In recent years, there have been frequent reports of defaults in the investment field of private equity funds, with various reasons for default. For example, some fund projects cannot exit due to "stepping on the thunder"; Some private equity investment funds invest in real estate enterprises with a broken capital chain in the form of public equity and real debt; Some private equity investment fund managers do not issue the products they claim, but only engage in fund-raising fraud in the name of private equity investment... A few bad private equity funds have gone astray, causing investors' investment funds to float. So, as a private equity investor, how can we effectively reduce the losses suffered according to law?

First of all, let's briefly review the main relevant provisions: In addition to the Civil Code, the Securities Law, the Securities Investment Fund Law, the Partnership Enterprise Law, the Trust Law, and other laws, as well as the Interim Measures for the Supervision and Administration of Private Investment Funds, and the Administrative Measures for the Raising of Private Investment Funds, in 2019, the Supreme Court issued the Minutes of the Civil and Commercial Trial Work Conference of the National Courts, For the trial of disputes over the protection of financial consumers' rights and interests, the principle of "the seller is responsible and the buyer is responsible" is established, that is, in the field of promoting and selling high-risk financial products and providing high-risk financial services, the seller institution must understand the customer and the product, and sell (or provide) appropriate products (or services) to suitable financial consumers; "The buyer's own responsibility" means that the investor will bear the loss result corresponding to his own fault level; "If a financial consumer intentionally provides false information, refuses to listen to the suggestions of the seller's organization, or for other personal reasons, resulting in inappropriate purchase of products or acceptance of services, and the seller's organization requests exemption from corresponding responsibilities, the people's court shall support it according to law, unless the financial consumer can prove that the issuance of the false information was misleading by the seller's organization;"; At the same time, if the seller's institution can provide evidence to prove that, based on the past investment experience, education level, and other facts of financial consumers, the violation of the appropriateness obligation has not affected the financial consumers' independent decision, the people's court will support its defense that the financial consumers should bear the investment risks themselves according to law.

According to the above regulations, private fund investors can timely try the following countermeasures based on their own situation:

1、 Civil remedies

（1） Investors should pay attention to relevant issues such as the agreement on breach of contract, extension conditions, secondary breach of contract, possible repayment methods, and the consequences of evaluating whether to sign or not to sign the contract. For example, investors need to dynamically pay attention to the signing or changing conditions of supplementary contracts: whether to only repay the principal without interest, whether to discount the principal by 20% or even 60%, the proportion and duration of repayment or redemption, and whether to extend the payment when it is not yet repaid. For example, if a new investment principal and interest extension or redemption agreement is reached, the original investment agreement will be invalidated, and the corresponding redemption time will be extended (typically 2 to 3 years), which may lead to investors not being able to take litigation measures such as pre litigation property preservation in a timely manner; During the process, it is also possible to add guarantors, add debts, make up the difference, and transfer debts; If the debt is transferred to a third party that is unable to repay, the original debtor may play the golden shell, which requires investors to be highly vigilant. Investors need to evaluate the repayment ability of the responsible party after the extension and make their own rational judgment prudently: If the responsible party's investment project has a bright future and only has a temporary shortage of internal cash flow, it can be signed if it has repayment ability in the later stage; However, if the responsible party is already in debt, facing bankruptcy, obviously insolvent, or even involving criminal risk, there is no need to sign an extension at this time! Of course, if the responsible party has limited repayment capacity, signing a contract will greatly discount the creditor's rights, and failing to sign may result in a loss of money. At this time, investors need to comprehensively judge the advantages and disadvantages of signing a contract, choose the lesser of the two evils, and strive to secure the early closure of the contract.

（2） In order to effectively reduce losses, if possible, especially in the case of "public equity and real debt", the investment relationship should strive to transform into a lending relationship as soon as possible. For example, relevant private equity funds often advocate a partnership legal relationship between the two parties (such as adopting a "limited partnership" form for issuance and fundraising, and involving investors as limited partners), However, investors can actively advocate that both parties have a private lending legal relationship in accordance with the terms of the relevant agreement (if the expected annualized yield is more than 10%, both parties can sign a Supplementary Repayment Agreement to confirm the loan creditor's rights at a later stage). Such situations where the fund only enjoys fixed income and does not bear operational risks, and the fund has not been filed with the fund industry association, and there has been no change in partner registration. In particular, if the commitment letter issued by the fund company promises to repurchase investment funds from investors upon maturity, or explicitly states that there is a borrowing relationship with investors, it may be recognized as private lending.

In dealing with investment disputes, the defendant's property clues are very important. In litigation or arbitration, property preservation should be carried out in a timely manner to facilitate recovery of losses, such as by checking current contracts and bank transaction records, filing and checking their bank accounts and equity in the industrial and commercial system, house inspection by the real estate exchange, vehicle inspection by the vehicle management office, external creditor's rights inspection by the judicial documents website, on-site investigation, and other methods.

（3） If it cannot be converted into a lending relationship, how can we deal with the default of the fund product? At this time, it is necessary to analyze the contractual basis for investors to claim compensation for breach of contract based on the types involved, the specific agreements entered into in the contract, and the actual performance, determine the facts of breach, estimate the cost and loss of income, and formulate corresponding strategies such as redemption or litigation or arbitration. For example, when issuing a Redemption Plan that indicates that the redemption conditions agreed upon in the contract have been met, an attempt can be made to request the fund to redeem.

（4） For partnership funds (establishing partnerships), under the premise of being recognized as a legal relationship of partnership (investment), does the judicial authority support investors in seeking investment funds and paying returns? As is well known, the partnership agreement does not guarantee that the investment principal will not suffer losses, nor does it guarantee a minimum return. If an investor fails to obtain the principal and return upon maturity, it is considered an investment risk, and the investor has no right to claim that the partnership return the investment funds and pay the return. However, investors may still obtain corresponding compensation by pursuing the liability of the general partner for breach of contract. When acting as the executive partner of the partnership and the manager of private placement funds, the general partner is required to bear the obligations of the partnership agreement and the obligations stipulated by private placement regulations respectively; If the contractual purpose of the partnership agreement cannot be achieved due to the general partner's failure to fulfill his obligations, the judicial authority may support the investor's appeal, such as: 1. Whether the investor is registered as a limited partner of the partnership through industry and commerce; Does the general partner handle the registration and filing procedures with the fund industry association? 3. Has the partnership actually invested in the agreed specific projects? Does the fund manager provide risk alerts?

2、 Relevant criminal remedies

Private placement products may be involved in the criminal field, mainly including the crime of illegally absorbing public deposits, the crime of fund-raising fraud, the crime of illegal business operations, and the crime of organizing and leading pyramid selling activities. The most important thing is to prevent and control criminal risks before investing, such as understanding the qualifications of fund companies and the filing status of private placement products, whether there is public publicity, whether investors are qualified, investment channels, and the direction of funds.

Once an investor encounters a criminal offense, the overall response suggestions are 12 words: prosecute as soon as possible, report the case in a timely manner, and follow up on the return of compensation. A lawyer can be entrusted as an agent to analyze the possibility of criminal involvement and the order of priority in the case of criminal and civil intersection. Before filing a criminal case, investors can take legal measures to protect their rights as soon as possible, seize every minute to fix the creditor's rights and debt relationship, and preserve corresponding property to avoid expanding losses; In cases where compensation cannot be recovered through civil means, criminal reporting can be actively adopted. The report materials include a brief introduction to the relevant situation, such as the incident process and hazard results, application for filing, identification of the investor, and contact information; At the same time, provide corresponding evidence materials, such as relevant contracts, product information, correspondence emails, SMS messages, WeChat records, notifications, investment and income account flow screenshots, etc. If relevant institutions have confirmed that they are suspected of a criminal offence and the economic investigation department has intervened, investors should actively report the case and explain the victimization, maintain close contact with the public security organ, and follow up on the return of stolen goods and compensation.

From the above, it can be seen that in the process of private equity investors seeking to prevent and reduce their losses due to default, the participation of professional lawyers is very important, which can help investors investigate the qualifications and credit information of managers in advance and avoid signing unreasonable extension agreements; Obtain effective property clues (bank account numbers, etc.) from the co repayment party (guarantor) as early as possible and as much as possible during the negotiation period; Timely file a lawsuit, freeze the debtor's bank account, and make the payment cover the claimed amount; As an agent for litigation (arbitration), promptly organize response materials and evidence and appear in court to support the legitimate rights of investors; After winning the lawsuit in court, directly apply for enforcement, and cooperate to recover the principal and interest, liquidated damages, etc. as soon as possible.

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