On the return of creditor’s right of limited liability companies

Abstract

The contingent governance theory based on state-contingent ownership has exerted an important impact on economic academia, and its application in the field of company law is also of significant value. The lack of internal restraint mechanism and public supervision of limited liability companies makes it feasible to implement contingent governance. Under the mechanism of contingent governance, creditors of a limited liability company may intervene in its governance. The right of intervention is mainly reflected in three aspects, i.e., (1) mandatory debt-for-equity swap, (2) obligation of the actual controller to creditors when the limited liability company is on the edge of insolvency, and (3) creditor’s right of objection with respect to the decision of corporate substantial business.

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