The Protection Of The Interests Of Creditors Under The Capital System

Under the capital registration system,shareholders could get away from the obligation to pay the registered capital in practice.Thus shareholders are able to establish their companies at a lower cost and at limited liabilities as the risk of a shareholder is controlled within the actual amount of capital payment.However,it is possible for creditors to face the dilemma of insolvency under the current capital subscription system where there is no legal guarantees on the company's actual assets.The result is that the responsibility and risk are virtually transferred to company's creditors.And as the relevant creditor protection mechanism under the existing subscription system is not yet set up.The creditors do not have any access to claim their debt if the shareholders of the company fail to fulfill or not fully fulfill the obligation of their capital subscriptions.This shows the lack of legitimacy from either the fairness of the law or the principle of consistency of rights and obligations.The creditors' interests should be equally protected by the law as shareholders' rights are.This paper examines the protection of the creditor's interests under the capital subscription system in three parts.Firstly,an overview of the capital subscription system is presented including the theory of the three capital systems,the historical origin of China's capital system and the concept and characteristics of the system.Based on the analysis of capital subscription system,we admit the reasonability and progress made by this system but also make it clear that there is a lack of protection in the interest of the creditor under this system.Secondly,the problems of the protection of the creditor's interests under the capital subscription system are analyzed in detail.On the one hand,the significant of the protection of creditors is noted and reflected in improving the company's governance and system,enhancing capital operating efficiency and capital operation security,strengthening the competitiveness of the company and cultivate healthy market development.On the other hand the lack of creditor protection system is a reality.The possible infringements of creditors' interests could be illustrated in the following aspects.The failure of company's capital to function as collateral,the lack of system protection on the interests of the claimant,the cost increase for creditors to investigate the credibility of the company,the insecurity of the creditors' property as the actual capital payment period is uncertain or too long,as well as the risk of the withdrawal of capital subscription by shareholders.All these potential risks above demand the urgent settlement of the protection of the creditor's.Finally,the paper puts forward the corresponding solutions to the problems of creditor's protection suggested in the second part of this paper.The solutions involves the establishment of the transparency mechanism of corporate capital information,the reasonable expansion of the system of corporate personality denial system,the establishment of the minimum distribution system of earnings,the accelerated maturity of shareholders' liability for capital contribution,and the establishment of a transparent system of capital information disclosure.Meanwhile criminal penalties should be adopted against the misuse of company's limited liability to pay the subscribed capital which infringes creditors' interests and result in severe negative social impact.