| Shareholders’ status-accessory claims (SSACs) are derivatives of equity, including claims arising from the inherent content of equity and claims dependent on equity under equity-debt hybrid financing agreements. Because of their intrinsic identity with equity, SSACs should be subordinated to general claims. Certain claims, although are not derivatives of equity, may also be subordinated since the holders’ status is similar to that of shareholders. The subordination of SSACs can prevent the redistribution of a company’s business risks and the bootstrap of shareholders’ rights, providing a more self-consistent explanation for corporate distribution issues caused by the hybrid of debt and equity. Based on this subordination rule, the inner system of corporate distribution can be reconstructed. The capital maintenance principle and the solvency test only involve indirect preservation of the priority of claims by regulating improper transfers of interests between shareholders and the company, with the effect of preventing shareholders from receiving undeserved legal payments from the company and preventing unfair transactions between shareholders and the company from jeopardizing its solvency, respectively. The subordination of SSACs prevents the misallocation of risks between shareholders and creditors of a company resulting from the “conversion from equity into debt” when the debt for the distribution of owners’ equity is established by law or by contract. |
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