Legal Trends in the Private Equity Fund Industry (May 2023/Issue 63)
Yang Chunbao's Lawyer Team's Legal Service Dynamics
/ / Lawyers such as Liu Rongrong, Yang Chunbao, and Xu Yanjie provided special legal services for the mixed reform of a secondary subsidiary of a state-owned enterprise
The Asset Management Association of China (hereinafter referred to as the "Association") announced the "Disciplinary Action Decision" on May 12, 2023, according to the Association's investigation, there were irregularities in the fact that Xinquan Heye (Jinan) Private Fund Management Company did not disclose the possible conflict of interest to investors, did not fulfill the investor's appropriateness obligations as agreed in the fund contract, investors withdrew and subscribed for the fund through the manager's bank account. Given the above basic facts, circumstances, and the trial situation of the association, the association has decided to issue a written warning to Xinquan Heye and suspend the filing of its private fund products for three months.
The Association announced on May 12, 2023 that 14 private fund managers, including Shenzhen Huaju Asset Management Co., Ltd., had abnormal operations and failed to submit a special Legal opinion meeting the requirements within 3 months after the written notice was sent. The Association will cancel the registration of private fund managers of these 14 institutions and record the above situation in the integrity archive database of the securities and futures market.
On May 15, 2023, the association issued a notice on the launch of the registration system for electronic contract service institutions of private equity investment funds, stating that firstly, regarding the registration of electronic contract service institutions: institutions submitting for business processing should comply with the requirements of Articles 7 and 8 of the "Management Measures for Electronic Contract Business of Private Equity Investment Funds (Trial)" and refer to the requirements of the "List of Registration Materials for Electronic Contract Service Institutions", Log in to the Association's Asset Management Business Comprehensive Submission Platform (hereinafter referred to as AMBERS system) for material filling. 2、 Regarding the Legal opinion: the institution submitting the business shall upload the Legal opinion in the registration system according to the requirements of the Guidelines on Legal opinion of Private Investment Fund Electronic Contract Service Institutions.
On May 27, 2023, the association issued a notice stating that starting from May 29, 2023, members of private fund managers can independently access their credit information report for the first quarter of 2023 through the association's asset management business comprehensive reporting platform. The association provides credit information reports for the first quarter of 2023 to private fund managers who became members of the association before the first quarter of 2023. If members of the association have any questions about the credit information report results of the association, they can submit a written inquiry application to the association within one month from the date of receiving the credit information report.
Regulatory dynamics
On May 5, 2023, the association announced that the first working meeting of the third custody and operation committee in 2023 was held in Beijing. The meeting believes that fund custody and service institutions should promote the improvement of the fund custody system; Promote the development of fund service business; Promote Digital transformation of fund custody and service business; Continuously promote the net worth management of asset management products; Continuously promoting the improvement of tax policies in the fund industry; Increase publicity on fund custody and services, and cultivate a healthy industry culture.
On May 16, 2023, the Association announced that the first working meeting of the Association's Private Equity and Merger and Acquisition Investment Fund Committee in 2023 was held in Chengdu. The meeting stressed that the Committee will give full play to the role of professional consulting think tanks and industry demonstration and leadership, focus on the major national strategic deployment, work around the goal of serving high-level science and technology, self-reliance, increasing the proportion of direct financing and other goals, strengthen the Prospective cohort study of the industry's "urgent problems and anxieties", and deepen the construction of industry culture and positive publicity.
On May 27, 2023, He Yanchun, Secretary of the Party Committee and President of the Association, delivered a speech at the China Venture Capital Conference, stating that the Association will promote the introduction of regulations on private equity funds, improve the rules for judging private equity disputes, and implement policies for the application of criminal charges; Continuously deepening the reform of registration and filing; Effectively preventing risks in key areas; Promote the improvement of fund custody, service outsourcing, share registration, valuation, transfer and other systems, accelerate the implementation of electronic contracts, and strengthen information disclosure and data governance; Improve mechanisms for commercial registration, liquidation and cancellation, and vigorously develop contractual funds; Promote and improve policies related to medium - and long-term funding support for venture capital, introduce a tax neutral system that conforms to the characteristics of equity investment, and introduce tax incentive mechanisms for early investment, small investment, new investment, and investment in technology.
Typical precedents
1. The fund assets in the exclusive account of private investment funds have independence. In the case of private investment funds that have not yet been liquidated, even if investors of private investment funds demand to retrieve their investments due to the termination of their own fund contracts, there cannot be a legal consequence of immediately returning fund assets to investors. Applicants who do not incur debts due to the assets of private equity investment funds themselves should not be forced to enforce the assets of the funds.
Case
Complaint against Wang and Beijing Hengyu Tianze Fund Sales Co., Ltd. Applying for Execution Objection by Executor [(2022) Jingminzhong No. 13]
Main Facts
The court of second instance added that the application of China CITIC Bank to open the bank settlement account of the unit stated that the name of the depositor was Huatai M&A Fund, and the nature of the account was special. The Trust Account Information Confirmation Letter issued by Guosen Securities stated that the account name involved in the case was Huatai Buyout Fund. The information publicized by the Association shows that Huatai Buyout Fund is a private investment fund officially filed in China Infrastructure Association, with Hengyu Tianze Company as the manager, Guosen Securities as the custodian, and Huatai Buyout Fund has not been liquidated. Wang submitted an administrative reconsideration decision from the China Securities Regulatory Commission to prove that the funds in the account involved in the case were mixed with the self owned funds of Hengyu Tianze Company. However, the court found that although the China Securities Regulatory Commission made an administrative reconsideration decision to uphold the administrative supervision measures made by the Beijing Regulatory Bureau of the China Securities Regulatory Commission, it was determined that Hengyu Tianze Company and other companies were operating private fund management, There are behaviors such as mixing inherent property or other people's property with fund assets for investment activities, and administrative regulatory measures have been taken to order correction against Liang and Yang. However, the review decision mainly involves private equity funds and projects that do not include Huatai M&A Fund in the account involved.
Judgment viewpoint
Regarding the nature of the accounts involved in the case. Evidence such as the information publicized by the Comprehensive Association, the application form of China CITIC Bank for opening the bank settlement account of the unit, and the Trust Account Information Confirmation Letter issued by Guosen Securities can be identified that the account involved in the case is indeed the exclusive account of Huatai M&A Fund, and the accounts in the account involved are clear, so the property in the account belongs to the fund property, and the fund property is independent, not the inherent property of the manager.
Regarding Wang's claim that the funds in this account are confused with the own funds of Hengyu Tianze Company. Firstly, the basis for Wang's application for enforcement is not due to the fund assets in the account itself; Secondly, the administrative reconsideration decision submitted by Wang to the China Securities Regulatory Commission is not directly targeted at the account. In the case where Huatai M&A Fund has not yet been liquidated, even if investors of Huatai M&A Fund request to retrieve their investments due to the termination of their own fund contracts, there cannot be a legal consequence of immediately returning fund assets to investors. As an applicant for enforcement of debts not arising from the assets of Huatai Merger and Acquisition Fund itself, Wang is not suitable for mandatory enforcement of Huatai Merger and Acquisition Fund assets at present.
2. If the investor and the private fund manager agree in the partnership agreement to establish a partnership by establishing a Limited partnership to establish a fund, but the manager has not completed the registration and filing of the fund (partnership) according to the agreement, so that the partnership is not registered and legally established, the rights and obligations of both parties cannot be determined based on the partnership.
Case
Contract dispute between Asia Investment and Finance Bank Investment Fund Management (Beijing) Co., Ltd., Li, and others [(2023) Liao 05 Min Zhong No. 284]
Main Facts
Judgment viewpoint
How to determine the legal relationship between AIIB and Mr. Li. The partnership entry agreement signed by Mr. Li and AIIB clearly stipulates that Mr. Li is the limited partner of the fund in question, and the Risk Reminder Letter also specifies the investor of the fund in question. However, since the signing of the agreement between the two parties, as the manager of the fund involved in the case, Asia Investment and Finance Bank has not completed the industrial and commercial registration and filing of the fund in accordance with the agreement on joining the partnership. The agreement between the two parties to establish a private equity fund in the form of an enterprise has not yet been implemented. Therefore, the fund (i.e. partnership enterprise) involved in the case has not yet been established in accordance with the law, and the rights and obligations of both parties cannot be determined based on the partnership relationship.
Regarding the issue of whether AIIB should return funds to Mr. Li. In the case that the Limited partnership agreed by both parties has not been established in accordance with the law, and Li's identity as a limited partner of the fund has not been filed and registered, the court could not accept the lack of reasons why AIIB claimed that the two parties should not return Li's investment due to the existence of a partnership. Regarding the section on the claim by AIIB that the commitment letter issued by Guo is invalid, although the commitment letter cannot be fulfilled due to Guo's lack of authority to dispose of property, the intention to promise to return the investment has not been invalidated. The reason for Li's request for the return of principal from Asia Investment and Finance Bank is valid, and the first instance court's support for his lawsuit request is not inappropriate and should be upheld.
Author
Lawyer Yang Chunbao
First-grade lawyer
Senior Partner of Dacheng (Shanghai) Law Firm
Mail：chambers.yang@dentons.cn
The leader of the private equity and investment fund professional group and TMT industry group at Beijing Dacheng (Shanghai) Law Firm, the deputy director of the Dacheng China Science and Technology Culture Leisure and Entertainment Professional Committee, and a member of the Shanghai Foreign Legal Talent Pool. Bachelor of Laws of Fudan University (1992), Master of Laws of University of Technology Sydney (2001), and Magister Juris of East China University of Political Science and Law (2001).
Lawyer Yang has been practicing for 28 years and has been engaged in legal services for private equity, investment and financing, and mergers and acquisitions, covering industries such as TMT, big finance, big health, real estate and infrastructure, exhibition industry, and manufacturing. Since 2004, he has been repeatedly recommended or commented on by The Legal 500 and Asia Law Profile. Since 2016, he has been selected as one of the "100 Outstanding Lawyers in Chinese Business" by the internationally renowned legal media China Business Law Journal, and has been awarded the title of "China's Annual Corporate Law Expert" by Leaders in Law -2021 Global Awards; Ranked in the recommended list of excellent lawyers and law firms recommended by the First China Famous Enterprise Law Association; He has won many awards such as "China TMT Lawyer Award" and "China Merger and Acquisition Lawyer Award" by Lawyer Monthly and Finance Monthly. He is qualified as an independent director of a listed company, and is a part-time professor of the Law School of East China University of Science and Technology, part-time tutor of the Law School of Fudan University, part-time postgraduate tutor of East China University of Political Science and Law, lecturer of the private equity president class of Shanghai Jiaotong University, and lecturer of the transnational business talent training class of Shanghai Municipal Commission of Commerce There are 16 monographs including "Practical Operations and Case Analysis of Full Legal Risk Prevention and Control in Enterprises", "Complete Operation Guidelines for Corporate Investment and Financing Model Processes", and "Practical Operations of Risk Prevention and Control in Private Equity Investment Funds". Lawyer Yang's practice areas include companies, investment mergers and private equity funds, capital markets, TMT, real estate and construction engineering, as well as dispute resolution in the aforementioned fields.
Author
Lawyer Sun Yan
Partner of Dacheng (Shanghai) Law Firm
Mail：sun.zhen@dentons.cn
作者简介
Li Jiaxin
Intern at Dacheng (Shanghai) Law Firm
Fudan University Law School Students
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: 9/24/25/F, Shanghai World Financial Center, No. 100, Century Avenue, Shanghai
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