Translator：Wang Qiyu

Targeted Focus: Unveiling Complex Legal Relationships and Overcoming Challenges

Persistent Efforts: After Over Three Years, Achieving a Successful Verdict

[Summary]

Before the issuance of new regulations for asset management, multi-layer nested asset management products were prevalent. Under the structure of multi-layer nested transactions, when defaults occurred in the underlying target projects, due to the hierarchical separation of legal relationships, the passive evasions of various management entities, and the elusive nature of executable assets, seeking remedies for investors' rights was far from simple. In a case involving disputes over multi-layer nested transaction models for asset management, Shanghai Landing Law Offices conducted thorough analysis, unraveled complexities, accurately clarified layered legal relationships, and formulated a litigation strategy based on factors like litigation costs and enforceability. Due to the complexity of legal relationships, the jurisdictional court initially suspended proceedings due to the existence of related cases. However, after more than three years of collaborative efforts between the representing lawyers and the clients, the investors finally achieved a successful outcome.

[Case Background]

Investor Company A contributed 50 million yuan to subscribe to general trust units of a trust plan of Company B. According to the Trust Contract, if the trust property is invested in a directed asset management plan and the corresponding stock pledge repurchase transaction under the directed asset management plan triggers a warning/minimum performance guarantee ratio, and the funding party fails to fulfill its obligations defined in the stock pledge repurchase agreement, then the general beneficiaries shall unconditionally waive all their trust benefits from the date of default, and all trust benefits shall belong to the priority beneficiaries.

Company B entrusted the trust property to Company C for management through an Asset Management Contract, which was invested in a stock pledge repurchase financing business of a listed company's major shareholder Company D. According to the Stock Pledge Repurchase Agreement, when the transaction performance guarantee ratio falls below the warning line and the minimum line, Company D must take performance guarantee measures as agreed, such as repurchasing in advance or replenishing the pledged transaction.

In addition, Company A, Company D, individual E, and individual F signed a "Difference Make-up Agreement." Company D, individual E, and individual F unconditionally assumed the obligation to replenish according to the Stock Pledge Repurchase Agreement and provided a difference make-up for Company A's expected trust benefits under the Trust Contract.

After the target securities reached the warning line and the minimum line (closing line), Company D failed to replenish as agreed, constituting a default. Company B announced that Company A, as a general beneficiary, had unconditionally waived all trust benefits.

In June 2017, Company A filed a lawsuit against Company D, individual E, and individual F to assume the difference make-up obligation.

In October 2017, due to Company C's filing of a securities repurchase contract dispute with the Guangdong Provincial Higher People's Court, the court ruled that the trial of this case should be based on the results of the trial of the Guangdong Provincial Higher Court, thus suspending the trial of this case.

[Dispute Focus]

The dispute in this case includes: 1. How is the nature of the "Difference Make-up Agreement" determined? 2. The validity of the "Difference Make-up Agreement"; 3. Whether the conditions stipulated in the "Difference Make-up Agreement" are satisfied.

Regarding the above focus, all parties engaged in intense debates and negotiations. Our side submitted proxy opinions multiple times, providing a detailed explanation of our assertions regarding the aforementioned disputed issues to the collegial bench.

[Court Opinion]

After comprehensively reviewing the facts of the case, the court ultimately adopted our assertions:

Although the "Trust Contract," "Asset Management Contract," and "Stock Pledge Repurchase Agreement" together form a chain of financing market in reality, the nature of the contracting parties, legal relationships, and content of rights and obligations are different among the three. They are three separate contracts. Company A has the right to initiate this case's lawsuit based on the "Difference Make-up Agreement."

The "Difference Make-up Agreement" constitutes a true expression of intention of the contracting parties, and does not violate the provisions of trust law, securities law, and contract agreements.

The conditions stipulated in the "Difference Make-up Agreement" for difference make-up have been satisfied. Company A has the right to demand that Company D, individual E, and individual F assume corresponding civil liabilities based on the "Difference Make-up Agreement."