Theoretical discussion and standard reconstruction of substantive consolidation in bankruptcy reorganization

Abstract

To achieve Pareto optimality and substantive fairness, the practice of substantive consolidation in bankruptcy reorganization in China is needed. However, after analyzing the legal documents and judicial cases in the past three years, it can be seen that there are problems in the application, such as cognitive dislocation and theoretical conflicts. Moreover, there are deficiencies in the standard for judging whether the proceeding is applicable or not, such as vague meaning and unclear relationship, and there is a relative lack of systematic thinking. Therefore, on the one hand, a clear conceptual distinction should be made between the substantive consolidation from the perspective of bankruptcy law and the corporate merger in the field of company law. Besides, the contradictions between substantive consolidation and the traditional theoretical principles like bankruptcy petition doctrine, creditor’s reliance interests, and corporate personality independence should be resolved through methods which contain interest measurement and perspective shifting. On the other hand, it is necessary to construct a standard system with objective mode and subjective mode for determining whether the proceeding should be applied, so as to respond to different judicial needs. Furthermore, the objective mode should be detailed and strict, and it can be refined into three parts: formal requirement, necessity requirement and feasibility requirement. The subjective mode is based on the unanimous and real volition of the relevant stakeholders, which fully respects the freedom of the parties to dispose of their rights.