overview

In recent years, limited partnership private equity funds have become one of the most common modes of raising funds in the investment market. Limited partnership private equity fund refers to a fund operation mode in which investors and general partners establish a partnership, in which the investor is responsible for contributing capital as a limited partner of the partnership, and the general partner is responsible for the external investment of the partnership as a private equity fund manager. While the fund model is booming, due to the frequent occurrence of investment product thunderstorms, many legal disputes have arisen, especially when investors do not obtain investment income as agreed or even do not recover costs after investment, disputes are often difficult to avoid, so in such litigation cases, under the shell of limited partnership private equity funds, is its legal relationship "investment" or "lending" or other? What path are investors advocating more favorably?

The Gu Lin legal team of Gao Peng (Shanghai) Law Firm has represented a number of such cases, and the following is an analysis of the practical cases handled by the team.

Brief Facts of the Case

Mr. Li signed a partnership agreement with Company A, stipulating that Li would invest in fund project B (limited partnership) and become a limited partner of B, and Company A would be B's general partner and partner in executive affairs. The agreement also stipulates that the expected annualized return of the fund is 11%-12% and the investment period is 12 months. On the day of signing the agreement, Li transferred 5 million yuan to the account agreed in the agreement.

Subsequently, Company A issued a confirmation letter to Li, confirming that the expected annualized rate of return was 12%, and promised to repurchase the fund shares held by Li within 5 working days after the maturity of the fund. After expiration, Company A said that the investment failed and could not buy back the fund shares.

Li realized that the investment money might be lost, so he entrusted our Gu Lin's legal team to represent the case, and after our lawyers intervened, they actively negotiated with Company A with a settlement attitude, and asked Company A to provide a guarantor, and the three parties signed a supplementary agreement to confirm the creditor relationship. After that, Company A pulled Company C and its legal representative Yang and Li to jointly sign the Supplementary Repayment Agreement, confirming that Li had a loan claim of RMB 5 million principal and RMB 600,000 per annum interest to Company A, and agreed that Company C and Yang would repay it on their behalf. If the payment is not made within the time limit, Li has the right to collect liquidated damages of 5/10,000 of the principal date.

Later, under the active communication of our lawyers, the parties signed a supplementary agreement again to clearly stipulate the total amount of the debt, the amount borne by Company A, Company C and Yang.

Case analysis

After the latter three parties failed to return Li's money as agreed, Li entrusted our lawyers to file a lawsuit based on the loan relationship, in which Company A claimed that an investment partnership was formed between it and Li, and the investment risk should be borne by Li; Our lawyers insist that the relationship between the two is called a partnership, which is actually a civil lending legal relationship:

1. Although Li signed a contract with Company A called a limited partner partnership agreement, from the essence of the agreement, Li only enjoyed fixed income and did not bear any risks;

2. The fund involved in the case was not filed with the Asset Management Association, which violated the law and reflected that Company A did not have the intention to manage the fund at all;

3. After the establishment of the fund, Company A, as a partner performing partnership affairs, has not registered Li as a partner for industrial and commercial changes;

The above conduct shows that there is no basis for the legal relationship of investment partnership between Li and Company A in both form and substance, and there is no partnership between the two parties.

4. The agreement signed by all parties has specified the repayment amount, repayment time, etc., and the two parties are creditor-debt relationships.

In accordance with the above views, our lawyers submitted a series of evidence, forming a complete chain of evidence. In the end, the courts of first instance and second instance both recognized our lawyers' claims, holding that Li's income had nothing to do with the operating conditions of the partnership, but only related to the amount of his investment, which fully conformed to the legal characteristics of the private lending relationship, and supported our litigation claim.

Lawyer comments

Compared with "investment is risky", a pure lending relationship will make investors occupy the absolute initiative in litigation, so when the dispute first appears, the investor should do its best to urge all parties to sign a supplementary agreement to transform the investment relationship into a lending relationship, if it cannot be transformed by signing an agreement, the legal relationship of the case should be comprehensively judged according to factors such as product architecture, agreement, and performance behavior. Based on the experience of handling agency cases in the past, the following factors will affect the transformation of investment disputes into private lending legal relationships.

1. Whether it is expressly agreed that investors enjoy fixed income

2. Whether the fund manager is registered

3. Whether the fund is recorded

4. Whether the investor actually receives fixed income on a regular basis

5. Whether the investor actually participates in the management of the partnership

6. Whether the general partner or third party provides guarantee/credit enhancement measures

7. Whether the fund manager undertakes to return the principal

8. Whether to agree on risk taking

(This article is translated by software translator for reference only.)