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1、Application of “Deep Rock” Doctrine and Its ReferenceAbstract: With the deepening of the economic globalization, corporation plays a more and more important role in the world. Corporation as a great invention owns an independent personality, which brings us booming economy. But once abused intention
2、ally, it will degenerate into an instrument to defraud the creditors or the public. In order to decrease its negative effects and sustain the booming market, “Deep Rock” doctrine as well as the Disregarding of the Corporate Entity, is firstly used in the Anglo-American legal families to regulate the
3、 corporation, although China accepted the institution of disregarding of the corporate entity in the new Company Law of the Peoples Republic of China, “Deep Rock” doctrine is still neither embraced in it or in the newly enacted Law of the Peoples Republic of China on Enterprise Bankruptcy. This arti
4、cle especially presses on the comparison between the tow foresaid doctrines and aims to give the practical method to apply it in China. Key words: “Deep Rock” doctrine; Disregarding of the Corporate Entity1Introduction of “Deep Rock” doctrineCorporation is the product of the mature economy. Once bor
5、n, this great invention shows its amazing power in the development of market and soon becomes the engine of the economy. All its advantages can be attributed to its two footstonesindependent personality and limited liability, however, every coin has two sides; every business company is organized and
6、 carried on primarily for the profits of the shareholders which conflicts the public interest, and its merits also can be perverted as an instrument for approving the evils which impair the interests of the creditors and the public. In the developed countries, especially in the U.S.A., the dilemma p
7、roved itself more and more obviously. Therefore, the Disregarding of the Corporate Entity was confirmed by a series of judgment, subsequently some important principles and doctrines developed, deep rock doctrine is one of them.“Deep Rock” doctrine is a rule of bankruptcy law in the United States, wh
8、ich is developed by the U.S. Supreme Court in the case of Taylor v. Standard Gas Co., 306 U.S. 307 (1939). The rule requires that, where a subsidiary corporation declares bankruptcy and an insider or controlling shareholder of that subsidiary corporation asserts claims as a creditor against the subs
9、idiary, loans made by the insider to the subsidiary corporation may be deemed to receive the same treatment as shares of stock owned by the insider. Therefore, the insiders claims will be subordinated to the claims of all other creditors, i.e. other creditors will be paid first, and if there is noth
10、ing left after other creditors are paid then the insider gets nothing. This also applies (and indeed the doctrine was first established) where a parent company asserts such claims against its own subsidiary. The insider or controlling shareholder of the subsidiary corporation usually owns more infor
11、mation and is easier to transfer the capital than the other creditors. The application of “Deep Rock” doctrine changes the unequal condition. Since the establishment of the doctrine, it has been widely used to avoid the abuse of the equitable rights of the creditors when it is added the existence of
12、 a “planned and fraudulent scheme”, the doctrine is also called “Equitable Subordination Rule” or “Subordination Rule”. 2Application of “Deep Rock” doctrine Actually it is a breach of the traditional redress procedure in bankruptcy, and exists as an exception of the law. It can not be perverted in t
13、he judgment, otherwise the advantages of the corporate will be drained and the country will lose a booming market. To handle it, find a proper test in the judgment becomes necessary, for the absence of reasonably objective tests in this area has led to considerable confusion and some inconsistency i
14、n results. The secular world is complex; the texts for subordination under the Deep Rock doctrine differ in degree or kind from the tests applicable to Piercing the Corporate Veil. In its original U.S. Supreme Court case of Taylor v. Standard Gas Co., 306 U.S. 307 (1939), the test is whether the sub
15、sidiary was undercapitalized at the time that it was established, and can thereby be shown to have been mismanaged for the parent corporations benefit , while in the case Pepper v. Litton, it changed into whether the “planned and fraudulent scheme” exits or not. 3 Comparison between the “Deep Rock”
16、doctrine and the Disregarding of the Corporate EntityAs is said in the foregoing statementindependent personality and limited liability are two footstones of the modern company, but as the CummingBruce LJ said: “The court will use its power to pierce the corporate veil if it is necessary to achieve justice irrespective of the legal efficacy of the corporate structure under consideration.” His words can be a kind of description of the Disr
