Recently, the Shanghai Arbitration Commission made a ruling on the dispute over the shortfall of the asset management plan between the claimant bank (the priority client) and the respondent Wu (the shortfall compensation obligor). Lawyer Haihua Yongtai represented the respondent Wu in this case, and exempted the client from the payment of more than 172 million yuan for the difference.
In this case, the assets of the asset management plan were used for the private placement of shares of a listed company, which was divided into 210 million yuan subscribed by the senior consignor and 110 million yuan subscribed by the inferior consignor, and the manager was G Asset Management Company. At the same time, the priority client and the manager signed a shortfall compensation agreement with Mr. Wu: if the assets of the asset management plan are still insufficient to pay the principal and income of the priority settlor after the liquidation is completed, Mr. Wu will make up the difference. At the same time, the asset management plan sets up early warning lines and liquidation lines. The agreed time in the asset management contract is two years (one year restriction period, one year sell-off period). The introduction of the new rules on reducing holdings during the stock restriction period has had a significant impact on the sell-off of the underlying stock: that is, the manager can only sell up to 1% of the total share capital in any consecutive 90 calendar days; On the other hand, within 12 months after the expiration of the share restriction period, a maximum of 50% of the underlying shares can be sold. In addition, seven months after the lifting of the restriction on the sale of the underlying shares, the listed company announced the suspension of trading. On the day before the expiration of the contract, the parties signed a supplementary agreement to postpone the liquidation for one year. After the resumption of trading of the underlying stock, it encounters a continuous decline limit and directly triggers the liquidation line. Upon the expiration of the deferred liquidation period, the manager has never realized all the underlying shares. Eventually, the underlying shares were delisted three years after the expiration of the deferred liquidation. The manager only started to sell the underlying shares after the delisting, and sold the underlying shares at a subscription price of 11.43 yuan per share between 0.4 yuan and 0.5 yuan per share, which directly caused significant losses to all investors.
The core issue in this case is that the manager failed to sell the shares for cash during the contract period and during the deferred liquidation period, which was a clear breach of the asset management contract. In this case, when the senior investor requires the shortfall payment obligor to bear the shortfall payment obligation, whether the shortfall compensation obligor can raise a defense against the manager's management negligence in performing the asset management contract, i.e., the relationship between the manager's performance of duties and the shortfall payment obligor.
Article 91 of the minutes stipulates that if a party other than the trust contract provides a third party to make up the shortfall, etc., as a credit enhancement measure, and its content complies with the provisions of the law on guarantee, it shall be treated as a guarantee contract relationship. Where the content does not conform to the provisions of the law on guarantees, the corresponding rights and obligations are to be determined on the basis of the specific content of the commitment document, and the corresponding civil liability is to be determined on the basis of the facts and circumstances of the case. For credit enhancement measures that do not meet the guarantee, the mainstream view is that there are independent contractual obligations or anonymous contracts. The difference between the two is the master-slave nature of the two contracts. Due to the subordinate nature of the guarantee contract, the guarantor is entrusted with the responsibility for the debtor and enjoys the right of defense of the debtor of the main contract against the performance of the creditor. The guarantor may recover from the principal debtor after fulfilling its obligations. However, the asset management contract as opposed to the difference compensation contract legally breaks the rigid payment of the manager, and the payment obligation of the manager is changed to the obligation of diligence, which corresponds to the investment risk borne by the client. Therefore, the manager has arranged a shortfall compensation obligor to reduce the investment risk of the senior investors.
As the lawyer representing the respondent in this case, the lawyer team of Hiways Yongtai Sun Li proposed that the arbitral tribunal should first ascertain the cause of the loss of the applicant (priority investor), and if the loss was caused by the manager's breach of active management obligations, serious breach of contract, failure to sell the underlying shares and liquidate during the contract period and the postponement of liquidation, the administrator should compensate in advance. Only if the administrator bears the liability for compensation and it is still insufficient, the applicant needs to bear the obligation to make up the difference. The selling amount is calculated according to the weighted average price of the transaction after the lifting of the restriction on the underlying stock, which is fully sufficient to cover the principal and income of the applicant, and there is no obligation of the respondent to make up the difference. The Applicant, on the other hand, argued that the liability for the difference was independent and that there was no defence for the administrator to assume liability in advance. In the end, the arbitral tribunal basically adopted our opinion. The arbitral tribunal held that the management responsibility and the obligation to make up the shortfall are independent of each other, and if the manager improperly performs its management duties and damages the rights and interests of the investor, it shall bear the losses of the investor in accordance with the contract, and the shortfall compensation obligor shall bear the credit enhancement liability according to reasonable expectations, and the sell-off conditions expressly agreed in the contract are an important basis for the shortfall compensation obligor to judge its own credit enhancement liability. The assumption of the liability for making up the difference should be within the foreseeable scope of the manager's reasonable performance of duties, otherwise it would be obviously unfair to the obligor to make up the difference.
Second, if the manager is liable for the losses of the senior investors, the manager should participate in the arbitration so as to determine the scope of the losses caused by the manager's improper performance of duties. The administrator of the case is not a party to the case. The claimant (preferred investor) voluntarily added the manager as a party at the beginning of the arbitration, but could not confirm the position of the administrator in the arbitration and revoked the addition. Subsequently, the respondent (the obligor of the shortfall payment) applied for the addition of the administrator as the respondent, but the applicant did not agree. The arbitral tribunal held that there was a dispute between the claimant and the respondent as to whether the manager should sell before the expiration of the original asset management contract, which involved the determination of the manager's liability, and the administrator was not a party to the case, and the arbitral tribunal could not define whether it should perform its duties without participating in the arbitration proceedings in this case. Therefore, the conditions for directly determining the scope of liability for making up the difference in this case have not yet been fulfilled. Accordingly, the arbitral tribunal ruled that all of the claimant's claims were not upheld.
In the field of asset management, the obligation to make up the shortfall, as a common credit enhancement measure to protect investors' principal and income, is widely used in various asset management products. This case provides a reference for clarifying the relationship between the obligation to make up for the difference and the administrator's duty of diligence (reasonable performance of duties), and has a good exemplary effect. The successful representation of this case also reflects Haihua's solid litigation professional ability and rich experience in handling cases.
In this case, senior partners Sun Li, Shen Hang and Liu Wenting provided full legal services for the client, which was highly praised and recognized by the client.
Brief introduction of the lawyer
Sun Li
Hiways Senior Partner (Limited Interest)
Graduated from East China University of Political Science and Law (LL.B.) and Peking University (LL.M.), Mr. Sun has been engaged in legal work for 30 years, and is proficient in the path and method of dispute resolution such as court litigation and arbitration.
During his tenure in the courts, Mr. Sun has held adjudication positions (senior judges at the fourth level) and management positions in various business departments, handling nearly 2,000 different types of cases. Over the years, some cases have been rated as excellent cases in national or Shanghai courts, and some cases have been selected as cases in the Gazette of the Supreme People's Court and Guiding Cases. In 2016, after leaving the court, he worked as a lawyer, committed to the resolution of various civil and commercial disputes, and served as legal counsel for many government agencies and well-known enterprises such as Qingpu District Party Committee and District Government, Trip.com Group, and Harvest Day Group.
Shen Hang
Hiways Wing Tai lawyer
Mr. Shen Hang holds a master's degree in law from Shanghai University and specializes in civil and commercial dispute resolution in the fields of corporate and commercial affairs, private equity asset management, and construction projects. Mr. Shen has provided various legal services such as corporate compliance, legal counsel and dispute resolution for many financial institutions, state-owned enterprises and institutions, and well-known group companies, and has undertaken a number of difficult and complex cases with large targets. Prior to joining Haihua, Mr. Shen practiced law in a well-known law firm in Shanghai.
Liu Wenting
Hiways Wing Tai lawyer
Ms. Liu Wenting holds a master's degree in law from Hainan University, and specializes in civil and commercial dispute resolution and non-litigation business in the fields of domestic and foreign marriage and family affairs, corporate and commercial affairs, construction projects, and private equity asset management. Mr. Liu has provided high-quality legal services for many well-known enterprise groups, multinational corporations and state-owned enterprises, and has undertaken a number of difficult and complex cases with large targets. Prior to joining Haihua, Mr. Liu practiced law at a well-known law firm in Shanghai.
Editor: Qin Zheng