Legal Trends in the Private Equity Industry (April 2023 / Issue No. 62)

2023-05-09 11:54:54 · Yang Chunbao Sun Zhen Li Jiaxin

The legal service dynamics of Yang Chunbao's lawyer team

Yang Chunbao's team of lawyers helped Pudong lead the fund investment in the district to establish a fund of funds

Recently, Yang Chunbao's lawyer team accepted the entrustment of Pudong Leading District Fund to provide comprehensive legal services such as conducting legal due diligence on the fund manager, reviewing or drafting partnership agreements and subsidiary agreements for the establishment of a fund of funds in cooperation with a private equity subsidiary of a well-known securities firm.

Lawyer Yang Chunbao was invited to give a theme sharing for outstanding entrepreneurs who participated in the activity

of "Learning Digital Transformation from Lighthouse Factory"

"Lighthouse Factory" is known as the "Oscar" of intelligent manufacturing. It is a digital manufacturing and globalization 4.0 demonstrator jointly selected by the Davos World Economic Forum and McKinsey Consulting, representing the highest level of intelligent manufacturing and digitalization in the global manufacturing field. The event was co-organized by Ferrymen Supply Chain Management Club, Jiusan Society Ningbo Entrepreneurs Association and others. Attorney Yang was invited to share "how to conduct private equity financing and equity incentives" for outstanding entrepreneurs participating in the event.

Various announcements and reports of the Fund Industry Association

The Asset Management Association of China (hereinafter referred to as the "Association") issued the "Private Equity Investment Fund Registration and Filing Measures" (hereinafter referred to as the "Measures") on February 24, 2023. The "Measures" will be released on May 1, 2023. officially implemented. Regarding the "Measures", Yang Chunbao's lawyer team interpreted them one by one based on the basis of relevant laws and regulations. For details, please refer to our series of articles "Interpreting the New Regulations on Private Equity Fund Registration and Filing Article by Article with Basis".

The association issued an announcement on April 21, 2023, stating that the existing five institutions including Shenzhen Ruirongxing Asset Management Co., Ltd. cannot continue to meet the manager registration requirements, and the association will cancel the private equity fund manager registration of these five institutions, and Enter the above circumstances into the securities and futures market integrity file database.

Rugular Trends

List of Application Materials for Registration of Private Equity Fund Managers (Revised in 2023)

In order to cooperate with the implementation of the "Registration and Filing Measures for Private Equity Investment Funds" and related guidelines, and to facilitate the registration-related business of private equity fund managers and applicant institutions, the Association issued the "List" on April 7, 2023. The "List" will come into effect on May 1, 2023, and the "List of Application Materials for Registration of Private Equity Fund Managers" issued in June 2022 will be abolished simultaneously. This revision of the List focuses on the following changes:

(1) In terms of basic information, it clearly stipulates the paid-in capital standards of managers, refines and modifies the material requirements for employee information, office use certificates, business plans, and registration commitment letters, and adds "relevant registration information change materials".

(2) In terms of relevant systems, it is clarified that the registration system of managers is divided into internal control system and compliance management system, private equity fund operation system, and emergency plan system. In terms of institutional licenses and related party information, it is necessary to disclose basic information such as the industrial and commercial registration information and business development of branches, subsidiaries and other related parties during registration.

(3) In terms of financial information, managers established less than one year have changed from submitting voluntary audit reports to submitting audit reports for the latest quarter.

(4) In terms of investor information, it is added that if the capital is contributed through SPV, it should penetrate to the entity that finally fulfills the corresponding investment obligation, and provide the corresponding proof of capital contribution ability. In addition, the mandatory shareholding of executives has increased the material requirements for employee shareholding of financial institutions, non-major contributors engaging in conflicting businesses, and relevant beneficiaries.

(5) In terms of controlling shareholders, actual controllers and executive partners, detailed and improved the control relationship diagram between the actual controller and the manager, the identification of the actual controller, relevant experience, financial situation, and control rights Changes and other material disclosure requirements.

(6) In terms of legal representatives, senior managers, executive partners or their designated representatives, increase their working experience to 5 years (except for compliance and risk control personnel). The performance requirements of the senior managers responsible for investment management of private equity fund managers have been changed to investment performance of more than 24 consecutive months in the last 10 years, and the management scale of a single product or single account is not less than 20 million yuan; private equity, entrepreneurship The performance requirements of the senior managers in charge of investment management of investment fund managers have been changed to at least 2 project experiences leading investment in unlisted company equity in the last 10 years, with a total investment amount of not less than 30 million yuan, and at least 1 case The project exits through initial public offering and listing, equity mergers and acquisitions, or equity transfers. In addition, the circumstances under which performance materials are not recognized have been added.

"Guidelines for the Operation of Private Securities Investment Funds (Draft for Comment)"

The Association published the "Operation Guidelines" on April 28, 2023, and publicly solicited opinions from the public. The "Operational Guidelines" puts forward standard requirements for private securities investment fund raising, investment, operation management, and transition period:

(1) In terms of fundraising requirements, clarify the initial fundraising and continuation scale of private securities investment funds, the frequency of open subscription and redemption of private securities investment funds, arrangements for lock-up periods, early warning lines, stop loss lines, and relevant arrangements after triggering, etc.

(2) In terms of investment requirements, investment is required to be made in the form of asset portfolios, multi-layer nesting is prohibited, and it is clarified that derivative transactions must not be alienated into leveraged financing tools such as stocks and bonds.

(3) In terms of operation management, put forward normative requirements for managers of private securities investment funds in terms of internal systems, stress testing, and information submission, and further refine information disclosure requirements.

(4) In terms of arrangements for the transition period, it is clarified that private securities investment funds that are newly filed after the implementation of the "Operational Guidelines" follow the requirements of the "Operational Guidelines". At the same time, in order to reduce the arbitrage space for new and old funds, different rectification requirements are put forward for existing funds according to different situations, and sufficient transitional arrangements are given for the rectification of key terms.

China Securities Regulatory Commission (hereinafter referred to as "CSRC") 2023 Legislative Work Plan

The China Securities Regulatory Commission issued the 2023 legislative work plan on April 14, 2023, stating that the five "projects that need to be studied urgently and introduced at the right time" include the revision of the "Interim Measures for the Supervision and Administration of Private Equity Investment Funds".

典型判例

1. If a staff member of a private equity fund sales agency declares that he or she is a staff member of the agency sales agency when promoting funds, and his identity can be corroborated by the labor contract and wage payment records of the agency sales agency, his sales behavior can be determined to be a duty-related behavior, and the investor The claim that it bears the liability for damages shall not be supported

Case

Dispute over tort liability between Shao and Ma

[(2022) Zhejiang 02 Civil Final No. 5473]

Main Facts

Ma signed the "Labor Contract" with Hengyu Tianze Company, and the labor period will end on August 31, 2020. In November 2017, Ma, as a staff member of Hengyu Tianze Company, promoted a private equity fund product managed by Fuli Tianrui Company to Shao. On the same day, Shao remitted 1 million yuan to the account of Fuli Tianrui Company. In April 2018, Ma, as a staff member of Hengyu Tianze Company, promoted a private equity fund managed by Boxin Yingtai Company to Shao. On the same day, Shao remitted 2.3 million yuan to the designated account. After the aforementioned two private equity funds expired, Shao only recovered the principal of 115,950 yuan and 433,984.78 yuan respectively. Later, Shao filed an arbitration against the managers and custodians of the two private equity funds to claim compensation for losses. The arbitral tribunal found that the private equity funds had failed to fulfill their suitability obligations and should compensate Shao for the losses suffered. However, Shao received less compensation through the enforcement of the arbitration award. Shao believes that the "Labor Contract" lacks basic elements. The labor and employment relationship registered by the Bureau of Human Resources and Social Security and the public registration information of the Securities Fund Industry Association all show that Ma is not a staff member of Hengyu Tianze Company, and that Ma's sales fund is not He was performing work tasks, and his personal agency sales behavior violated laws and regulations, so he should bear joint and several liabilities, so he sued Ma for compensation for his investment principal and corresponding interest losses. The appeal was rejected in the first instance, and he appealed against the appeal.

Referee's Point

The court of second instance held that during the trial of the arbitration case with the manager and custodian of the private equity fund involved in the case, Shao claimed that Ma claimed to be a staff member of Hengyu Tianze Company when he sold the private equity fund to him. The managers of Fuli Tianrui Company and Boxin Yingtai Company also recognized Ma as a staff member of Fuli Tianrui Company. Combining the "Labor Contract", salary payment records and other evidential materials, the first instance found that Ma sold the private equity investment fund involved in the case to Shao as a staff member of Hengyu Tianze Company to perform the company's work tasks, and it was not improper. According to the law, if the staff of the employing unit causes damage to others due to the performance of work tasks, the employing unit shall bear the tort liability according to law. Therefore, the court of second instance rejected Shao's appeal.

2. Private equity fund managers who fail to fulfill their suitability obligations before the investment, fail to fulfill their information disclosure obligations during the post-investment management stage, and fail to obtain the consent of investors in accordance with the contract and unilaterally decide to extend the fund period in the form of multiple announcements, etc. liability for damages

Case

Wanfang Investment Holding Group Co., Ltd. and other contract disputes

【(2020) Beijing 0105 Minchu No. 57043】

Main Facts

In March 2018, China-US Jiande Company signed the "Wanfang Xinrun Non-performing Assets Yield Rights Private Equity Fund Contract" with the private equity fund manager Wanfang Xinrun Company and the fund custodian Hengtai Company as an investor. ", "Private Fund Risk Disclosure Statement", "Investor Commitment Letter", "Investor Notification Letter" and the text. "Important Reminders", "Private Fund Risk Disclosure Statement", "Private Fund Risk Disclosure Statement" and other documents all contain relevant content of risk warnings and are stamped with the official seal of Sino-American Jiande Company. The "Fund Contract" stipulates that the Fund can be extended upon consensus between the Fund Manager, the Fund Custodian and the Fund Shareholders. At the same time, the contract also stipulates that when the Fund encounters a situation that has a significant impact on the rights and obligations of fund share holders, a general meeting of fund share holders shall be held. Later, Wanfang Xinrun Company extended the liquidation and distribution date of the fund through unilateral announcements twice. Zhongmei Jiande Company believed that Wanfang Xinrun Company did not check whether it was a qualified investor and did not conduct a follow-up visit to confirm that it was a qualified investor during the process of signing and performing the fund contract. After Zhongmei Jiande Company paid the investment, Wanfang Xinrun Company failed to regularly disclose and report information to it in accordance with the fund contract. When the duration of the fund expired, Wanfang Xinrun Company did not arrange for the exit and liquidation of the fund, so it sued the court to demand that Wanfang Xinrun Company pay the investment principal and interest.

Referee's Point

After the trial, the court held that, even though Sino-US Jiande Company’s seal on the private fund risk reminder, fund investor risk assessment questionnaire and return visit confirmation letter was true, the act of stamping the seal did not exempt the fund manager from performing the risk warning. , risk tolerance and risk level investigation, suitability product matching obligations. Under such circumstances, Wanfang Xinrun Company should provide further evidence to prove that it has fulfilled the obligation of informing China-US Jiande Company of the product investment, method of fund use, rights and obligations of all parties, the maximum risk of investment loss and the failure of the fund when selling the fund products involved. Realize the risk of exit. Since Wanfang Xinrun Company failed to provide further evidence, it was determined that Wanfang Xinrun Company did not fully and properly perform its suitability obligations at the sales stage.

With regard to information disclosure obligations, fund managers shall, in the process of issuing private equity fund products and managing private equity fund assets, disclose relevant information in a true, accurate, complete and timely manner in accordance with the provisions of laws and regulations and the agreement in fund contracts and other documents, and maintain Client's right to know. Wanfang Xinrun Company did not provide evidence to prove that it disclosed the post-investment management report to Sino-American Jiande Company through the official website or other methods stipulated in the contract during the duration of the fund. Wanfang Xinrun Company failed to fulfill its information disclosure obligation during the post-investment management stage, which constituted a serious breach of contract .

Regarding the extension of the fund, whether it is the extension of the duration of the fund contract or the extension of liquidation, it is a situation that has a significant impact on the rights and obligations of fund share holders. The decision to extend the term of the fund was seriously inconsistent with the provisions of the "Fund Contract" involved in the case, and Wanfang Xinrun Company had an obvious breach of contract.

Wanfang Xinrun Company failed to fulfill its suitability obligations before the investment, and had the above-mentioned major breach of contract in the post-investment management stage, and should be liable for compensation for the losses of investors. The court finally ruled that Wanfang Xinrun Company should pay its investment principal and interest losses to Zhongmei Jiande Company, and Wanfang Xinrun Company would inherit the rights enjoyed by Zhongmei Jiande Company in the subsequent liquidation of the private equity fund involved in the case after assuming the liability for compensation.

Author

Lawyer Yangchunbao

First class lawyer

Senior Partner of Dentons (Shanghai) Law Firm

e-mail:chambers.yang@dentons.cn

The leader of the private equity and investment fund professional group and the TMT industry group leader of Beijing Dentons (Shanghai) Law Firm, the deputy director of the Dentons China Technology, Culture, Leisure and Entertainment Professional Committee, and a member of the Shanghai foreign-related legal talent pool. Bachelor of Laws from Fudan University (1992), Master of Laws from University of Technology Sydney (2001), Master of Laws from East China University of Political Science and Law (2001).

Lawyer Yang has been practicing for 28 years and has long been engaged in legal services for private equity funds, investment and financing, and mergers and acquisitions, covering TMT, big finance, big health, real estate and infrastructure, exhibition industry, manufacturing and other industries. Since 2004, he has been specially recommended or commented by The Legal 500 and Asia Law Profiles for many times. Since 2016, he has been continuously selected as one of the "100 outstanding lawyers in China" by the internationally renowned legal media China Business Law Journal, and won the "Leaders in Law - 2021 Global Awards" China Annual Company Law Expert" title; listed in the first "Excellent Lawyers & Law Firms Recommended by China's Famous Enterprise Law Firms" recommendation list; won several awards such as "China TMT Lawyer Award" and "China M&A Lawyer Award" by Lawyer Monthly and Finance Monthly . He is qualified as an independent director of a listed company. He is a part-time professor of the Law School of East China University of Science and Technology, a part-time tutor of the Law School of Fudan University, a part-time postgraduate tutor of East China University of Political Science and Law, a lecturer of the private equity president class of Shanghai Jiaotong University, and a lecturer of the transnational management talent training class of the Shanghai Municipal Commission of Commerce. Published 16 monographs including "Practical Operations and Case Analysis of Enterprise Legal Risk Prevention and Control", "Winning Capital 2: Complete Operation Guide for the Company's Investment and Financing Model Process", "Practice of Risk Prevention and Control of Private Equity Investment Funds". Lawyer Yang's practice areas are: companies, investment mergers and acquisitions and private equity funds, capital markets, TMT, real estate and construction projects, as well as dispute resolution in the above fields.

Author

Lawyer Sun Zhen

Partner of Dentons (Shanghai) Law Firm

Email: sun.zhen@dentons.cn

Before practicing law, Mr. Sun served as the global, Asia-Pacific or China region president or executive assistant to the vice president in Fortune 500 companies such as Watts, Ingersoll Rand and Alcatel-Lucent. Excellent bilingual communication and coordination skills in Chinese and English. Lawyer Sun published "Private Equity Investment Fund Risk Prevention and Control Operation Practice" and published dozens of articles in the fields of mergers and acquisitions, funds, and e-commerce. Lawyer Sun specializes in private equity investment, corporate mergers and acquisitions, e-commerce and labor legal affairs.

Author

Li Jiaxin

Dentons (Shanghai) Law Firm Intern

Student at Fudan University Law School

PE&TMT Lawbridge

Presiding lawyer: Yang Chunbao, first-class lawyer

Phone/WeChat: 1390 182 6830

Business contact and submission email:

chambers.yang@dentons.cn

Address: Floor 9/24/25, Shanghai World Financial Center, 100 Century Avenue, Shanghai

CSRC

Private Equity

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Legal Trends in the Private Equity Industry (April 2023 / Issue No. 62)

UDF-Space · Yang Chunbao Sun Zhen Li Jiaxin

1Years Ago

The legal service dynamics of Yang Chunbao's lawyer team

Yang Chunbao's team of lawyers helped Pudong lead the fund investment in the district to establish a fund of funds

Lawyer Yang Chunbao was invited to give a theme sharing for outstanding entrepreneurs who participated in the activity

of "Learning Digital Transformation from Lighthouse Factory"

Various announcements and reports of the Fund Industry Association

Rugular Trends

List of Application Materials for Registration of Private Equity Fund Managers (Revised in 2023)

(3) In terms of financial information, managers established less than one year have changed from submitting voluntary audit reports to submitting audit reports for the latest quarter.