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Lawyers of King & Capital Successfully Help an SOE Avoid Losses of Around RMB400 Million
Released on:2020-12-24

Recently,Ma Tao and Sun Yanhui,a partner and a senior partner of King&Capital Law Firm,successfully helped a state-owned enterprise avoid losses of RMB380 million in a dispute case over the right of rescission of the creditor they represented.This case is of important and practical instructive significance to whether an agreed arrangement for the debts to be assumed by all parties involved during the investment,financing,merger and acquisition process can become the object against which a creditor can exercise the right of rescission.

As a state-owned major real estate enterprise,the client obtained the property projects of the target company mostly by way of investment,merger and acquisition.During the acquisition process,the client also had overall considerations for the claims and debts of the target company through appraisal and evaluation by a third-party agency,and agreed explicitly on the arrangement for relevant claims and debts to be assumed.However,it was based on such debt assumption arrangement contained in the acquisition agreement that the original creditor of the target company filed a lawsuit to the Hebei Provincial High People's Court and maintained that the clauses on debt assumption agreed by the client and the target company should be rescinded.

Upon acceptance of the above engagement,we formed a complete litigation plan centering on the cause of action and the investment and acquisition background concerning the master agreement,and put forward the defenses that“the contents of the appeal do not meet the legal object(subject matter)conditions for the right of rescission and lack the legal bases for the right of claim;that the related agreement,as a prerequisite for overall transaction arrangements,conforms to the common market transaction practice for business acquisitions,and the consideration was fair and compensatory,which does not constitute any circumstance where any third party’s right or interest is infringed upon;that the fairness of the related agreement shall be considered based on the overall transaction arrangement under the Cooperation Agreement.As a part of and a prerequisite for the overall acquisition arrangement,it is infeasible for the agreement to be separated from the overall transaction consideration and seen as an object for the right of rescission.As the responsible party for the penalty for delay of payment for the land grant,the plaintiff shall be liable for the fine for late payment due to its own fault,which complies with the principle of liability for fault.And there are no circumstances of maliciously increasing its debt to be assumed or being obviously unfair.The related agreement does not violate any legal mandatory provisions.On the basis of observing the principle of liability for fault,this transaction arrangement conforms to the right of autonomous trade set for the claim-and debt-assuming party by all parties to the acquisition.And the scope for the plaintiff to exercise the right of rescission is illegal”.Such defenses became the direct basis on which the judges summarized the main points of the case under dispute during the proceedings.

Eventually,the Hebei Provincial High People's Court fully adopted our viewpoints,and dismissed all the claims of the plaintiff,which was the most direct acknowledgment of our litigation plan and work.Winning this lawsuit is not only of great significance to the client,which effectively helped it prevent the loss of huge state-owned assets,but will also generate positive impact on risk control and transaction models during investment,financing,mergers and acquisitions.