The Research On The Application Of The Doctrine Of Substantive Consolidation In Connected Enterprises’ Bankruptcy

The doctrine of substantive consolidation means the special rule whereby thecourt consolidates the assets and liabilities of all or part of the connected enterprisesinto one entity in order to set off the rights and duties among such connectedenterprises and to distribute such assets pool subject to the liquidation as a wholewhile the court is dealing with a bankruptcy case of connected enterprises. Thedoctrine of substantive consolidation was sourced from Anglo-American law systemand is now pervasively studied and practiced in such continent law system countriesas Germany and Japan due to its significant influence on bankruptcy cases. Thisdoctrine intends to consolidate all concerned assets of the creditor into one legal entityand make correction to the enrichment and fraud conduct impairing the separatepersonality of the connected enterprises, thus providing justice and improving judicialefficiency by distributing assets pool to the outside creditors as a whole. The doctrineof substantive consolidation plays a more and more important role in connectedenterprises bankruptcy cases. However, it has not been established by our country yet.Also, there is not much research on this doctrine in our country, and the attitudes aswell as the application in our country are highly unified. In this regard, research onthe application of such doctrine in connected enterprises bankruptcy is of significantvalue both in theory and in practice.The introduction of this paper gives a brief outline of the basic theme thereof,illustrates the goal, research overview, method and the innovation, and thenemphasizes the significance and values of the substantive consolidation doctrine.Apart from the introduction and conclusion, the main body of the paper is followed byfour parts, namely, the basic theory of the doctrine, principles, legal requirements andprocedure of the application of the doctrine:Part I mainly discusses the basic theory of the doctrine. Starting with a brief ofthe doctrine, this part analyses the arguments of the doctrine of substantiveconsolidation and related doctrines, and emphasizes the significance of itsapplications in our country.Part II involves the principles of application. In China, principle of fairness,efficiency and great caution should be followed when the doctrine is applied. This part lays stress on justice and fairness as the starting point and destination, andcomplies with the great caution principle when applied.Part III analyses in detail the application requirements of the doctrine ofsubstantive consolidation, which is critical to this paper. Firstly, this part discusses thescope of objects, namely connected enterprises, analyzing its formal characteristicsand conduct attribute. Secondly, this paper illustrates the application requirementsfrom the perspective of conducts, forms, result and causal relationship. Thirdly, itpoint out the application result, in which the counts eliminate the claims of innercreditors and make an overall distribution.Part IV discusses the procedures for applying the doctrine of substantiveconsolidation in a logical sequence. Specifically speaking, the procedure may betriggered upon demand of creditors or be launched by the court proactively within itsscope of powers. In terms of the jurisdiction system, this part puts weight on theterritorial jurisdiction by pointing out the practicality of the connected enterprisesbankruptcy cases. As for the period of adjudication, this part discusses the notificationobligation of court and creditors’ procedure remedies. In the governance aspect, thispart argues that both a united insolvency administrator and committee representationshall be established. All in all, the core point of this part is the protection ofprocedural rights.Part V is the conclusion of this paper, which summarizes the main points of thispaper and presents the hope to further improve the research of the doctrine’sapplication in China.