Research On The Protection Of The Creditors In Respect Of Corporate Charitable Giving

Corporate charitable giving,a business expenditure from which the corporation cannot possibly gain any conceivable return,is different from the general operating business of a company.The corporation that donates assets to a charity,even though that it receives no direct economic benefits in return that can reasonably be traced to identifiable reduced costs or increased revenues or profits,could gain some intangible benefit in exchange,such as public recognition of its image as a moral participator in society.However,this kind of expenditure will directly reduce a corporation's assets and therefore inappropriate charitable giving may do harm to the creditors' interests and benefits.This paper aims to figure out feasible ways to protect the creditors in corporate charitable giving.Except the introduction and the conclusion,this paper is divided into four parts,and the main contents of each part are as follows:The first part,starting from the connotation of corporate charitable giving,analyzes the conflicts related to a company's creditors arising from corporate charitable giving.The second part analyzes the inadequacy of the current legal system of China.First,the legal roles of shareholders and the directors in the decisionmaking of corporate charitable giving are not clear,and there are no specific ways for a company 's creditors to take part in the decisionmaking process even if their rights are endangered.Second,laws and regulations in China do not specify the directors' creditor-regarding duties with regard to the decisionmaking taken place in the vicinity of insolvency.Third,in the exercising of the right to revoke,it is not clear if we should give priority to public welfare.Besides,in reality,charities do not retain assets for a rainy day.They will put the incoming cash rapidly to charity work as long as they receive it.So,when they are demanded to return the donations,the donations will have already been spent.Demanding them to return the donations' equivalent out of their own pocket or their future assets will negatively affect the charity work.Fourth,the amount and purpose of corporate charitable giving must be reasonable,but laws and regulations have not set up rules to regulate the amount of corporate charitable giving.Fifth,there's no specific information disclosure system for corporate charitable giving,which is inconvenient for related parties to valuate and supervise corporate charitable giving.In response to the above problems,the third part mainly studies the foreign experiences.In respect of the decisionmaking,Eisenberg classifies four types of decisions in modern corporation.Different kinds of decisions should not be made by the same decision-makers.And in deciding the legal roles of shareholders and the directors in corporate decisionmaking,some factors should be taken into consideration,such as whether the matter to be decided requires special business skills rather than common enterprise-evaluation skills,whether the matter to be decided is of great economic importance,whether the type of matter occurs frequently in the corporation,whether the type of matter must be decided within a short period of time,etc.With regard to the directors' creditor-regarding duties,Paul L.Davies believes that as long as the company is in good financial conditions,creditors can obtain protection from the directors'shareholder-regarding duties.There's no need to give them more protection.But when the shareholders' equity has been or is anticipated to be reduced to inappreciable proportions,no matter the company is in the vicinity of insolvency or not,it is necessary to impose the directors' creditor-regarding duties.For the right to revoke,we can refer to Uniform Fraudulent Transfer Act 1984,which specifies the factors taken into consideration to determine the actual intent to hinder,delay,or defraud any creditor of the debtor.And the case Sullivan v.Hammer sets up the ' reasonableness' standard for corporate charitable giving.In the last part,this paper,based on and the foreign experiences,puts forward the following five suggestions to protect the interests of a company's creditors:First,specify the legal roles of shareholders and the directors in the decisionmaking of corporate charitable giving based on the kinds of decisions.Second,specify directors'creditor-regarding duties with regard to the decisionmaking taken place in the vicinity of insolvency.Third,in the exercising of the right to revoke,take the related parties'subject status into consideration.Fourth,laws and regulations should set up rules to regulate the amount of corporate charitable giving.Fifth,specify the form and main contents of information disclosure,such as policies and procedures for charitable contributions(both direct and indirect)made with corporate assets,monetary and non-monetary contributions made to non-profit organizations,business rationale for each of the charitable contributions,including a discussion of how the contribution advances shareholder interests,etc.