Evolutionary Traditions and Corporate Law: The Effectiveness and Development of Liquidation Duty in China

Wei C, Zhao J and McCormack G, “Evolutionary Traditions and Corporate Law: The Effectiveness and Development of Liquidation Duty in China*” [2020] Asia Pacific Law Review 1

32 Pages Posted: 5 Apr 2020

See all articles by Chuyi Wei

Chuyi Wei

Peking University - Peking University Law School; University of Leeds, Faculty of Education, Social Sciences and Law, School of Education, Students; Nottingham Law School

Jingchen Zhao

Nottingham Law School

Gerard McCormack

University of Leeds

Date Written: March 3, 2020

Abstract

This article argues for updating and reform of the liquidation duty under Chinese corporate law. It adopts an evolutionary perspective on corporate law in the sense of asking whether the corporate laws co-evolve with, and adapt to the changing conditions of a country, rather than whether laws are converging towards a certain ‘developed’ model. In some jurisdictions, directors have a creditor-regarding duty when the company is insolvent or near insolvency and this duty is intended to constrain ‘moral hazard’ issues on the part of corporate insiders. In China, such moral hazard issues are mitigated by the liquidation duty. This article argues that while the liquidation duty is relatively effective, it has created unfairness and undermined the value of formal insolvency law. Drawing on the experience of other jurisdictions especially the United Kingdom in relation to wrongful trading law, this article suggests that a wrongful trading remedy and further restructuring measures might be introduced in China.

Keywords: Liquidation duty, wrongful trading, directors’ duties, private enforcement, corporate law, insolvency law

JEL Classification: K2

Suggested Citation

Wei, Chuyi and Zhao, Jingchen and McCormack, Gerard, Evolutionary Traditions and Corporate Law: The Effectiveness and Development of Liquidation Duty in China (March 3, 2020). Wei C, Zhao J and McCormack G, “Evolutionary Traditions and Corporate Law: The Effectiveness and Development of Liquidation Duty in China*” [2020] Asia Pacific Law Review 1, Available at SSRN: https://ssrn.com/abstract=3549387

Chuyi Wei (Contact Author)

Peking University - Peking University Law School ( email )

5 Yiheyuan Road
Haidian District
Beijing, Beijing 100871
China

University of Leeds, Faculty of Education, Social Sciences and Law, School of Education, Students ( email )

United Kingdom

Nottingham Law School ( email )

United Kingdom

Jingchen Zhao

Nottingham Law School ( email )

Belgrave Centre
Chauser Street
Nottingham, NG1 5LP
United Kingdom

Gerard McCormack

University of Leeds ( email )

Leeds, LS2 9JT
United Kingdom

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