The UK capital maintenance rules for the protection of the creditorsWord文档格式.docx

The UK capital maintenance rules for the protection of the creditorsWord文档格式.docx

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Thedefinitionofthecapitalmaintenanceshouldbedividedintotwoparts.IntheOxforddictionary,theword‘maintain’isdefinedasthemeaningofkeepinguporholdingtheissue.Andfurthermore,theword“capital”meansthenetassetsofthecompany.Accordingtothisdefinition,thecapitalmaintenancerequiresthattheshareholdersofthecompanyshouldkeepthevalueofthenetassetswithintheundertaking.ThisprinciplecanbetracedtothecaseofFlitcroft,thejudgeofthecasehadclearlypointedoutthatthecreditorneedstheprotectionfortheextrariskfromthemechanismoflimitedliabilityofshareholders.

A.Theconceptofassetdiversion

Whenshareholderscaninterveneinoperationofthecompany,theyobtainthechancetoshiftthepotentialriskoftheprojectfromthemselvestothecreditors.Thereasonwhyassetdiversionalwayshappenedisthatshareholdersofthecompanywithdeptareincentivetoreducetheriskoftheircapitalthoughvariousmethods.Forinstance,salariesanddividendalwayswereregardedasatoolbyshareholdersofthecompanytobeusedfortheassetdiversion.

Allthemethodswhichwasusedtocontributetoassetdiversionwouldhelpthemtoreducetheequitycushion;

however,itisbasedonthedependenceofcreditorswhiletheyprovidecapitaltothetargetcompany.

Thentheshareholdersofthecompanyattempttoclaimdilutionbyissuinganotherdebtwiththeestablishmentofthesameorhigherpriority;

therefore,therightoftheoriginalcreditorwasweakenedbythenewdebtifthecompanyfacetothesituationofinsolvency.Accordingtoit,theactionwouldimprovetheleveloftheleverageanditcreatesprofitsatthecostofinterestofthecreditors.Finally,shareholdersmightobtainthepresentvalueoftheabandoningprojectwhichcomesfromthecreditors.

Inconclusion,theconceptofassetdiversionexplainshowshareholderstransferwealthfromdamagingtheprofitsofthecreditorsthroughthedifferentways.Thisleadtodemandprotectionforthecreditorstodecreasethefactorsmitigatingopportunisticbehavioroftheshareholders.

B.Thefunctionoflegalmechanismforprotectingcreditors

Withthedevelopmentoftheconceptofassetdiversion,itisobviousthattheinterestsfromthedifferentpartiesinonecompanywouldleadtotheconflicts,especiallyfortheinterestrelationshipbetweentheshareholdersandthecreditors.Itcouldbetheprimaryproblemintheoperationofthecompany,whileotherconflictsarealsoexistinginthemarket.Accordingtothis,theregulationsforthemarketmainlyaimedatthesolvingtheproblemsbetweenthecreditorsandtheshareholderstoprotecttheinterestofbothparties.Consequently,theprotectionforthecreditorshasbeentakenasasignificantissueintheregulations.Inotherwords,therulescomparativelysupporttherightofcreditorswhentheconflictswerecausedbythepartiesofshareholdersandcreditors.

Theshareholdersofthecompanycanparticipateinmanagement,whichwouldbeassumedasthedirectors.Itmeansthattheinvestorsareresponsibleforthemselvestoprofitfromtheoperationofthecapitalwhichpartlycamefromthecreditors.Indetail,theycouldintervenetheinvestmentplan;

however,itmightbethenegativeaspectsforthecreditors.Forinstance,theriskyprogramcouldcausetheshiftingofriskfrominvestorstocreditorsandtheprojectmightbegaveupwhenitonlybenefitstothecreditors.Inaddition,theyalsomightbeincrisisofhigherpriorityofdebtissuedbythemanagersofthecompany.Asaconsequence,sincethosecreditorswhodonothavetherighttoengagethemanagementofthecompany,provisionsshouldprovideansafetyenvironmentforthecreditorsinthemarket.

Thestrengthofthecreditorsprotectionwillinfluencethelevelofriskbornetheytake.Theprovisionsaretryingtoprovideaminimumfinancialconditiontomeettheneedofthepartiesinthemarket.Inotherwords,thecreditorsareaffectedbythefinancialcondition.Oncethelevelofminimumfinancialconditionshasbeendecreased,thecreditorsmightrenewedlyevaluatetheriskoftheloan.However,theycannotincreasethevalueofthespecificloaninthetransactionsothattheirrightshouldbeguaranteedbytheregulations.

C.Thepurposeofstudyingthecreditorprotection

TheregulationsongoverningcapitalmarkethavebeendiscussedbothinEuropeandUKinordertoregulatetheconflictsbetweenbothpartiesincludingshareholdersandcreditors.TheartofthiscontentintheUKregulationappealstovarietiesconstrainingthebehavioroftheshareholderssothattheefficiencyoflegalcapitalprovisionsshouldbeaquestionableissue.

Inthisarticle,thewholetextwouldbedividedintofourparts.Firstly,thebackgroundandbasicinformationwillbeshownatthebeginning.Secondly,thetwolegalsystemconcerningcreditorprotectioninthecapitalmarketinbothUKandEuropewouldbediscussed.Thirdly,comparedwithtwolegalmechanismsonthisissueandtrytoanalyzetheeffectivenessoftheUKlegalprotectionforthecreditors.Andinthefinalpart,theevaluationandsuggestionwouldbeprovidedinthearticle.

2.TheUKcapitalmarketprotectionforcreditors

A.Thelegalprotectionforthecreditors

Asprevioussaid,theCompanyLawoftheUKattemptedtoprotecttherightofcreditorsfromtheinfringementofshareholdersofthecompanies.Forthisreason,theclaimsofthecreditorsareembeddedintheprovisions.Thecorecontentoflegalmechanismconcerningprotectionforcreditorsincapitalmarketisthattheconceptofequitycushionwascreatedtorefraincreditorsfromtheinsolvencyofthecompanyandatthesametime,itpreventrestvalueofthecompanywhichshouldnotbelongtotheshareholdersflowtothem.

However,therearenonecessaryconflictsbetweentheshareholdersandthecreditors.Whenacompanyisinthedilemmaofinsolvency,profitsofthecreditorscouldnotseparatefromtheprofitsoftheshareholders.Ingeneralcircumstances,thepointisadvancedtotheshareholders,whichisalmostequaltothepositivepointtothecreditors.Nevertheless,whenthecompanybecomeabankrupt,theinterestofcreditorsshouldbetakenintotheconsiderationofdirectorsintheboard.

Forthepotentialdangeroftheclaimdilutionhappenedduringtheinsolvency,itencouragethecreditorstousethenegativepledgeclausethattheyhavemadeinthecontracttoguaranteetheirrightduringtheinsolvencyofacompany.Theauthorityrecentlyregardstheissueofpriorityduringinsolvencyasaseriousproblem.Additionally,somedetailandsuggestionconcerningonthisissuehavebeenraised,butinpractice,therewaslessinterestingofthisarea.

InUKcapitalregulations,thelawgivestheprotectionfortheintegrityofthesystemoflimitedliabilityofshareholderswithoutnumerousexemptions.Insomepointsofviews,theshareholderstakelimitedliabilitysothatpartialriskoftheinvestmentwouldbeconvertedintotheburdenofcreditors.Inaddition,thereisararecasewhichcouldberegardedasanexceptionunderthecontroloftheUKlegalmechanism.

B.Therecentreformintheprotectionofthecreditors

Table1:

Source:

MSiemsandSDeakin'

Comparativelawandfinance:

Past,present,andfutureresearch'

166JournalofInstitutionalandTheoreticalEconomicsJITE1120-140

UKisalwaysconsideredasprovidingmaximalprotectiontothecreditorsamongtheothercountries（asitshowsinTable1）.SincetheCompaniesAct1985hadbeentakenintopractice,theauthorityfoundsomeimproprietiesintheimplementationoftheAct.Indetails,theprovisionsweregenerallyconsideredasundulycomplex.AndwhethertheCompaniesAct1985wassuitabletothecurrenteconomyofthecountrywasissuedbythepublic.

Acommonideasuggestedthatthesharecapitalregulationsshouldprovidethecorporatecreditorsfromrelativelymightyshareholderswhoonlyhavelimitedliabilityduringtheoperationofthecompany.Thisopinionwasservedasanexplanationforlarge-scalecompaniesaswellasprovisionsofinsolvency.Undertheenvironmentofnationaleconomy,theeconomicanalysisprovidesthatdifferentquestions,likethemethodtoprotectcreditorsorthecertaintypecreditorswhoareneededthelegalprotection,shouldbesolvedinthelegalmechanism.SuchdebtshadbeenincreasinglyraisedamongtheUKcompanylaw;

furthermore,theacademicdiscussionbecomesenthusiasticinthisarea.Afterthat,thedocumentcalledStrategicFrameworkwhichisconductedbytheCompanyLawReviewSteeringGrouppointedoutthattheproblemofeffectivenessandcompetitivenesswouldshowinthereformoftheUKCompanyLaw.

Underthisidea,thenthenewCompaniesAct2006replacedtheCompaniesAct1985.Thereisnotonlytwodocumentsruledthecapitalmarket.AftertheCompaniesAct1985hadbeenpublicized,thereareaseriesofdocumentwasannouncedtothepublic.Forexample,thereisanumberofWhitePaperandreporttoregulatecapitalmaintenance.

TheconceptofcreditorprotectionwasintroducedbytheSecondDirective;

however,itdoesnotworksuccessfullyforprotectingtheinterestofacreditorinpractice.Tosomedegree,thefunctionofthisSecondDirectivee