——Private Equity Fund Civil and Commercial Dispute Resolution Series II

In our agency work in private fund manager dispute resolution cases, we have identified some common controversial points that determine the direction of relevant cases. This series of articles analyzes relevant issues from the perspective of safeguarding the rights and interests of fund managers. This article mainly discusses the evidence that private fund managers may rely on in civil and commercial disputes to prove their investor suitability obligations on their own initiative or for the purpose of refutation (the allocation of the burden of proof for the appropriateness obligations of private fund managers is not within the scope of this article's discussion. Please refer to one of the articles in this series, Chapter 5, "The Consequences of the Application of the Nine Minutes of the People", and how private fund managers should respond).

The regulatory provisions on the management of investors' suitability for private fund managers mainly include the Interim Measures for the Supervision and Administration of Private Investment Funds and the Measures for the Management of Securities and Futures Investors issued by the China Securities Regulatory Commission (hereinafter referred to as the "CSRC"). In addition to the aforementioned regulatory provisions, the management of investor suitability for private fund managers should also comply with industry self-regulatory rules such as the "Measures for the Management of Private Investment Fund Raising Behavior" and the "Guidelines for the Implementation of Investor Suitability Management for Fund Raising Institutions (for Trial Implementation)" issued by the China Securities Investment Fund Industry Association (hereinafter referred to as the "China Securities Association").

According to the above provisions and in combination with our observation of judicial practice, in civil and commercial disputes related to private equity funds, private equity fund managers generally need to do the following to prove their performance of investor appropriateness obligations:

1. Establish and perform responsibilities in accordance with the investor suitability management system

Due to industry self-regulatory rules such as the "Guidelines for Internal Control of Private Equity Fund Managers" and the "Implementation Guidelines for the Appropriateness Management of Fund Raising Institutional Investors", private equity fund managers have been required to establish corresponding internal control systems. Therefore, in general, there should be no obstacles for private equity fund managers to provide relevant systems. However, the difficulty lies in whether the manager actually implements appropriate management in accordance with the provisions of the system. Therefore, it is recommended that managers conduct timely and dynamic self-inspection of the appropriateness management situation. If necessary, they can combine practical situations and adjust the system in a timely manner within the scope allowed by relevant rules to avoid inconsistencies between practice and system provisions.

2. Effective risk disclosure and questionnaire survey

In practice, risk disclosure statements and investor questionnaires are often considered by judicial authorities as key evidence to demonstrate the performance of investor appropriateness obligations. The templates for these documents are relatively mature in the industry, and we will not repeat the contents of these documents. We would like to emphasize here that in order to effectively achieve the purpose of demonstrating that the appropriateness management obligation has been fulfilled, managers need to focus on the following matters, such as: managers should provide adequate pre-sales training for fund sales personnel; For risk disclosure statements and investor questionnaires, where it is necessary for investors (especially natural persons) to sign, they must be signed by the investors (in person) to avoid subsequent disputes, in which the investors deny their signing. If during the dispute process, the investors claim not to sign by themselves, but do not submit an appraisal application, the manager can use this as one of the reasons for defense.

3. Traces confirmed by return visit

In addition to risk disclosure and questionnaire surveys, managers also need to pay attention to the requirements of calm periods. First, the signing time of return visit documents and fund contracts should meet the interval requirement of a 24-hour calm period. Secondly, the process of the return visit should be evidenced by audio and video recordings. According to Article 76 of the Minutes of the National Court Civil and Commercial Trial Work Conference (hereinafter referred to as the "Nine People's Minutes"), it is difficult to achieve the purpose of proving that the risk notification obligation has been fulfilled by relying solely on the handwritten certificate of the investor (especially the natural person investor). Therefore, for the return visit process, especially for investors who purchase products beyond their risk ratings, it is recommended to leave a trace through audio and video recording in addition to retaining written documents. At the same time, in the process of recording and videotaping, it is possible to adopt the method of asking questions from return visits and answering investors, to improve the reliability of the recording and videotaping content.

4. Other precautions

Agency sales is a relatively common sales method in the industry, but managers may have difficulty in forming effective control over the personnel of fund sales agencies. In particular, in accordance with Article 74 of the Nine Minutes of the People's Republic of China, the manager may bear joint and several liability risks with the fund sales agency. In addition to clarifying the obligations of the fund sales agency through the sales agency agreement to ensure that the manager is responsible for the illegal sales of the fund sales agency, it is recommended that the manager should promptly request from the fund sales agency evidence of appropriate management, including but not limited to prior to sales, Require them to report internal management regulations on sales behavior and strictly review their sales promotion materials; After the event, it is required to timely submit written materials, audio and video materials to the manager for filing.

In general, for private fund managers, appropriateness management is not a new requirement after the "Nine People's Minutes". However, due to the impact of the inversion of the burden of proof in the "Nine People's Minutes" to a certain extent, in order to avoid the consequences of failing to provide evidence in subsequent disputes, we suggest that during the fundraising stage of private funds, managers properly retain relevant supporting materials in accordance with corresponding regulatory regulations and industry self-discipline rules, Try to do solid work in the early stage and take precautions against relevant risks.