,then combined with the facts of bankruptcy of ourself, to refinement further procedural requirements and substantive elements of the doctrine of substantive consolidation to improve operability of judicial practice.Third, the chapter analysis the legal consequences of application the substantive consolidation doctrine. The application of legal consequences of substantive consolidation doctrine:for one thing it direct elimination claim against the company of the internal members, the property of company was consolidated into a whole; for another thing, all of the creditors being repaid in equal after the merger of the property.Finally, the chapter analysis the specific measures to prevent abuse of zhe substantive consolidation doctrine.lt is probability that the substantive consolidation doctrine can be abused. When its abused, not only can not achieve its established purposes, and may lead to new injustices equal consequences which more serious.Therefore, when establish substantive consolidation doctrine,we should clear laws and regulations, strictly control elements for a clear way opposition, parties and other relief measures to ensure the substantive consolidation doctrine will not be abused in the same time.The fourth chapter is about the perfect of supporting system of substantive consolidation doctrine in the affiliated enterprise bankruptcy. The purpose of established substantive consolidation doctrine is to correct the interest imbalance in the Affiliated enterprise bankruptcy, and tell the affiliated enterprise can not deter futher illegal operations and management actives.However, the associated legal issues raised by Affiliated enterprises can not rely on the substantive consolidation doctrine only. Therefore, substantive consolidation doctrine in establishing,we should improve zhe relevant legal system in zhe same time,and covergence and cooperation them to cope with zhe difficult enterprise associated legal issuses. These systems include prior preventive system and nomative system after. Prior preventive system, such as the associated corporate disclosure, shareholder voting rights and some other systems, should be able to effectively regulate the business activities, preventing controlled acts of abuse of rights, reducing the application of substantive consolidation doctrine rate; Normative system after, such as piercing the corporate veil, and other systems dependent claims, can make up for the deficiency of substantive consolidation doctrine. Cooperation with the substantive consolidation doctrine, correcting imbalance interests in the affiliated enterprise bankruptcy.The last part will summarize the conclusion. Through the analysis of the evolution of Substantive Consolidation Doctrine during enterprise bankruptcy and the legislation and judicial status of overseas and our country, it is imperative to establish Substantive Consolidation Doctrine during Affiliated enterprise bankruptcy by being based on learning overseas achievement, combining reality and legal tradition of affiliated enterprise bankruptcy in our country, and taking form of making law for governing, In addition, this part will also explain the insufficiency in this paper.