On September 1, 2023, the "Regulations on the Supervision and Administration of Private Equity Investment Funds" (hereinafter referred to as the "Regulations on the Supervision of Private Equity Funds") officially came into effect. Regarding the content of the special chapter on venture capital funds in the regulation of private equity funds, Yang Chunbao's legal team has interpreted various policies and regulations related to venture capital funds based on the previous regulations issued by the regulatory authorities, in order to provide useful references for institutions or individuals interested in establishing or investing in venture capital funds. For more information, please refer to "Talking about Venture Capital Funds in conjunction with the Regulations on Private Equity Fund Regulation".

Contract dispute between Xing and Xinquan Heye (Jinan) Private Equity Fund Management Co., Ltd. [(2021) Jing 04 Min Chu No. 270]

In March 2017, Xing signed a "Fund Contract" with the fund manager Xin Quan Company and the custodian, stipulating that during the fundraising and survival period of the Xin Wen Tong Mail contractual private equity fund (the "fund involved in the case"), a 24-hour investment cooling off period should be set for investors. After the cooling off period expires, the fundraising institution should conduct investment follow-up visits through appropriate methods such as recorded phone calls, emails, and letters. Investors have the right to terminate the fund contract before the successful follow-up confirmation by the fundraising institution. At that time, the fundraising institution shall promptly refund all subscription funds to the investors as agreed in the contract. Without successful follow-up confirmation, the subscription fund funds paid by investors shall not be transferred from the fundraising account to the custody fund account, and the fund manager shall not invest in the subscription fund funds paid by investors. On April 27, 2017, Xing transferred 4.3 million yuan to the fund raising account, and the bank receipt stated that the purpose was to subscribe for postal projects. In April 2017, Xinquan Company issued a "Share Confirmation Letter" stating that the establishment date of the current fund was April 28, 2017, and the funds of the current fund were transferred to the custody account on April 28, 2017. The confirmation is as follows: Subscriber Xing Hua, the subscribed fund shares for this time are 4.3 million yuan, and the subscribed fund share category is C2. We hereby confirm. In July and October 2017, as well as February 2018, Xing received a total of 262005.48 yuan in investment income. The profits were not redistributed later, and the funds involved in the case may face losses. Xing believes that Xinquan Company has committed serious breaches such as failing to fulfill its return visit obligations to investors, and should return the investors' principal and loss of interest in accordance with the agreement. Xinquan Company protested that it had fulfilled its return visit obligation through the form of the "Share Confirmation Letter".

Xinquan Company is about to put its funds into operation without conducting a follow-up visit in the form agreed in the contract. Its claim has been fulfilled through the "Share Confirmation Letter", and there is no factual or legal basis. Therefore, Xinquan Company should be deemed to have breached the contract. However, Xing did not promptly propose the termination of the contract or other claims regarding the breach of contract. He did not raise any objections to Xinquan Company investing its investment principal into fund operation, and had received quarterly returns multiple times without raising any objections. Xinquan Company's breach of contract cannot serve as a basis for Xing's various litigation claims, and Xing also did not have sufficient evidence to prove that Xinquan Company had caused losses due to its failure to return visits. If Xinquan Company is ordered to assume the responsibility of returning all principal and interest for breach of contract solely based on the failure to fulfill the obligation of follow-up confirmation, it lacks legal and contractual basis, and is obviously unfair to the fund manager. Finally, based on the trial of Xing's other claims, the court ultimately rejected all of Xing's claims.

Contract dispute between Xinwen Asset Management (Jiangsu) Co., Ltd. and Xiao [(2023) Jing 74 Min Zhong No. 804]

In April 2017, Xinwen Asset Company signed a cooperation framework agreement with Xingle Group and Yikai Group regarding the acquisition of Yikai Group. It was agreed that Xinwen Asset Company would issue a commissioned loan of no more than 220 million yuan to Xingle Group through the Hengfeng Bank branch to repay the bank debts owed by Yikai Group and provide partial equity acquisition price, The funds come from the "Xinwen Xingle No.1 Contractual Private Equity Investment Fund" initiated by Xinwen Asset Company. The next day, Xinwen Asset Company signed the "Entrusted Loan Entrustment Contract" with the branch of Hengfeng Bank. On the same day, shareholders Yu 1 and Yu 2 of Xingle Group provided pledge guarantees for loans with their holdings of Xingle Group equity, while Xingle Group provided pledge guarantees for loans with its holdings of accounts receivable. In May 2017, Xiao, Xinwen Asset Company, and the fund custodian signed the "Xinwen No.1 Contract". The contract stipulates that the funds involved in the case mainly issue loans to Xingle Group through entrusted loans. After Xiaomou remitted 3 million yuan, Xinwen Asset Company issued a "Confirmation Letter". Afterwards, Xinwen Asset Company transferred and paid the proceeds to Xiao four times, but did not make any further payments to Xiao. After the expiration of the fund contract, Xinwen Asset Company did not return the principal corresponding to Xiao's fund shares. In August 2018, Xinwen Asset Company sued the Wenzhou Intermediate People's Court for a financial loan contract dispute, and the court ruled that Xingle Group would repay the principal and interest of the entrusted loan from Xinwen Asset Company. However, due to the fact that the corresponding pledge rights were not established without registration by the authority, the court does not support the application of Xinwen Asset Company to dispose of accounts receivable and equity and enjoy priority compensation rights. Afterwards, Xiao learned that due to the financing party's serious breach of contract and inability to repay, Xinwen Asset Company was no longer able to fulfill its obligation to distribute profits, and there was a possibility of repaying the principal without compensation. Xiao filed a lawsuit in court, claiming that before and after the establishment of the fund, Xin Wen Asset Company misled him in his investment behavior; During the operation of the fund, the financing party's liabilities, project assets, liabilities, and performance were not disclosed to investors. As the fund manager, they did not fulfill their contractual obligations of honesty, credit, diligence, and prudence, and should be liable for compensation for Xiao's losses. Xiao submitted the fund recommendation materials and due diligence report. There are expressions of "controllable risk" and fixed income in the fund contract and recommendation materials. The due diligence report specifies the quarterly distribution of income and specifies various risk control measures, including equity pledge registration and accounts receivable pledge registration. In the first instance lawsuit, Xiao stated that Xin Wen Asset Company did not disclose any information about the registration of pledges and the failure to complete registration procedures before the fund appeared at risk. The first instance court held that, on the premise that investors had low risk expectations, Xinwen Asset Company failed to implement risk control measures and fulfill its duty of diligence and prudence during the operation of the fund, which increased the risk of fund loss and contradicted the reasonable expectations of investors. Therefore, it should be recognized as a major breach of contract. Xiao has the right to demand that Xinwen Asset Company bear the liability for breach of contract and compensate for its losses. Xinwen Asset Company is dissatisfied and has filed an appeal.

The second instance court held that in this case, although Xinwen Asset Company submitted a due diligence report claiming that it had conducted detailed due diligence before the fund operation, the corresponding risk control measures stated in the due diligence report were not fully implemented, including the failure to implement equity pledge registration, accounts receivable pledge registration, and other situations. In the absence of the aforementioned risk control measures, Xinwen Asset Company still instructed the entrusted bank to make loans, Increased the investment risk of the private equity fund involved in the case and failed to disclose relevant information to investors in a timely manner. Therefore, the first instance court determined that Xinwen Asset Company failed to fulfill the diligent and prudent obligations of the fund manager, constituting a major breach of contract and without any misconduct, and the second instance court confirmed it. In summary, the second instance court rejected the appeal and upheld the original judgment.