Sino-US Comparative Study On Legal Issues Of Bankruptcy Of Affiliated Enterprises

In spite of their consistence with developing demands of modern enterprises,booming affiliated enterprises are challenging traditional corporation legal system.Bankruptcy of affiliated enterprises is even more challenging to existing bankruptcylegal system. In China, revocation, invalidation and disregard of corporate personalityare applied to bankruptcy cases of affiliated enterprises, but the incompetency hasresulted in some controversy in judicial practice. Meanwhile, some special principlessuch as equitable subordination and substantive consolidation have evolved fromAmerican judicial practice. In spite of controversy and continuing development, theprinciples focus on issues arising out of bankruptcy cases of affiliated enterprises.Therefore, considering the challenge faced by Chinese bankruptcy legal system andrecent development of American principles and practice, this paper is to find a way toimprove current bankruptcy legal system of China through comparative researchbetween Chinese and American legislation and judicial practice.Chapter One introduces the definition and features of affiliated enterprises,special issues arising from bankruptcy of affiliated enterprises such as issuess ofrepayment of debts between affiliated enterprises and repayment to other companies,and the research method of the paper. Chapter Two compares Chinese and American legislation and judicial practice onthe issue of repayment of debts between affiliated enterprises. In China, revocationand invalidation are mainly applied to solve the problem. The practice of courts variedvastly, for example, courts in bankruptcy cases of Huizhou Nanhuan Company andGuangzhou Dazhong Real Estate Development Company had different opinions. U.S.developed equitable subordination principle in practice. Although the principle is stillunder development and its definition has become broader recently, it is useful to solvethe problem of repayment of debts between affiliated enterprises.Chapter Three compares Chinese and American legislation and judicial practiceon the issue of repayment of debts to other companies. Disregard of corporatepersonality is mainly applied in China. In bankruptcy cases of Shanghai MeihaoCompany, Shenzhen South Securities and Shenyang Yilishen Tixi Group, courtsconsolidated the affiliated companies in bankruptcy, while Guangdong Higher Courtdid not recognize such method and insisted on independent liquidation. U.S. hasgenerated substantial consolidation principle in practice, but many scholars andjudges still challenge the validity of the principle.Based on the above comparative analysis, Chapter Four brings forward the ideasof improving Chinese bankruptcy legal system of affiliated enterprises, includingimproving existing laws such as revocation and disregard of corporate personality,and establishing principles of equitable subordination and substantive consolidation.Besides, some other mechanism such as information disclosure system and liabilitysystem shall be established.