The Application Of Substantive Consolidation Principle In Chinese Bankruptcy Law

In China, with the increasing number of associated enterprises, the relevant legal issues have also been emerged. One the most obvious problems is the bankruptcy issue of improper associated enterprises. Due to the common interest of associated enterprises, they may conduct false transaction or other unfair behavior for the maximization of their group benefit. If we still consider those associated enterprises as independent legal persons during bankruptcy procedures, it may cause unfair treatment of the creditors of those enterprises.Substantive consolidation is a procedure derived from American bankruptcy law, in which the assets of individual members of a corporate group are pooled so that claims of third-party creditors may be satisfied during bankruptcy proceeding. At this stage there is no provision concerning substantive consolidation in legal regulations in China.However, in our judicial practice, many courts have already applied this principle in certain special bankruptcy cases. Therefore, it is very necessary to fix this substantive consolidation principle in Chinese bankruptcy law.In addition to the introduction and conclusion, this paper is divided into three chapters:In the first chapter, I give a simple introduction of substantial consolidation principle, including the practices in American and Chinese bankruptcy cases.In the second chapter, I demonstrate the rationality and justification of substantial consolidation principle, by pointing out that it is blank in China’s current laws when dealing with associated entities bankruptcy cases.The third chapter, I design specific procedures and give my own advice for adopting substantial consolidation principle in our bankruptcy legal system.