Contents
First, changes in the characterization of legal relations and their market impact
2. Prudent management obligations
(1) Other contractual disputes between Zhou x v. Asset Management and Group B
(2) Other contractual disputes between Fund A, Company B and Mr. Liu
(3) Business trust disputes between Bank A and Trust B
(4) Contract disputes between Company A and Shi X
The promulgation of Article 88 of the Minutes of the National Court Work Conference on Civil and Commercial Trials (the "Nine Minutes") is regarded as an important turning point in the characterization of the legal relationship of asset management business ("asset management business"). Prior to this, the legal relationship of asset management business was more characterized as a entrusted legal relationship, and the manager only assumed the fiduciary obligation according to the contract. Article 88 of the "Minutes of the Nine People" clarifies that the essence of asset management business is "entrusted by others and managed on behalf of others", and its product structure is basically consistent with trust, so the legal relationship of asset management business should generally be regarded as a trust legal relationship, but in the case of special provisions in the law or special provisions in the contract, the nature of the underlying legal relationship should be determined in combination with the specific structure of the asset management product. [1] According to the argument of legal relationship (trust relationship) - type of obligation (fiduciary obligation), since the legal relationship of asset management business is generally characterized as a trust legal relationship, the administrator should perform the fiduciary obligation. In the context of this change in legal characterization, the investor has found another way to withdraw from the project, that is, to claim that the manager has not fulfilled its fiduciary obligations, to recover the manager's compensation liability, and to recover the investment money. The Supreme People's Court has its profound thinking on regulating the financial order for the changes in the characterization of legal relations. Under the legal relationship of trust, the manager is not only subject to the provisions of the contract, but also should bear the obligations of statutory diligence and due diligence, and in this context, the market reaction gradually appears. At present, a large number of investor claims against the misconduct of managers in the performance of their duties are confirmed by this.
The necessity of empirical research on judicial jurisprudence on fiduciary obligations. The fiduciary obligation itself is an import of the common law system, and by learning from the theoretical achievements of the common law system, the continental theoretical community divides the fiduciary obligations undertaken by the manager into the duty of loyalty and the duty of care. The duty of loyalty is further divided into the obligation to prohibit fraud, the obligation to fair trade, the obligation to act lawfully, the obligation to personally manage, and the duty of care to invest prudently and the obligation to disclose information. [2] The connotation of fiduciary obligations at the theoretical level mentioned above is not specifically reflected at the level of laws and normative legal documents, and looking at the expression of the connotation of the responsibility of the manager in the relevant normative legal documents,[3] different normative legal documents all propose that the manager should bear the obligation of good faith and diligence. However, the words honesty, diligence and diligence are too broad. In a specific case, what is the administrator who has fulfilled the fiduciary obligation, and where the boundary of the fiduciary obligation is, it is still necessary to refine the adjudication rules through judicial precedents. This article takes the performance boundary of the manager's prudent management obligation, information disclosure obligation, fair treatment obligation, and compliance management obligation as the topic, and sorts out the judicial adjudication caliber expressed in specific cases, so it is hoped that through reading this article, investors can find appropriate judicial remedies, and managers can find defense reasons for claiming that they have properly performed their duties, providing some inspiration for the judicial rights protection of different entities.
(1) Other contract disputes between Zhou X v. Asset Management A and Group B [(2021) Hu 74 Min Zhong No. 375]
Summary of the case: The manager failed to perform its due diligence obligations on the investment targets within the scope of investment at the investment stage, and failed to fulfill its effective management obligations on the fund property during the management stage, and the court ruled that the manager should bear 100% of the compensation liability for the fund manager's aforementioned faults. In the process of sales, investment and management of the funds involved in the case, the manager's group company was found to have substantially participated in the above-mentioned links, and the court ruled that the group company and the fund manager should bear joint and several liability in accordance with Article 167 of the General Provisions of the Civil Law.
Basic facts
The "Fund Contract" signed by investor Zhou and the fund manager A asset management and a securities company of the custodian institution clearly stipulates:
- 1. The funds raised by the Fund are mainly invested in the limited partner shares of Ming Hu, which was initiated and established by SDIC Ming An as the executive partner;
- 2. "Investment Strategy" is to invest in a Ming An Wan hu partnership initiated by SDIC Ming An and Hui Yan Ao Feng as general partners;
- 3. The purpose of the partnership of the partnership is mainly to make equity investment in Saurer Intelligence (a listed company); the "Parties and Rights and Obligations" section stipulates that the obligations of the fund manager include the management and use of the fund property in accordance with the principles of good faith, diligence and responsibility, equipped with sufficient personnel with professional ability to conduct investment analysis and decision-making, manage and operate the fund property in a professional way of operation, and conduct a detailed investigation of the investment targets within the investment scope of the fund... In the event of loss of fund property or damage to the legitimate rights and interests of fund share holders due to violation of this contract, it shall be liable for compensation. The "Liability for Breach of Contract" section of the Private Fund Contract stipulates that the parties who violate this contract shall bear the liability for breach of contract, and if they cause losses to other parties to the contract, they shall bear the liability for compensation.
After Zhou paid the investment money, Group B issued a "Confirmation Letter of Arrival of Funds", which stated: "1. 2. The investment and financial planner of Group B recommended the [fund involved in the case] for you under the premise of following the principle of honesty and trustworthiness; 3. Zhou voluntarily subscribed to the [fund involved in the case] through the investment promotion of Group B; During the investment period of the product, Group B Investment will cooperate with the relevant units to do a good job in the follow-up service of the product for you. ”
After the expiration of the investment period, the project failed to exit. In the course of fund operation, regarding the fund payment collection matter, Asset Management A issued an announcement to investors: SDIC Ming'an said that according to the payment collection plan, the partnership had received 34 million yuan and provided a screenshot of the balance of Ming'an Wanhu's account (the bank's bill information was seriously missing, and it was later proved that it was forged by the actual controller of SDIC Ming'an).
According to the transcript of the investor conference call transcript, business card, video clip and other evidence of the fund involved in the case, the post-investment recourse work of the fund involved in the case was stated by the "manager of the investment department of Group B's product investment", and recorded that "Group B's post-investment personnel and product manager went to Beijing to check the stamped version of the holding agreement", "made A asset management believe that the project was in normal existence", "Group B constantly sought zhou to request repayment as soon as possible", "At the level of Group B, the exit progress was released on September 25" and "September 28, 2019" Group B convened a conference call for all investors" "Group B is currently making every effort to promote criminal investigation procedures". On November 13, 2019, the executive director of Group B, the members of the Special Committee and investors communicated: "Asset Management A is an issuance project" and "Group B has many departments, and Asset Management A is actually just one of our issuing products".
After that, Ming'an Wanhu's administrator, SDIC Ming'an, and its actual controller and legal representative Zhou Mou were suspected of misappropriating funds and forging documents, and A Asset Management reported the case to the public security organs.
Due to the inability to pay, Zhou sued Asset Management A to pay the investment money and income on the grounds that the manager's improper performance of duties constituted a breach of contract, and Group B assumed joint and several liability.
Summary of the Trial
As a fund manager, whether Asset Management A properly performs the statutory and contractual obligations of the fund manager, the court considers the following:
First of all, in the fund investment stage: the Fund Contract clearly stipulates that the funds raised by the fund will be mainly invested in Ming'an Wanhu, a partnership initiated by SDIC Ming'an as the executive partner and Huiyuan Aofeng as the general partner, and Ming'an Wanhu mainly invests in Saurer Intelligence. However, when the private equity fund involved in the case invested in Ming An Wanhu, according to the information of the partners of Ming An Wanhu published by the National Enterprise Credit Information, the original general partner Huiyuan Aofeng had not been a partner of Ming An Wanhu from the beginning, and Asset Management A did not fully investigate the reasons for the change of the general partner, and still issued a transfer instruction to transfer the funds raised by the fund to Ming An Wanhu. Moreover, Asset Management A stated that since it was not an executive partner, it was not clear whether Huiyan Aofeng was a partner, did not understand the relevant facts, and did not inform investors that Asset Management A's behavior was contrary to its commitment to the direction of private fund investment in the Fund Contract involved in the case, which seriously violated the manager's obligation to manage the property diligently and conscientiously.
Secondly, in the stage of fund management: There are also obvious faults in asset management A, which are specifically manifested in:
- 1. Asset Management A failed to exercise due diligence on whether Ming An Wanhu used the funds for the transfer of the equity of Saurer Smart, a listed company. As to whether Ming An Wanhu used the funds for the transfer of the equity of Saurer Smart, a listed company, Asset Management A, as the manager, only reviewed the transfer flow, and the summary of the transfer flow transaction only showed that the transaction amount of 231 million yuan was inconsistent with the equity transfer price of 350 million yuan agreed in the Equity Transfer and Investment Agreement (copy) held by it.
- 2. Asset Management A failed to exercise due diligence on the content of the transaction in which the fund involved was invested in a nominee shareholding. Within two years after the establishment of the fund, until the fund manager extended for one year, Saurer Intelligence, as a listed company, did not include Ming An Wanhu in its published shareholder list, and Asset Management A, in the case of conditional verification with Saurer Smart, credulously believed the statement of the listed company's equity holding and contract lock-in proceeds informed by SDIC Ming An, and did not disclose and verify the legal risks of the equity holding, and failed to exercise due diligence obligations.
- 3. Information Disclosure Violations. In terms of information disclosure, Asset Management A did not verify the authenticity of the nominee shareholding agreement with the nominee shareholder, nor did it disclose the nominee holding agreement to the investors.
- 4. Asset Management A urged SDIC Ming'an to make poor fund collection. Asset Management A only relies on the screenshot of the balance of Ming'an Wanhu's bank account submitted to it by SDIC Ming'an with obvious defects (the transaction time is not displayed, the name of the bank is not recorded, even from the perspective of the formal examination, it is impossible to prove the corresponding recovery facts), that is, credulous belief in the authenticity of the so-called SDIC Ming'an's payment. In summary, in the stage of fund investment and management, asset management A has serious violations of regulatory regulations and the responsibilities of the manager.
According to Article 107 of the Contract Law of the People's Republic of China, "if one of the parties fails to perform its contractual obligations or the performance of contractual obligations does not conform to the agreement, it shall bear the liability for breach of contract such as continuing to perform, taking remedial measures or compensating losses" and the second paragraph of Article 145 of the Securities Investment Fund Law of the People's Republic of China: "Where, in the course of performing their respective duties, the fund manager or fund custodian violates the provisions of this Law or the provisions of the fund contract, causing damage to the fund property or fund share holders, They should be liable for their respective acts in accordance with the law. Asset Management A shall be liable to the investor for its failure to perform its statutory and contractual obligations.
As to whether Group B should bear joint and several liability for compensation with Asset Management A, the court found the following: First, from the perspective of the fund sales stage, the "Confirmation Letter of Arrival of Funds" issued by Group B clearly stated that the private fund involved in the case was recommended by the investment and financial planner of Group B, and Group B promised to do a good job in follow-up service work. In addition, judging from the payment of the sales service fee of the private fund involved in the case, the sales service fee was not directly transferred to A Asset Management, but to the wholly-owned subsidiary of Group B, which can also support the fact that Group B actually participated in the promotion and sale of the private fund involved in the case. Secondly, from the perspective of fund investment and management stage, in the process of communicating with investors, Group B admitted that Group B, as a group company, actually participated in the investment and management of the private equity fund involved in the case, and actively coordinated and communicated with investors, including Zhou. In summary, Group B, as a group company, essentially constitutes an agent for asset management A to sell, invest and manage the private equity funds involved in the case. According to Article 167 of the General Provisions of the Civil Law of the People's Republic of China, "where an agent knows or should have known that the agency matter is illegal and still carries out the act of agency, or the principal knows or should know that the agent's act of agency is illegal and does not object, the principal and the agent shall bear joint and several liability." ”
Verdict
The court ordered manager A Asset Management to compensate the investor for all investment funds and subscription fees, and to charge the capital occupation fee according to the bank loan interest rate for the same period, and Group B should bear joint and several liability for compensation.
Risk Warning
- 1. For projects in which the fund invests in and invests abroad through the subordinate fund, the manager shall conduct a detailed investigation of the investment targets of the investment scope. For the GP or important investor of the subordinate fund specified in the investment agreement, whether it is a GP or LP with the industrial and commercial registration of the subordinate fund, the manager shall conduct an investigation and verification. If there is a discrepancy between the actual registered partner and the agreement, the manager shall further supervise the subordinate fund to complete the registration obligation, and require the manager of the subordinate fund to explain the unregistered situation, and the above information manager shall fully disclose it to the investor. Before the subordinate fund has completed the aforesaid registration obligations, the manager of the capital contribution to the subordinate fund should carefully weigh it.
- 2. For the final investment direction of the fund, the manager shall review whether the capital contribution of the fund is used to purchase the agreed target assets, and the manager shall review the performance of important transaction links such as the price, payment and delivery of the target assets one by one.
- 3. Where the fund is invested in anonymous equity, the manager shall review the authenticity of the facts of the nominee holding and take review actions such as consulting the original nominee holding agreement and verifying the nominee holding facts with the named shareholder. Considering that the nominee shareholding project is a risky investment project, during the fundraising and promotion stage, the manager should fully disclose to the investors the key fact that the fund is invested in the nominee shareholding. In addition, at the stage of investment management and post-investment exit, the fact that the fund investment is a proxy shareholding should also be disclosed and confirmed to the investor.
- 4. At the stage of the fund's withdrawal from the payment collection, the manager shall review the agreements and vouchers involved in the payment collection, confirm that the fund has the real payment, and after the payment is in place, timely request the subordinate fund to distribute its income, thereby ensuring the safety of the fund's property.
- 5. Risk isolation should be done within the group company. Avoid the situation where the group company participates in the fund raising and promotion, operation management and post-investment withdrawal of the subsidiary (investment platform) as a group company, and then is determined to constitute an agency relationship between the group company and the subsidiary, resulting in joint and several liability. First of all, in the external communication of fund raising and promotion, operation management and post-investment withdrawal work, the situation that the group company directly represents the investment platform should be avoided. Secondly, in the management arrangement of the fund, the fund should be responsible for the employees of the subsidiary that established the fund. Even if there is a situation where a manager is assigned to a subsidiary for a group company to be responsible for the fund, there should be an appointment agreement between the internal group company and the subsidiary, and the identity of the manager should be an employee of the fund (subsidiary) and not an employee of the group company. Third, with regard to the path of payment of fund sales funds, the situation under this case being directly allocated by the sales company to the group company should be avoided.
(2) Other contract disputes between Fund A, Company B and Mr. Liu [(2020) Hu 74 Min Zhong No. 1046]
Summary of the case: The fund manager failed to perform the duty of prudent due diligence on the final investment of the fund, and after the investment of the fund was proved to be an illegal project, the fund could not exit normally, and the court ordered the manager to compensate the investor for all losses.
On June 13, 2017, the Kowloon Temple Traditional Culture Private Equity Investment Fund was established, the fund type is equity investment fund, and the fund manager is Fund A. On July 7, 2017, Mr. Liu signed the "Kowloon Temple Traditional Culture Private Equity Investment Fund Contract" with Fund A: the name of the fund is the Kowloon Temple Traditional Culture Private Equity Investment Fund; the fund mainly invests in part of the equity of Company B, and ultimately invests in the Changzhou Kowloon Zen Temple Project; the manager performs the trustee's obligations in accordance with the principles of good faith, diligence and responsibility, manages and uses the fund property, and manages the fund property on the principle of maximizing the interests of investors. After that, the investor Liu Moumou paid the investment money to the manager. Due to the fund's failure to successfully withdraw from the payment, the investor sued the manager to return the investment principal and expected returns, on the grounds that the manager could not recover the investment due to improper performance of duties.
The court held that, based on the relevant facts that the Kowloon Zen Temple Project was found to be an illegal building due to illegal occupation, the existence of forgery of approval documents, and the order to demolish, restore the original state and prohibit sales, it could be found that Fund A, as the fund manager, had intentional or gross negligence in conducting due diligence and disclosing false information on the investment target project, which violated the fiduciary obligations of the fund manager. Based on the CSRC's penalty decision on Fund A and the facts ascertained in this case, the court found that Fund A, as a fund manager, failed to perform its duties, performed its duty of prudence and diligence, entrusted an institution without fund sales qualifications to raise funds, failed to manage and use fund assets in accordance with the investment scope agreed in the contract, failed to perform its information disclosure obligations in accordance with regulations, failed to maintain relevant information in accordance with regulations, and failed to organize liquidation in a timely manner and distribute proceeds to fund investors in a timely manner after the termination of the fund contract. In addition, the court found that Fund A had been disqualified as a fund manager by the Asset Management Association of China due to a number of violations of laws and regulations.
Taking into account the fund manager's serious breach of contract and the breach of the fund manager's fiduciary obligations in this case, the court ruled that Fund A was liable for all the losses of the investors, and therefore ruled to return the investment principal and the loss of capital occupation.
The case concerned the due diligence boundary of sensitive projects. For sensitive projects, such as funds invested in cemeteries, temples, golf courses, or gambling platforms, the manager shall conduct due diligence on the legality of the project. Specific to this case, the ultimate investment of the fund in the Kowloon Zen Temple project was identified as an illegal building due to illegal occupation, there was a forgery of approval documents, and it was ordered to demolish, restore the original state and prohibit sales, and other relevant facts, and the existence of such facts can be confirmed by the manager by basic due diligence means such as inquiring and verifying with the competent authorities, visiting the project site for investigation, etc.
(3) Business Trust Dispute between Bank A and Trust B [(2020) Jing 02 Min Chu No. 302]
Summary of the case: The trust plan finally invests in the fixed increase shares of the listed company through the directional asset management plan, and the actual controller of the listed company bears the obligation of making up for the difference in the income after the expiration of the period of lifting the ban on the fixed increase shares, because the manager of the trust plan, B Trust, has improper performance of duties such as due diligence, lack of due diligence in the disposal of trust property, delay in recovering claims, etc., the court ordered the manager to bear the liability for compensation for the losses of the investor.
Bank A (the settlor) and Trust B (trustee) established the "Liyuan Jingjing To Issue Additional Collective Fund Trust Plan", which indirectly invested in LiyuanJing's additional projects through the asset management plan. Before the establishment of the trust plan, Trust B conducted due diligence on Liyuan Refining and issued a "Due Diligence Report": "The trust management method is active management, and our company intends to establish a Liyuan Refined Collective Fund Trust Plan, which invests in the Xinwo Fund Directional Asset Management Plan as the settlor, and entrusts the directional asset management plan to participate in the subscription of additional shares by Liyuan Refining"; "The actual controller holds the company's equity and pledge" Item downloads "As of June 30, 2016, The number of shares pledged by the actual controller of the company is 0 shares".
Subsequently, Trust B issued an Explanation to Bank A, and attached a Credit Enhancement Agreement signed by Trust B (Party A) and Wang Min (Party B) (at that time, the controlling shareholder and actual controller of Liyuan Refining). The Credit Enhancement Agreement stipulates that if, as of the date on which Party A withdraws from the asset management plan through the distribution or transfer of the asset management plan share and no longer holds the asset management plan share, the total amount of investment income accumulated by the asset management plan distributed to Party A by means of cash and/or other means is not sufficient to cover the entire principal of the entrusted property and the annualized income calculated according to 8% per year, Party A has the right to issue a notice of deficiency compensation to Party B and require Party B to perform the obligation to make up the difference in accordance with the notice and this Agreement.
After the issuance of the above documents, Bank A and Trust B signed the Trust Contract, which stipulates: "The trustee will scrupulously perform his duties and fulfill the obligations of honesty, credit, prudence and effective management." If the trustee causes damage to the trust property due to the breach of this contract or the improper handling of trust affairs, the trustee shall compensate with the inherent property, but the trustee's compensation shall be capped by the actual loss of the trust property and shall not exceed the trust property itself. When the trustee's inherent property is insufficient, the investor shall bear the compensation. After that, Bank A paid the subscription amount according to the agreement, and the trust plan was established accordingly and the trust plan indirectly obtained the refined fixed increase shares of Liyuan. After the expiration of the restriction period of fixed shares, a large number of negative news broke out in the refined profit source, the dream of high-speed rail car manufacturing was shattered, and the stock price fell all the way, so the trust plan faced a huge loss. After the distribution of the trust income, the amount of loss of Bank A was more than 178.73 million yuan.
On April 14, 2019, Wang Min, the actual controller of Liyuan Refining, passed away. On June 24, 2020, Liyuan Refining announced that the actual controller Wang Min had died, his son had notarized to renounce the inheritance, Wang Min's wife Zhang Yongxia was Wang Min's only legal heir, and Wang Min and his wife had been included in the list of dishonest executors and restricted consumption personnel by many courts. As of the time of the lawsuit in this case, the contract dispute lawsuit in which B Trust sued Wang Min's heir Zhang Yongxia to require him to bear the obligation to make up the difference within the scope of inheriting Wang Min's estate was under trial in court.
Bank A claimed a claim against the manager of the trust plan, Trust B, for failing to perform its duties due diligence and disposal of trust property, and for improper performance of its duties.
The focus of the dispute in this case is whether Trust B was diligent and conscientious in its due diligence and disposal of trust property, whether there was a causal relationship between the handling of trust affairs and The property losses of Bank A, and how to determine Trust B's liability for compensation to Bank A.
- First, on due diligence
Trust B sent the Due Diligence Report (Referral Trust Plan) to Bank A: "The Actual Controller Holds the Equity of the Company and Pledges" item downloads that as of June 30, 2016, "the number of shares pledged by the actual controller of the Company is 0 shares".
Regarding the investigation of the equity pledge of the actual controller Wang Min. Since Wang Min is the obligor for the difference in the trust plan, Wang Min's property status is crucial to make up for the loss of trust investment, and the Liyuan refined shares held by Wang Min are an important part of Wang Min's property, so whether the stock is pledged to others has an important impact on the investment decisions of both Trust B and Bank A. In this important matter, the investigation method of B Trust should reach the extent that it has sufficient reason to believe that the information disclosure of the target company is true, accurate and complete. B Trust only records that the pledge or freezing of the shares held by Wang Min and Zhang Yongxia is blank according to the "Jilin LiyuanJing Semi-annual Report", that is, in the "Due Diligence Report", it is recorded that "the number of shares pledged by the actual controller of the company is 0 shares", which is insufficient. The stock pledge matters disclosed by Liyuan Refining are blank and the information disclosure is incomplete. In addition, based on the total number of limited sale condition shares and the number of shares held by Wang Min in the above-mentioned report of Liyuan Refining, combined with the "balance of limited sale condition securities to be repurchased" available on the official website of the Shenzhen Stock Exchange, it can be inferred that Wang Min has a stock pledge, but B Trust has not further investigated this matter. In fact, from February 2, 2016 to April 25, 2018, Wang Min pledged the Liyuan Refined Shares he held or pledged them again after the pledge expired. In summary, the improper method of investigation of Wang Min's equity pledge by Trust B and the wrong results of the investigation directly affected Bank A's investment decision-making and choice of risk control measures, and there was a certain causal relationship with Bank A's investment losses. Bank A claimed that Trust B failed to accurately disclose the product risks and caused property losses before the establishment of the trust plan, and accepted it.
- Second, on the disposal of trust property
Whether trust B is honest, creditworthy, prudent and effective in the process of realizing and disposing of trust property, and whether it causes property losses to Bank A as a result.
1. Formulation of a plan for the realization and disposal of trust property
After the establishment of the trust plan, Trust B, as the trustee, actively manages and uses the trust funds and participates in the private placement of Liyuan refined shares through the asset management plan, so Trust B shall choose the opportunity to transfer the shares of the asset management plan or instruct the asset manager to transfer the refined shares of Liyuan, and require the credit enhancement entity Wang Min to bear the obligation to make up the difference when the conditions are met, so that Bank A can obtain cash returns to the greatest extent. The fixed increase shares are expected to be listed and circulated on January 24, 2018, and Trust B should form a trust property disposal plan before that date, and propose targeted liquidation plans for the rise and fall of the stock price. In the case that the share price of Liyuan Refining has continued to decline since January 2018, and the stock price has fallen significantly more than the Shenzhen Composite Index, Trust B has not sent a draft of the Project Exit Plan to Bank A until April 11, 2018, and it is stated that the specific implementation plan will be determined six months before the expiration of the project, that is, in October 2018, so Trust B has obviously delayed the formation of a trust property disposal plan, which is not conducive to its timely adoption of reasonable trust property disposal measures.
2. Regarding the method and timing of the actual realization and disposal of the trust property
First, on the issue of identifying and responding to wangmin's stock pledge. Before and after the establishment of the trust plan, Trust B has not ascertained Wang Min's stock pledge, resulting in Trust B failing to make a more prudent judgment on the authenticity, accuracy and completeness of Wang Min's solvency and Profit Source Refined Disclosure Information, which is not conducive to its timely and decisive measures to liquidate and dispose of trust property.
Second, on the analysis and response to the continuous decline in the stock price of Liyuan Refining in 2018. The share price of Liyuan Refining has continued to decline since January 2018, but Trust B failed to explain the feasibility of transferring the share of the asset management plan, nor did it produce evidence to prove that it had tried to transfer the share of the asset management plan, and in the explanatory letter issued to Bank A in January 2019, it claimed that the disposal plan it intended to take at that time was to reduce its shares, so Trust B did not form a clear idea of disposing of trust property under the circumstance that the stock price continued to fall, which was not conducive to the disposal of trust property.
Third, on the issue of judging and responding to the substantial increase in investment in the project budget and the delay in the progress of the project. The funds raised by the fixed increase project are mainly used for rail vehicle manufacturing and aluminum profile deep processing construction projects, with a total investment of 5.499 billion yuan. In April 2017, Liyuan Refining announced that the budget of the project increased to 7 billion yuan, and on April 27, 2018, the announcement disclosed that the budget of the project increased to 10.5 billion yuan, and announced that the completion time of the trial production of the complete vehicle prototype of the rail vehicle will be postponed from the expected beginning of 2018 to the end of July 2018. The substantial increase in project budget investment and the postponement of the project schedule will inevitably affect the stock price of Liyuan Refining, which in turn will affect the trust investment income of Bank A. Liyuan Refining's stock price has indeed been in a continuous decline since January 2018. Accordingly, a substantial increase in the investment in the project budget and the postponement of the project schedule should be a major event in which "the trust property may suffer significant losses". Trust B shall, in accordance with the second paragraph of Article 18 of the Trust Contract, not only disclose the matter to Bank A in a timely manner, but shall also submit in writing to Bank A the countermeasures taken by the trustee within 7 working days from the date of disclosure, including the proposition and reasons for whether to liquidate the trust property. Trust B failed to recognize that the substantial increase in project budget investment and the postponement of the project schedule may lead to significant losses to the trust property, and failed to fulfill its information disclosure obligations, resulting in Bank A losing the possibility of taking positive stop-loss measures such as transferring beneficiary rights and negotiating early redemption. Trust B failed to take timely liquidation measures due to errors in judgment, delaying the timing of the disposal of trust property, resulting in property losses to Bank A.
Fourthly, on the exercise of the right to make up for the difference. According to the Credit Enhancement Agreement signed by Trust B and Wang Min, the premise for Wang Min to perform the obligation to make up the difference is that Trust B withdraws from the asset management plan through the allocation or transfer of the shares of the asset management plan. Trust B failed to dispose of the trust property at an appropriate time to withdraw from the asset management plan, resulting in it not withdrawing from the asset management plan at the time of Wang Min's death, and failing to exercise the right to make up the difference to Wang Min in a timely manner, which was not conducive to Bank A's reduction of property losses.
In summary, Trust B failed to be honest, creditworthy, prudent and effective in the process of realizing and disposing of trust property, and there is a certain causal relationship between this act and the property loss of Bank A, and this court adopted the corresponding litigation claim of Trust B for neglecting to perform its investment management obligations put forward by Bank A.
The improper method of investigation of Wang Min's equity pledge by Trust B and the wrong results of the investigation directly affected Bank A's investment decision and choice of risk control measures. B Trust also failed to be honest, creditworthy, prudent and effective in the process of realizing and disposing of the trust property. Trust B's above-mentioned acts violate the provisions of the Trust Contract, fail to handle trust affairs diligently and conscientiously, and there is a certain causal relationship between trust funds of Bank A, and Trust B shall bear the corresponding liability for damages for breach of contract to Bank A. At the same time, the trust plan in this case participated in the private placement of listed companies' stocks through the asset management plan, and the investment risk in the stock market was high, and the selection of the time point for the reduction was difficult and subject to the new regulations on the reduction of holdings. Therefore, the court found that there was a direct causal relationship between the stock market risk and the loss of Bank A's trust funds.
Taking into account factors such as Trust B's failure to manage the overall situation of trust affairs and stock market risks with diligence and responsibility, the Court decided that Trust B would compensate Bank A for the loss of trust funds of RMB30 million.
The court involved in the case found that the trustee's method of investigating the equity pledge of the poor compensation obligor was improper, the results of the investigation were wrong, which directly affected the client's investment decision and the choice of risk control measures, and combined with the defects in the performance of the trustee's duty of diligence and due diligence in the case, the court ruled that the trustee should bear secondary compensation liability for the losses of the client. Therefore, this case warns the administrator that in the active management project, the following should be noted for the investigation of the obligor's ability to perform the contract:
- 1. Investigative techniques regarding equity/share pledges and judicial freezes. (1) If the differential compensation obligor is a shareholder of the listed company, it shall be investigated in conjunction with the information disclosure announcement of the listed company (provided that the differential compensation obligor is the information disclosure obligor) and the "Investor Securities Freezing Information" issued by China Securities Depository and Clearing Co., Ltd. (this is the basis document for stock holding, pledge and judicial freezing). (2) If the obligor is a shareholder of a limited liability company, the investigation shall be conducted in accordance with the pledge and judicial freezing information recorded in the national enterprise information publicity system. (3) If the differential supplement obligor is a shareholder of a joint-stock limited company, in view of the fact that the register of shareholders and equity of a joint-stock limited company is subject to the register of shareholders of the joint-stock limited company, the shareholders' register shall be investigated on the basis of the register of shareholders and the situation of equity pledge and judicial freezing under the name of the poor supplement obligor.
- 2. Investigative means of immovable property. For the mortgage and judicial freezing of real estate, the investigation should be carried out in accordance with the "Land/Real Estate Ownership Information Inquiry Certificate" issued by the Real Estate Exchange Center (the name of the document varies from place to place, but the coverage is similar).
- 3. Investigative tools regarding cash accounts and other securities. The judicial freezing of cash accounts is the responsibility of the depositary bank. The pledge and judicial freezing of securities such as bonds and bills depends on the corresponding registration and settlement departments. From a practical point of view, in addition to the pledge and judicial freezing of the shares of the listed company, which may be calculated and inquired through the announcement of the listed company (provided that the debtor is the information disclosure obligor), the external guarantee and judicial freezing of other types of property must obtain the cooperation of the owner, and the third party has no right to require the relevant departments to provide materials, so in the case that the owner does not cooperate, the manager should also understand the performance ability of the subject of the inquiry obligation according to the public information channels involved below.
- 4. Investigate the performance capacity of the performing entity through public means. First, the performance of the contract can be inquired through the people's court announcement network [https://rmfygg.court.gov.cn/], and if there is a large amount of announcement hearing information, it can be preliminarily judged that the performance subject has poor performance ability. Second, the performing entity can be inquired through the national court enforcement network [http://zxgk.court.gov.cn/zhixing/] to inquire about the cases to be enforced, and if there are more cases of the performing subject, it can be determined that the performing entity has a plurality of outstanding judicial claims in the court system. Third, the China Enforcement Information Disclosure Network [http://zxgk.court.gov.cn/] can be used to inquire whether the subject performing the contract is a judgment defaulter or has been included in the list of restricted high consumption. If the subject of the obligation is included in the aforementioned list, it can be determined that its ability to perform the contract is very poor. Fourth, the effective judicial cases of the obligated subjects can be inquired through the [https://wenshu.court.gov.cn/] of the China Judgment Documents Network, which is the preliminary basis for the litigation involvement of the obligated subjects, and the obligee shall require the obligated subjects to provide further supporting documents on whether the judicial claims have been paid off. Fifth, in addition to the above investigation methods, in the active management of the project, the manager shall also investigate the negative news of the subject of the poor supplement performance, and within the scope of legal and reasonable, try to collect negative information of the subject of the poor supplement performance.
In summary, within the scope of reasonable and legality, after its investigation methods have given the client (investor) sufficient reason to believe that the information disclosure has reached a true, accurate and complete degree, the manager has fulfilled its due diligence obligations under the active management project.
(4) Contract dispute between Company A and Mr. Shi [(2020) Jing 02 Min Zhong No. 5208]
Summary of the case: The fund invested in the claims arising from the technical management fees of a specific number of at-ones generated by the operation of ATMs in a specific area, and the manager failed to due diligence to review the performance of the ATM operation contract, and the relevant contracts were proved to have large-scale non-performance, resulting in serious inaccuracies in the actual amount of the claims receivable. The court found that the manager had breached the party in the due diligence process, such as failing to fulfill its duty of care, and combined with the fact that the manager also had misleading statements about the priority of the accounts receivable in this case, the above-mentioned acts were important matters that affected the investor's sincere intention to invest funds in the operation of the fund, so the manager constituted a breach of contract and should compensate the investor for losses.
Basic facts of the case
Mr. Shi signed a "Fund Contract" with Company A: to purchase the asset management products of Company A as the manager of the private fund, the investment direction of the fund was the "Contract for the Transfer and Repurchase of the Right to The Income of Accounts Receivable" signed between the fund and Company B, and the "accounts receivable" of 306.47 million yuan generated by the postal company and the Postal Savings Bank of the six provinces and cities legally held by Company B in accordance with the basic contract according to the discount rate, and the source of repayment was the collection of the "accounts receivable" received. Before signing the Fund Contract, in order to introduce the private fund project to investors, Company A presented the Contractual Private Equity Fund Fund Scheme to Mr. Shi, and the "Underlying Assets" section of the plan stated that "the underlying assets of the Fund's products are the specific number of technical management fee claims generated by the borrower during the operation of the underlying ATM during the guarantee period based on the operation cooperation agreement signed with the technical management fee payer in the following specific regions". The relevant data are listed in the attached table as the basis for calculating the total amount of technical management fees (including the number of ATMs in 6 provinces and cities and the average number of ATM guaranteed interbank transactions per day as agreed in the contract).
Subsequently, Company B failed to pay the remaining repurchase price of the "Accounts Receivable" income right under the Repurchase Contract to Company A as agreed, resulting in the failure of Shi's investment to exit smoothly.
As to whether Manager Company A fulfilled its duty of prudence in due diligence, the court found that the Cooperation Agreement did not clearly stipulate the actual number of ATMs, and agreed that the specific number of batches to be released was subject to market demand and the orders confirmed by both parties. However, Company A did not verify whether there was a contract or order for the final confirmed quantity between Company B and the postal companies of the six provinces and cities. The court issued letters of assistance in the investigation to the postal companies of the six provinces and cities in accordance with the law, of which the postal companies of the four provinces and cities replied to the opinions on the actual performance of the ATM cooperation agreement, while Company A did not verify the actual performance of the contract through relevant channels during the due diligence. Company A advocates that whether the ATM machine is put in and the quantity of the ATM machine is verified by inquiring from a third party and inquiring about the information such as the consignment note and the inspection work order, but due to the inconsistency between the location, machine serial number and other information in the inspection work order and the transport record, so that the delivery record and the inspection work order cannot truly reflect the actual delivery of the ATM machine, but Company A did not find the above situation in the due diligence, nor did it verify the specific reasons. Since the number of ATMs directly affects the investment income of the financing project, which is a major matter in due diligence, Company A has not fully verified this in its due diligence, so it should be regarded as failing to fulfill its due diligence obligations.
Company A had breaches such as failing to make a return visit to Confirm Mr. Shi, misleading statements to investors in the expression of "accounts receivable" (the above two are other breaches in this case), and failing to fulfill its duty of due diligence, all of which were important matters that affected the investor's sincere intention to invest funds in the operation of the fund. Therefore, Company A constitutes a breach of contract and shall bear the responsibility of returning the principal amount of the investor.
The fund investment in this case was the purchase of accounts receivable, and the effective existence of the accounts receivable claims was a key consideration factor in the payment of consideration, so the manager should perform the obligation of careful verification of the transaction elements of the accounts receivable. In light of the present case, the administrator should:
- 1. Send an inquiry letter to the debtor of the underlying contract to find out the performance of the debt under the underlying contract, the amount of the remaining claim, the period of performance of the debt, and whether the debtor has the right to defend against the payment.
- 2. The actual performance of the basic contract is inconsistent, and if there is a discrepancy between the actual performance of the basic contract and the contract agreement, the acquisition consideration shall be adjusted accordingly for the in-and-out part.
- 3. The relevant defects of accounts receivable claims shall be further verified. For example, the manager in this case verified whether the ATM machine was put in and the quantity of the ATM machine by inquiring about the third party and inquiring about the consignment note, the inspection work order and other information, but its due diligence was superficial, and it was not found that the inspection work order was inconsistent with the location, machine serial number and other information in the transportation record, so that the transportation record and the inspection work order could not truly reflect the actual delivery of the ATM machine, and such due diligence defects constituted improper performance of duties, and the manager failed to perform its duties with diligence and due diligence. In similar projects, the manager shall conduct full due diligence in conjunction with the project to complete the manager's duty of diligence and due diligence.
Chapter summary
The cases involved in this chapter all involve the manager's failure to perform its due diligence obligations in the due diligence link, on the basis of the untruthfulness of the due diligence, the manager recommends the asset management project, the investor makes an investment behavior based on the wrong information given by the manager, and then the asset management product cannot be successfully withdrawn for various reasons, so the investor pursues the legal responsibility of the manager for failing to perform the prudential obligation in the due diligence link, and the above-mentioned judicial precedent clearly informs the manager that in the active management project, the due diligence obligation should be performed, and the due diligence should not be superficial For key transaction elements and transaction information, the manager should repeatedly seek truth and verify, so that the manager can fulfill the obligation of diligence and due diligence.
[1] "Overview of Hot Legal Issues in Financial Asset Management Disputes" at the First Shanghai Financial Justice Salon, published in Shanghai Judicial Think Tank, China, August 10, 2021.
[2] "Research on the Fiduciary Obligations of Private Equity Fund Managers", Xiao Yu and Licensing, in Modern Jurisprudence, November 2015.
[3] Article 25 of the Trust Law reads: "The trustee shall abide by the provisions of the trust deed and handle the trust affairs in the best interests of the beneficiaries." The trustee managing the trust property must scrupulously perform his duties and fulfill the obligations of honesty, creditworthiness, prudence and effective management. Article 9 of the Securities Investment Fund Law reads: "Fund managers and fund custodians manage and use fund assets, and fund service institutions engaged in fund service activities shall scrupulously perform their duties and perform the obligations of good faith, prudence and diligence." Fund managers using fund assets for securities investment shall abide by prudent business rules, formulate scientific and reasonable investment strategies and risk management systems, and effectively prevent and control risks. Article 4 of the Interim Measures for the Supervision and Administration of Private Equity Investment Funds reads: "Managers shall scrupulously perform their duties, perform honesty and creditworthiness, prudence and diligence." Paragraph (11) of Article 8 of the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions reads: "Where a financial institution fails to earnestly perform its fiduciary management duties in accordance with the principles of good faith, diligence and due diligence, and causes losses to investors, it shall bear the liability for compensation to investors in accordance with law." ”
Special Notice:
The above is the personal opinion of the author, does not represent the position of the institution in which he belongs, and should not be regarded as issuing any form of legal opinion or recommendation.
Recommended in previous periods
Dentons Research | Li Chen et al.: The determination and assessment of the housing land being reimbursed separately when the mortgage right and the priority of the project payment coexist