Construction Of Substantive Consolidation System In The Affiliated Enterprise Bankruptcy

To improve the capability of resisting risk and economic efficiency, lower the costs and continue to move toward the joint formation of associated enterprises, it is increasingly common that in the market competition of firms the abuse of affiliated enterprise behaviors will harm the interests of the creditor of subordinate enterprises.Related law systems, which can govern affiliated enterprises, have not yet been formed in China. Only some concepts concerning the definitions exist. Therefore, the affiliated enterprises engaged in bankruptcy violations are mainly curbed by bankruptcy revocation rights system and the invalid behavior provisions system in the bankruptcy law, denying the legal personality in company law. However, this system neglects the much more complexity existing in affiliated enterprise due to the hidden of intern relations.So it is an urgent task to establish legislation of bankruptcy of affiliated enterprises to completely complement current bankruptcy system in China.Investigating all related protection provisions for the external creditor in bankruptcy of affiliated enterprises in the world, there are two popular modes, including German model and the American model. The former one focuses on early prevention while the latter is mainly about remedies and balanced interests. Due to the limited space of the thesis,we only discuss about substantive consolidation principles which protect the interests of external creditors.The thesis can be divided into three parts: introduction, body, and conclusion.The introduction part includes background, motivation and creativity of this paper. The main body is also comprised of three parts:Firstly, in this thesis, some typical infringements to external creditors by affiliated enterprises are listed in China based on specific affiliated enterprises bankruptcy,emphasizing the urgency of protecting the interests of external creditors.Furthermore, the existing legal systems in China for the relief of external creditors’ rights in the bankruptcy of affiliated enterprises are analyzed. These systems make little contributions because of the single enterprise. Thus, it is necessary to introduce substantive consolidation principles which are considered to be obvious advantages of the used one for external creditor protection. Then, some applicable cases are introduced from development of substantive consolidation principles in United States and liquidation modes of affiliate enterprises in ChinaFinally, by comparing the above analysis, it indicates that substantive consolidation is just a principle in the law system of United States. So there is a need to build clear operating standards when introducing the principle to China. Some theoretical and practical suggestions are proposed for building an affiliated enterprises bankruptcy system from the aspects of entity and procedure.