Per reporter: Song Qinzhang Per editor: Cheng Peng, Chen Xing
Zhang Lan, the 65-year-old founder of Qiujiangnan, has frequently appeared on the hot search for live broadcasting, but recently it has not been smooth.
First of all, her "Ma Liuji" chutney powder was directly named and criticized by the China Food Safety News 3.15 special report team for containing more than 20 kinds of additives, among which ammonium aluminum sulfate is similar to alum, and excessive intake can easily cause Alzheimer's disease, memory loss, mental decline and other conditions.
Then, Zhang Lan was recently exposed to a huge amount of debt abroad, and the mansion under her name was also executed, which quickly caused heated discussions among netizens.
According to a report by Shanghai Securities News on the 19th, the judgment recently released by the US Federal District Court said that Zhang Lan still owed the CVC fund 142 million US dollars (about 980 million yuan) and its interest. Zhang Lan's overseas family trust was broken, and a New York apartment she bought with the family trust was about to be repaid, and the relevant news caused heated discussions.
Image source: SG Courts website
As soon as the news came out, the asset protection function of the family trust was also questioned. Why was the overseas family trust broken? Is there also a possibility that domestic family trusts may be broken? Is a family trust reliable for asset protection?
The so-called family trust, according to the Notice on Matters Related to Regulating the Classification of Trust Business of Trust Companies (Draft for Comments), means that a trust company accepts the entrustment of a single natural person, or accepts the joint entrustment of a single natural person and his relatives, and provides customized affairs management and financial services such as asset planning, risk isolation, asset allocation, children's education, family governance, public welfare (charity) undertakings and other customized affairs management and financial services with the protection, inheritance and management of family wealth as the main trust purpose. The paid-in trust of the family trust shall not be less than 10 million yuan. The beneficiaries shall be the settlor or his relatives, as well as charitable trusts or charitable organizations, but the settlor must not be the sole beneficiary.
In addition, Jiupai Finance reported on the evening of March 19 that Zhang Lan responded to overseas debts of 980 million yuan, saying that she was calculated by capital and did not owe anyone, and described the dispute in her autobiography.
Zhang Lan responded to overseas debts of 980 million yuan: calculated by capital, did not owe anyone
According to Shanghai Securities News reported on the 19th, recently, some media reported that the US federal district court announced the civil litigation ruling of La Dolce Vita Fine Dining Company Limited (Sweet Life Gourmet Co., Ltd.) and Zhang Lan, ruling that Zhang Lan and her company owned 20 West 53rd Street in New York, the proceeds from the sale of apartment 39A belong to Dolce Vita, Gourmet Co., Ltd. Sweet Life Food Co., Ltd. was actually established by CVC to acquire Qiu Jiangnan, and the judgment also revealed that Zhang Lan lost a lawsuit with CVC in 2019, owing the other party a total of US$142 million (about 980 million yuan) and its interest.
In addition to obtaining funds for the New York apartment, CVC also targeted Zhang Lan's family trust in order to recover the debt.
On 2 November 2022, a judge of the High Court of Singapore found that Zhang Lan was the beneficial owner of the assets in the bank account where the trust was located, and therefore granted CVC's application to appoint a receiver. In other words, the family trust property is recognized as Zhang Lan's personal property, so Zhang Lan's creditor CVC can apply for corresponding enforcement measures against the funds.
The grudge between Zhang Lan and CVC should start with the failure of the listing of Qiujiangnan.
According to Xinmin Weekly and Jiupai Financial reports, Zhang Lan founded the Qiujiangnan brand restaurant in 2000. In order to realize the dream of going public, in 2008, Qiujiangnan accepted an investment of 200 million yuan from CDH. It was not until 2011 that Qiu Jiangnan sprinted to A-shares, but was unsuccessful, and then switched to Hong Kong for listing.
Because Qiu Jiangnan signed a gambling agreement with CDH, CDH asked Zhang Lan to buy back the shares at a high price. Zhang Lan had no money to fulfill the contract until CVC appeared. In 2014, CVC acquired an 82.7% stake in Qiujiangnan. At this time, Zhang Lan's shareholding was changed to 13.8%, and the employee's shareholding was 3.5%.
In 2014, CVC Fund borrowed about US$250 million (about 1.6 billion yuan) to pay Zhang Lan's bank account in order to acquire the equity of Qiujiangnan.
Since CVC's acquisition of Qiujiangnan was also borrowed, under the pressure of syndicated loans, CVC transferred all of its shares in Qiujiangnan to Hong Kong Paul Y. in 2015, and Zhang Lan also lost her minority stake in Qiujiangnan. In July 2015, CVC's appointed representative and Zhang Lan ceased to serve as a member of the board of directors of Qiujiangnan, and Zhang Lan completely lost control of Qiujiangnan.
The conflict between CVC Fund and Zhang Lan continued to escalate, and the two sides fought a trade arbitration lawsuit. In April 2019, Zhang Lan lost an arbitration case and was ordered to pay the CVC Fund US$142 million and its interest.
During this period, Zhang Lan, who realized the business risks of Qiujiangnan, in order to achieve property preservation and inheritance, Zhang Lan established Success Elegant Trading Limited (hereinafter referred to as "SETL") in the British Virgin Islands in February 2014, and established the offshore trust The Success Elegant Trust in June of the same year, with the beneficiaries of her son Wang Xiaofei and his children. The custodian is AsiaTrust Limited.
Image source: video screenshot
SETL maintains separate bank accounts at Credit Suisse and Deutsche Bank (collectively, the "two bank accounts").
After receiving the transfer from CVC, Zhang quickly transferred $142 million in cash and securities to her family trust shell company, SETL, and then transferred $85 million of that to SETL's account with Deutsche Bank.
According to the 21st Century Business Herald, at present, SETL has assets of about $22 million and $33 million in the accounts of Credit Suisse and Deutsche Bank, respectively. In March 2015, CVC obtained property freezing orders from Hong Kong courts and Singapore courts, and two bank accounts under SETL were frozen. CVC's reasoning is that the whereabouts of the large sums of money paid to Qiu Jiangnan are unknown.
Then, the CVC filed an arbitration against Zhang Lan, and Zhang Lan lost. The CVC first held the ruling and was upheld by a Hong Kong court. Later, CVC went to Singapore and targeted two bank accounts in the Zhang Lan family trust structure. The Singapore court heard CVC's application for appointment of a receiver and rendered its judgment on 2 November 2022, and it was this judgment that brought Zhang Lan's unknown family trust to light.
According to a report by Jiupai Finance on the 19th, on March 18, the reporter noticed that Zhang Lan held her own brand of cold noodles in the live broadcast, responding to fans' questions on the screen, saying that the debt was calculated by capital, "I didn't calculate others, so there is no shame." This shows that I am doing well, the pigs are fattened and the wolves are coming. It is the CVC fund that owes me, I don't owe anyone, how can I bow to the underworld forces. ”
In response, Zhang Lan also did not forget to bring goods for her published autobiography, saying that her dispute with CVC Fund is clearly described in the book, and the specific situation is not discussed in the live broadcast room.
Just three weeks ago, Zhang Lan appeared at the 35th Beijing Book Order Conference with her new book "My Nine Lives". She confessed at the scene that it was not easy to get to today, all relying on the breath of her heart.
Many fans in the comment area expressed their support for Zhang Lan, believing that her insistence on starting a business for decades and live streaming every day is very inspiring. However, many netizens believe that "it is natural to owe money to pay debts, CVC will almost go bankrupt if it doesn't return the money, Zhang Lan always feels that it is someone else's fault." ”
Why was the Zhang Lan family trust broken?
For a long time, the important advantage of family trust is that the settlor can isolate risks by relying on the independence of trust assets, so it can avoid the problem of family property division due to business operation risks and marriage risks. Family trusts are also favored by high-net-worth clients because of their risk isolation function.
It is curious why Zhang Lan's offshore family trust has failed to play the function of "risk isolation".
According to the judgment of the Singapore High Court, the judge found Zhang Lan to be the actual owner of the funds under the family trust mainly on the following grounds:
First, after the establishment of the family trust, Zhang Lan was still free to transfer money for herself from the bank account.
Second, before receiving the notice of the freezing order in Hong Kong and the freezing order in Singapore, Zhang Lan was eager to transfer the funds under the family trust.
The judgment used the term "apparent unfettered operation." Specifically, the first evidence is that in September 2014 and February 2015, Zhang Lan directly asked Credit Suisse to transfer US$3 million twice without specifying the reason; The second evidence is that a fund was transferred out of a Deutsche bank account on November 26, 2014, which was eventually traced back to the purchase of the apartment in New York.
Third, Zhang Lan's agent clearly mentioned in an email to the bank where the funds under the family trust were located that the relevant bank accounts under the family trust were owned by Zhang Lan, and requested that "changes in the assets of the account be notified in a timely manner".
Image source: SG Courts website
Accordingly, the Singapore High Court held that although the funds were in the name of the family trust, Zhang Lan was the actual owner of the funds, and Zhang Lan established the family trust to avoid the enforcement or claim of the property in her name by creditors.
Zhonglun Wende Law Firm's official website said that throughout the discussion process of the court's judgment, the core of whether the family trust will be broken by the court lies in whether the actual owner of the property under the family trust is the settlor, and this issue is essentially a judgment on the validity of the family trust.
For a family trust to be effectively established, it should have the function of asset segregation, that is, after the settlor converts his property into trust property through the family trust, the trust property will be independent of the inherent property of the settlor, trustee and beneficiary. Therefore, even if the settlor or trustee or beneficiary is unable to repay the debt, the trust property is not his responsible property, and the creditor has no right to apply to the court to directly take property preservation measures or other enforcement measures against the trust property.
Conversely, if the family trust is invalid or revoked according to law, there should naturally be no corresponding trust property, that is, the property under the family trust is still essentially the personal property of the settlor, and the creditors of the settlor have the right to apply to the court to take corresponding property preservation and enforcement measures for such property, so it cannot play the asset isolation function of the family trust.
Zhang Qiang, a senior partner at Beijing Weiheng Law Firm, also said in an interview with WeChat that the actual owner of the property under this family trust is the settlor, not the custodian, which is not a family trust in essence. "Effective family trusts with asset isolation function, after the settlor converts his property into trust property, the trust property will be independent of the inherent property of the settlor, trustee and beneficiary."
In an interview with Mr. Wang Xu (TEP), executive director of the Family Office Law Center of Dentons, he believes that the problem of trust breakdown should be viewed from two levels.
At the legal design level, when the settlor retains too much control over the trust property in the trust deed or trust structure, and the retention of rights leads to the trust property being freely disposed of by the settlor, the possibility of the trust being "broken" will increase significantly.
At the practical level, even if the settlor of a family trust does not retain too many rights on the surface, if all the instructions of the settlor are strictly implemented by the trustee "without thinking", this situation may be a substantial false trust, and its asset protection function will also be affected.
"This trust can be problematic on both levels. From the perspective of legal design, she serves as a director in SETL and has the right to dispose of the company's property, and there may be more rights retention factors in the design of her trust deed. At the practical level, she was a signatory of the SETL bank account, and used the funds under the trust to purchase real estate, and during the operation of the trust, her lawyer also sent an email to the bank, stating that the account was maintained by Zhang Lan. Judging from public information, the family trust has certain problems at both the legal level and the practical level, and has 'genes' that can be broken. Wang Xu said.
Is there also a possibility that domestic family trusts will be breached?
The breakdown of overseas family trusts cannot help but make high-net-worth individuals worry: Is there a possibility that domestic family trusts may fail in asset isolation?
Wang Xu believes that being shot down means that creditors can enforce trust assets. "Domestic family trusts may also be broken, but they are more difficult than overseas family trusts."
Talking about the reasons, he told every reporter that this is related to the difference in legal rules and legislative genes of domestic and foreign trusts. First of all, there are differences between domestic and foreign legal rules, and overseas trust rules have undergone a long period of evolution, and there are clear legal provisions on the retention of the settlor's rights, false (sham) trusts, illusory trusts and other issues. In contrast, there are not sufficient rules to invoke in the context of a family trust that wants to break down.
In addition, the legislative genes of offshore trusts and domestic trusts are also different, and domestic trusts are more open to the retention of rights of family trust settlors, and even clearly stipulate the mandatory rights enjoyed by the settlor in the legislation.
"But that doesn't mean family trusts within the country can't be breached." Wang Xu added that this family trust structure is placed in the territory and there is also the possibility of being broken down. Although the domestic legal rules have not yet clearly stipulated the impact of the reservation of rights on the trust, and clearly stipulate that the trust property cannot be enforced except in special circumstances, at the substantive operational level, if the settlor retains unlimited control over the trust assets, the court may also find that the settlor's control over the trust assets is consistent with its authority over the assets of ordinary banks, and then take indirect enforcement measures to require the settlor to exercise his right to transfer the trust assets to his own name and use them to repay debts. "Although indirect enforcement has not yet occurred within the country, we cannot ignore this potential possibility."
Wang Xu further emphasized that many trusts have such a commonality, that is, the settlor's unlimited control over the trust affects the asset protection function of the trust. "In general, control over investments in trust assets does not have much impact on its asset protection function. However, if the control is reflected in the distribution of trust property, for example, the settlor can decide who and how much the trust property is distributed to, etc., it is easy to affect its asset protection function.
Image source: Visual China
How can high net worth individuals set up a family trust correctly?
Wang Xu believes that first of all, we need to understand the problem from the essence of family trust. The essence of a family trust can be characterized from the essence of the law and the essence of the purpose.
The legal essence of a family trust is that the settlor transfers assets into the trust, the trustee holds, manages, and distributes the trust assets, and the beneficiaries benefit from the trust assets and supervise the trustee.
The essence of a family trust is to hold, protect and inherit family wealth, rather than evading debts, avoiding tax obligations and hiding illegal gains. "The legal essence of a family trust requires that after the establishment of the trust, the ownership of the trust property is transferred to the name of the trustee, and the settlor cannot dispose of the trust property without restraint; The essence of the purpose of family trust determines that family trust cannot be used for illegal debt avoidance. ”
"The asset protection function of family trusts has a social nature and is a tool to encourage wealth creation for high-net-worth individuals, because the existence of such asset protection tools allows them to avoid worries and be bolder in wealth recreation." Wang Xu said frankly.
At the same time, he also mentioned that although family trust is an asset protection tool, the purpose of asset protection must be legal, and family trust cannot be used simply to avoid existing debts. "For example, when the entrepreneur is in good business condition and does not have major debt risks, he uses half of the assets under his name to establish a family trust, and carries out a reasonable asset protection design for the trust mechanism. In contrast, if an entrepreneur transfers funds in his or her name to a trust in an attempt to avoid debt repayment obligations when he is about to face a foreseeable and significant debt risk or is already insolvent, it is an illegal debt avoidance. Family trusts established for the purpose of illegal debt avoidance, no matter how they are designed, do not have the effect of asset protection. ”
Through the family trust breakdown incident, Wang Xu believes that Chinese high-net-worth individuals should correctly understand the asset protection function of family trusts.
First, not all trust purposes can enjoy the asset protection function of a family trust. For example, illegal debt avoidance, transfer of joint property of husband and wife, concealment of illegally acquired assets and other purposes that attempt to harm the interests of others are not permitted.
Second, in most cases, there is a trade-off between retaining control over trust distribution and the asset protection function of the trust, and high-net-worth individuals need to weigh the importance of the two and find a balance between trust design.
Third, different family trust legal documents and legal mechanism design will produce different asset protection effects, which means that the customized design of family trust is very critical, and trust documents and legal mechanisms should be designed and adjusted according to family conditions and needs.
Reporter | Song Qinzhang
Editors|Cheng Peng, Chen Xing, Du Bo
Proofreader|Zhang Yiming
Cover image source: video screenshot
Some of them are synthesized from Shanghai Securities News, Xinmin Weekly, and 21st Century Business Herald
| Daily Economic News nbdnews original article|
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