Since April 2022, Mr. Xiao Yongcheng has filed four “Debt Joinder Disputes” on behalf of three plaintiffs against one defendant. The principal amount of the debt in the four cases totaled nearly 70 million RMB. The four cases were heard by different panels of the court, and since September 2023, the court has rendered judgments.
At the end of March 2024, Mr. Xiao Yongcheng received the last judgment. The judges in all four cases ruled that the defendants should repay the three plaintiffs a total of nearly $70 million in principal, and also ruled that the three plaintiffs should be reimbursed for their investment income at a rate ranging from 8% to 8.5% of the principal. At present, three civil judgments in four cases have become legally effective and have been applied for enforcement. As of now, based on the interest rates ranging from 8% to 8.5%, the Defendants should repay the Plaintiffs a total of nearly RMB120 million in economic losses.
Status of the case
2017
Since January 2017, three investors signed four Private Investment Fund Contracts with two different private investment fund management companies, one of which signed two private investment fund contracts with two private investment fund companies. The four fund contracts agreed that the investor invested 5 million yuan to 50 million yuan in two different private investment companies in accordance with different private investment products.
The four investment fund contracts agreed that the investment period was 12 months and the annualized return of the investment funds was 8% to 8.5%. The investment scope of the four investment contracts also reads “The fund invests in stock pledge repurchase trading assets directly or through brokerage/brokerage subsidiary asset management plans, fund/fund subsidiary asset management plans, contractual funds, trust plans, limited partnerships, etc.; it also invests in bank deposits, money market funds, bank financial products, etc. “.
After the signing of the contract, the three investors to the two home private investment fund company jointly designated by the fund custodian remitted 5 million yuan to 50 million yuan.
However, after the expiration of the one-year period agreed upon in the above four fund contracts, the two private investment fund companies failed to pay the principal and income agreed upon in the four contracts. In this regard, the investor inquired about the relevant information about the fund products filed and publicized on the website of China Securities Investment Funds Association. According to the website, the above two private equity fund companies were “ordered to take corrective administrative measures” by the Beijing Securities Regulatory Bureau (BSRC) due to violation of the law. The Beijing Securities Regulatory Bureau believes that the two private fund management companies' violations mainly include: “(1) not following the principle of honesty and credit to engage in the private fund business; (2) raising funds to complete the fund-raising process, but did not handle the fund filing procedures; (2) not in accordance with the agreement of the fund contract, and truthfully disclose the fund's relevant information to the investor”.
After seeing the above information, the three investors contacted the fund investment company and the fund custodian, requesting the return of the money invested in the fund and the honoring of the gains agreed in the fund contract. At the same time, the three investors also repeatedly negotiated with the common holding company of the two private equity fund companies, i.e. a Beijing-based asset management company.
2021
In April 2021, the holding companies of the two private equity fund companies issued a Letter of Guarantee to the three investors, promising that “in order to guarantee the rights and interests of the investors, if a private equity fund company has not yet made full payment before May X, 2021, the company will make full payment to complete the payment, the scope of the payment is the unredeemed portion of the XXX million yuan of the fund contract you invested in. of the principal amount and 8%/8.5% annualized rate of return are paid in full”.
2022
However, after the expiration of the period promised by the Holding Company, neither the two private equity firms nor the Holding Company paid the principal and yield due. In January 2022, the three investors appointed Mr. Xiao Yongcheng of Beijing King&Capital Law Firm to represent them in the case.
In April 2022, Mr. Xiao Yongcheng filed four civil lawsuits with the People's Court on the basis of “debt accession disputes” in relation to the failure of the holding company to honor its guarantee.
2023
Between September 2023 and March 2024, four civil judgments were issued by different panels of the court, almost all of which supported all of the claims filed by Mr. Xiao Yongcheng and ruled that the holding company should pay the three investors a total of nearly 120 million RMB in principal and interest.
Case Summary
The key issue in this case was whether the lawsuit should be filed under the “guarantee contract” or the “debt accession dispute”. “Disputes over guarantee contracts and disputes over joining debts are often confused, but the litigation methods and legal consequences of the two are different.
Initially, the court also questioned the cause of the case. But Xiao Yongcheng lawyer after careful study of the case, and according to the corresponding legal provisions, insisted that “debt to join the dispute” is more appropriate, and can better protect the interests of the parties. Xiao Yongcheng lawyer's reasons are as follows:
First, the two private investment company are shell companies, three investors directly to the fund company as the defendant to file a lawsuit or arbitration, even if finally waited for the successful decision, three investors are also difficult to recover their huge losses. The holding company of the private investment company has certain assets, the holding company as the object of the lawsuit can better realize the interests of investors.
Second, three investors and private equity fund company signed the “fund contract” have agreed to arbitration clause, and the holding company's letter of guarantee, from a legal point of view, should be “general guarantee liability”. If the guarantee contract to sue the holding company, the premise must first with two fund company arbitration, to be arbitration agency to make a decision, only to “guarantee contract” disputes to the holding company as the reason for litigation, that is, the other party there is a right of prior defense.
Considering the first arbitration should spend time and and huge arbitration costs, obviously not also “guarantee contract” as the reason for civil litigation.
Third, the holding company issued a letter of guarantee for general liability. According to the law, the general guarantee liability has half a year exclusion time. 2021 May, the holding company issued a letter of guarantee, if in January 2022 to “guarantee contract” as the reason for litigation, has exceeded half a year exclusion period. Therefore, it is difficult to achieve the purpose of litigation on the grounds of “guarantee contract dispute”.
The biggest difference between “guarantee contract” and “debt joining” is that the debt in the guarantee contract is “contingent debt”, and the debt joining debt is “real debt”. Actual debt”. That is to say, when the parties guarantee the debt, the debt defined in the guarantee contract may not have actually been formed, while the debt in the debt accession must have actually occurred.
In this case, the maturity of the four fund contracts are about in May 2019 before, and the holding company is willing to repay the debt and issued a letter of guarantee for the time of May 2021, the holding company issued a letter of guarantee, the debt has long been actually formed.
Fifth, the guarantee contract must be subordinate to the main contract, the guarantee period of the guarantee contract must also be based on the performance period determined by the main contract and guarantee. And the debt is not attached to the main contract, and the main contract is not related. As long as the third party is willing to assume responsibility for the debt that has actually arisen, that constitutes the debt joining relationship.
Sixth, the legal basis for debt accession disputes for China's civil code article 552: “the third party and the debtor agreed to join the debt and notify the creditor, or the third party to the creditor to indicate willingness to join the debt, the creditor did not expressly rejected within a reasonable period of time, the creditor may request the third party in the debt it is willing to assume the debt and the debtor to assume joint and several liabilities “. This case complies with Article 552 of the Civil Code.
Accordingly, Mr. Xiao Yongcheng filed a lawsuit with the People's Court on the basis of the above reasons and legal provisions, directly targeting the holding companies of the two private investment fund companies as the subject of the lawsuit, and filed the lawsuit on the basis of “joining debt dispute”. At the same time, Mr. Xiao also submitted to the court guiding cases on “debt accession disputes”, and eventually the court heard the case as “debt accession disputes” and made corresponding judgments.
Because the holding company for the scope of the debt is very clear, the people's court in the verification of the debt has been repaid, on the unpaid principal and interest naturally made the above decision.
Xiao Yongcheng lawyers believe that, as a lawyer, in accepting the client's commission of any civil litigation, must carefully study the case, carefully study the legal relationship between each other and the legal basis. If only based on literal judgment, and blindly litigation, the result may be counterproductive.
In addition, the success of this case could not have been achieved without the assistance and support of the two lawyers of King&Capital Law Firm, Mr. Luo Hongzheng and Mr. Luo Xueying, for which the investor would like to express its gratitude to Mr. Luo Hongzheng and Mr. Luo Xueying.
