• Journal Name: China Law
• Year: 2023
• Issue: 1
• Page: 128

On January 19,2023, the Supreme People's Court issued the top 10 commercial cases of people's courts nationwide in 2022. Such 10 commercial cases for this time are all the cases with major social impact and symbolic significance of people's courts at all levels that have taken effect in 2022.

Such 10 cases show the efforts by people's courts in commercial case trials over the past year to stick to taking Xi Jinping's thoughts on socialism with Chinese characteristics for a new era as guidance, thoroughly study and implement Xi Jinping's thoughts on rule of law, continue to serve the overall interests, administrate justice for people and execute impartial justice, protect the legitimate interests of commercial bodies and improve the business environment and the efforts in other fields. Moreover, these cases manifest their active contributions in giving full play to their commercial case trial function and providing high-level judicial services and guarantees for high-quality economic development.

Xiao Jianguo, Professor of Renmin University of China Law School, Xie Hongfei, Researcher of the Institute of Law of Chinese Academy of Social Sciences, Cheng Xiao, Professor of School of Law of Tsinghua University, Li Jianwei, Professor of Civil, Commercial and Economic Law School of China University of Political Science and Law, Zhu Ciyun, Professor of School of Law of Tsinghua University, Ye Lin, Professor of Renmin University of China Law School, Feng Guo, Professor of Wuhan University School of Law, Yin Tian, Professor of Peking University Law School, Li Shuguang, Professor of China University of Political Science and Law, and Xu Defeng, Professor of Peking University Law School were invited to comment on the above top 10 commercial cases of people's courts in 2022.

I. Series of Cases: China Cinda Asset Management Co., Ltd. Zhejiang Branch and Other Accounts Receivable Pledgees v. Enterprises under Datang Corporation et al.(Dispute over Accounts Receivable Pledges)

1. Brief Description of the Case

In April 2018, a debt crisis happened to DunAn Group and its 87 subsidiaries. The High People's Court of Zhejiang Province and the Hangzhou Intermediate People's Court accepted a total of 868 cases about DunAn, with a total of RMB 24.3 billion involved. In order to effectively change the unfavorable situation of dispersed litigations by creditors and dispersed preservations around China, which may even trigger regional financial risks and social instability factors, the Hangzhou Intermediate People's Court conducted centralized jurisdiction over the cases about DunAn with the approval from the Supreme People's Court. Among them, China Cinda Asset Management Co., Ltd. Zhejiang Branch and other accounts receivable pledgees have filed more than 50 lawsuits with the Hangzhou Intermediate People's Court for the dispute with Shenyang China Creative Wind Energy Co., Ltd., a subsidiary of DunAn Group and enterprises under Datang Corporation over accounts receivable pledges, with the object of action reaching RMB 2.948 billion. After accepting this batch of cases, not only to prevent the cases from coming together, but also to avoid inactive responses from DunAn enterprises, Hangzhou Intermediate People's Court took full advantage of its centralized jurisdiction by “guiding”, “combing” and “adjusting” the cases to mediate or decide on such more than 50 cases of dispute over accounts receivable pledges. Here are the mediation results or the judgments. I. The accounts receivable pledgees shall have the priority in compensation to the accounts receivable and overdue payment interest due by enterprises under Datang Corporation to Shenyang China Creative Wind Energy Co., Ltd. II. Enterprises under Datang Corporation shall pay such accounts receivable and overdue interest to the accounts receivable pledgees within 10 days after the effective date of the judgment. III. The court rejected other claims filed by the accounts receivable pledgees.

2. Expert's Comments: Xiao Jianguo (Professor of Renmin University of China Law School)

In recent years, for the purpose of dissolving specific financial risks, local courts often request the Supreme People's Court to designate centralized jurisdiction when handling financial disputes involving a large amount of money. For this series of cases, centralized jurisdiction was applied to dispose of the debts of private enterprises, reflecting the equal protection of private enterprises.

Centralized jurisdiction helps to improve the quality and efficiency of trials, solve huge debt crises of enterprises in an intensive, professional and efficient way, and avoid and prevent regional financial risks to the greatest extent. The handling of this series of cases of dispute over accounts receivable pledges fully demonstrates the system empowerment brought by centralized jurisdiction. First of all, it is about the intensification of the proceedings. In this series of cases, the pledgees and the debtors almost remained unchanged, but the subordinate debtors were scattered across the country. For this reason and based on the principle of intensive handling, the court held centralized hearings by means of multi-case joint trial, and arranged the pledgees and the enterprises involved to conduct cross-regional joint mediation among the persons involved at multi-levels for many times so as to simplify the communication process. In the end, 38% of the disputes over the accounts receivable pledges were settled through mediation, resulting in a good effect that the disputes were really solved and the risks of the enterprises were eliminated. Second, it is about the unification of judgment. Under the centralized jurisdiction mode, the court could fully obtain the information on the litigation cases such as the disputes over accounts receivable pledges and over the claims arising from their basic sales contracts and the disputes over creditors' subrogation right claimed by the other creditors of the enterprise involved, and could comprehensively and coordinately cope with the priority in pledge to the accounts receivable, the creditors' subrogation right, the right of claim owned by enterprises under Datang Corporation as subordinate debtors and other rights. By linking the hearing procedure to the enforcement procedure, the court protected both the interests of the pledgees and the rights and interests of the subordinate debtors, indeed reaching real justice. Third, it is about the smoothness of information communication. The court actively kept frequent information communication with the debtors, the debt committee and the enforcement committee and followed up the “slimming down” self-rescue plans of the enterprises and the implementation progress in real time to effectively guarantee the joint allocation of resources and normal operation of DunAn enterprises. Besides, in view of a large number of financial institutions, upstream and downstream enterprises and suppliers involved in the debts of the enterprises involved, which could easily trigger systemic financial risks, the court gave full play to the advantages of centralized jurisdiction to ensure proper handling of the cases. Last, it is about the professionalization of the handling of this series of cases. Many subjects and huge conflicts of rights and interests were involved in this series of cases of dispute over accounts receivable pledges, so they were highly complex. And, the substantive law and procedural law issues involved were challenging. In particular, the issues on whether the seizure of creditors' rights would affect the effective establishment of the pledges involved, whether the scope of the priority in compensation owned by the accounts receivable pledgees was subject to the pledge registration, whether the accounts receivable pledgees had the right to ask the subordinate debtors to perform the payment obligation and other issues were highly professional. For these issues, the court gave clear answers according to laws and legal principles.

When handling this series of cases, the court strengthened the baseline consciousness, legal thinking and systematic concept, and worked with financial institutions and the government at where it is to help the group with the rescue and reconstruction. For one hand, from the perspective of effectively helping enterprises to survive, the court fully used the advantages of centralized jurisdiction, continuously spent more efforts in the mediation, took specific measures for cases and formulated the best work plan on a case-by-case basis according to the risks affecting the stability and wills, thereby succeeding in avoiding the systemic financial risks that may be caused by out of control of large enterprises. For another hand, the court focused on resolving conflicts in a coordinated manner and effectively protected the legitimate rights and interests of rights holders and debtors, thereby producing a strong demonstration effect and contributing to the construction of a safe, standardized and orderly business environment governed by laws, and it also effectively resolved regional financial risks in accordance with the laws, thereby bringing good social effects.

II. Gongyi Jiacheng Energy Co. Ltd.v. Henan Dayou Energy Co. Ltd.(Dispute over the Deposit Contract)

1. Brief Description of the Case

In July 2018, the People's Government of Gongyi City (Party B) and Yima Coal Group (Party A) signed a Transfer Agreement, where they agreed that, with the approval from the provincial government and to replace and retain Tieshenggou Coal Mine, Jiacheng Energy Co., Ltd., affiliated to the People's Government of Gongyi City, purchased the effective assets of Tieshenggou Coal Mine owned by Dayou Energy Co., Ltd.and the assets for special railway tracks and Jiacheng Energy Co., Ltd.paid RMB 40 million as a deposit, and that if the purchase failed and Party A failed to make a deal with any other third parties for such assets, the deposit would not be returned. Later, Jiacheng Energy Co., Ltd.paid RMB 40 million in installments and Dayou Energy Co., Ltd.issued a receipt to Jiacheng Energy Co., Ltd.with the note of “deposit of Forty Million Yuan Only for the transfer of Tieshenggou Coal Mine”. Entrusted by Dayou Energy Co., Ltd., China Appraisal Associates issued three assets appraisal reports for asset transfer, involving the equity of Tieshenggou Coal Co., Ltd., the special railway tracks and creditors' rights respectively, and on the basis of the above-mentioned appraisal reports, it formulated an Implementation Plan for Asset Transfer which was filed with the provincial SAS AC for record. On November 12,2019, Dayou Energy Co., Ltd.publicly listed the objects involved for transfer through Zhongyuan Property Rights Exchange Co., Ltd. The Announcement of Transfer of State-owned Property Rights issued clearly indicated that the transferee should accept and approve the content of the Implementation Plan for Asset Transfer and make a commitment that Tieshenggou Coal Co., Ltd.would repay the remaining debts and guarantees of the transferor. During the listing period, no transferee showed intention for delisting. On November 25,2019, the general manager of Jiacheng Energy Co., Ltd.sent a Guarantee Plan to the secretary of the Board of Directors of Dayou Energy Co., Ltd., proposing to provide guarantees to Yima Coal Group and Dayou Energy Co., Ltd.with the mining rights, machinery, equipment, structures and other properties of Tieshenggou Coal Co., Ltd., a total value of RMB 449.2 million. However, this proposal went inconsistent with the guarantee subject and guarantee way required by Dayou Energy Co., Ltd.in the Announcement of Transfer of State-owned Property Rights and the Letter of Commitment. On March 27, 2020, Gongyi City took over the Tieshenggou Coal Co., Ltd.work team office and issued to Yima Coal Group the Letter of Arrangement for the Acceptance of Gongyi Tieshenggou Coal Co., Ltd. The letter told that the reason for the failure of delisting was that affected by bank policies, and the fund was not in place. Besides, the office promised to transfer the deposit required for delisting in full, RMB 120 million, into the company's account before April 15,2020, and advised Yima Coal Group to list the property rights and assets of Tieshenggou Coal Co., Ltd.again on March 30,2020. On March 31,2020 and May 24,2020, Dayou Energy Co., Ltd.publicly listed the objects involved for transfer for a second time through Zhongyuan Property Rights Exchange Co., Ltd. During the listing period, no transferee showed intention for delisting, so the transfer of the assets involved failed. Later, Tieshenggou Coal Co., Ltd.was closed. Jiacheng Energy Co., Ltd.filed a lawsuit with the court of first instance, claiming that Dayou Energy Co., Ltd should return the deposit of RMB 40 million and the interest. On February 26,2022, the Zhengzhou Intermediate People's Court of Henan Province made the civil judgment ((2021) Yu 01 Min Chu No.1201), rejecting the claim filed by Jiacheng Energy Co., Ltd. Jiacheng Energy Co., Ltd.refused to accept the judgment and appealed to the Henan High People's Court. The Henan High People's Court held that the Transfer Agreement was a preliminary agreement and the deposit involved was used for the conclusion of the agreement, so as long as the agreement failed to conclude not due to the reasons from the transferor, the deposit should not be returned, and that Jiacheng Energy Co., Ltd.had repeated opinions on whether to provide guarantees for the debts of Tieshenggou Coal Co., Ltd.and how to provide such guarantees, which finally affected its willingness to make the deal, resulting in the failure to sign a formal agreement. In the end, the purchase failed. Therefore, the failure to sign a successful agreement for the purchase involved was caused by Jiacheng Energy Co., Ltd.and its related company, Mingchuang Energy Co., Ltd. In this regard, in accordance with Article 587 of the Civil Code of the People's Republic of China, the court rejected the appeal and upheld the original judgment.

2. Expert's Comments: Xie Hongfei (Researcher of the Institute of Law of Chinese Academy of Social Sciences)

In practice, it is very common to use reservation letters, order letters, letters of intent, memorandums, preliminary agreements, framework agreements, strategic agreements, agreements in principle and other documents as preliminary contracts, especially in complex deals such as equity transfer, land use right transfer, commercial housing sales, large equipment purchase, leasing and private lending. The Contract Law does not provide something about preliminary contracts, but in order to solve a large number of dispute cases on preliminary contracts in practice, Article 2 of Judicial Interpretation of Sales Contracts clearly has something about preliminary contracts. In addition, Article 5 of Judicial Interpretation of Contracts for the Sale of Commodity Houses also makes a clear provision on the legal application of the deposit for agreement conclusion in commercial housing sales. In Article 495 of the Civil Code, by combining the experience from judicial practices, preliminary contract rules are defined on a legislative basis. It affirms that a preliminary contract is an independent contract. This responds to the needs of the practice, with great significance. However, compared with a contract, a preliminary contract is special somehow. In judicial practices, there are some arguments on the determination of a preliminary contract, the determination of breach of a preliminary contract and the liability for breach of a preliminary contract. For this reason, in the Interpretation of Part of General Provisions of Title of Contracts of the Civil Code (Exposure Draft), 3 articles make provisions on preliminary contracts and some paragraphs make more comprehensive provisions on the legal application of the deposit for preliminary contracts.

In this case, according to the final judgment, the determination of whether the agreement involved was a preliminary contract should be based on the name of the agreement, the terms of the agreement, especially the binding terms, subsequent performance progress and whether the deposit has been paid, using such means of interpretation of contracts as textual interpretation, purpose interpretation and system interpretation for comprehensive review and analysis, so as to figure out the true meaning of the parties to the agreement. If the parties to the transfer agreement have set up a deposit clause for the purpose of securing the conclusion of a formal contract in the future, the deposit shall be deemed as a deposit for agreement conclusion. This has a more important guiding significance for the determination of a preliminary contract. It can also be seen from this case that the deposit for agreement conclusion itself was actually the deposit for breach of the preliminary contract. Therefore, whether the deposit penalty was applicably depended on whether the parties have violated the preliminary contract. It is generally believed that after a preliminary contract comes into effect, if either of the parties refuses to conclude the contract without justifiable reasons or if a such party violates the principle of integrity while negotiating to conclude the contract, which leads to the failure to conclude the contract, the party shall be deemed to be in breach of the preliminary contract. In this case, as the preliminary contract has come into effect, the transferee, while clearly aware of the guarantee terms of the contract, had repeated opinions on who to and how to provide the guarantees. As a result, the transferee failed to approach the deal and conclude a formal asset transfer agreement with the transferor, thereby constituting breach of contract. Accordingly, in the final judgment, the court held that the failure to conclude the contract was due to the party who paid the deposit, so the agreed deposit shall not be returned. This also has certain guiding significance for the determination of breach of a preliminary contract, the handling of liability for breach of a preliminary contract and the addressing of other difficult issues.

III. Hu Xingrui v. Wang Gang (Dispute over the Sales Contract)

1. Brief Description of the Case

On October 18,2021, Hu Xingrui and Wang Gang concluded a sales agreement on WeChat, where they agreed that Hu Xingrui bought three Whatsminer M20S machines from Wang Gang, also known as “mining machine”- a special computer device for mining Bitcoins on network. On October 19,2021, Hu Xingrui transferred a total of RMB 62,220 to Wang Gang via WeChat and Alipay. And on the same day, Hu Xingrui sent the information of the delivery place and the consignee to Wang Gang on WeChat, which were No.45, Group 4, Gaojia Village, Wenjiang District, Chengdu City, Sichuan Province and Tang Biao. Meanwhile, Wang Gang sent the express number of the upstream seller to Hu Xingrui on WeChat. On October 23,2021, Hu Xingrui tried to inform Wang Gang via a WeChat call that the machines could not be used, but finally failed to contact Wang Gang. Then, Hu Xingrui immediately dismantled the machines for inspection. On October 24,2021, Hu Xingrui got contacted with Wang Gang and sent the machine test video, the SN code and the photos of the machines to Wang Gang for negotiation and handling. After October 25,2021, Hu Xingrui could not contact Wang Gang anymore, and then filed a lawsuit to terminate the contract and claimed to get the money paid for the machines back. The People's Court of Jingyan County, Leshan City, Sichuan Province decided that the contract between the two parties on the sales of the “mining machines” was invalid, and that both parties should return the money and the machines to each other. After the judgment, neither of the parties appealed, and the judgment has taken legal effect.

2. Expert's Comments: Cheng Xiao (Professor of School of Law of Tsinghua University)

In recent years, with the rise of Bitcoins, a large number of disputes on economic activities such as bitcoin production and trading, as well as its upstream, downstream and derivative business activities have appeared in judicial practices. With respect to Bitcoins and other virtual properties and related economic activities, although the regulatory authorities in recent years have issued a number of rules to regulate them, there are no clear provisions thereon in the laws. This has also led to different adjudication standards for such disputes in judicial practices. In September 2021, 10 authorities including the People's Bank of China issued the Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation, and 11 authorities including the National Development and Reform Commission issued the Notice on Regulating the “Mining” Activities of Virtual Currency, which clearly stipulates that virtual currency-related business activities are illegal financial activities, and prohibits new virtual currency “mining” activities. The above notices show that China will take a strict regulatory attitude toward virtual currency-related activities that have a bearing on China's financial management system and financial security. If any market player breaks the rules of such activities, the validity of the relevant trading contract shall be denied in accordance with the provisions in Paragraph 2 of Article 153 of the Civil Code that “a civil juristic act that offends the public order or good morals is void”, and the rights and obligations of all parties are properly handled.

This dispute arose from the upstream part-the sales of the “mining machines”- in the Bitcoin business activity, and the contract was signed and performed after the above notices had been issued in September 2021. The hearing court's determination of the invalidity of the sales contract involved showed the people's court's clear attitude to safeguarding China's financial management order and the safety of people's properties, which was an important reflection of the judicial escort of high-quality economic development.

First, this case manifests the positive role of the people's court in effectively preventing financial risks. Bitcoins do not have legal status equating with Chinese legal currency. The “result” from the “mining” activities is not legal currency, nor does it have actual value support. There are prominent multiple risks such as false assets, operation failure and investment speculation derived from the production and trading of the virtual currency, which will affect the order of social and economic development and even seriously harm people's property safety and China's financial security, damage public interests and violate public order and good customs. Hence, relevant departments of the State Council have introduced a series of policies and measures to clarify that virtual currency is not a kind of legal currency, and it is forbidden to carry out and participate in virtual currency-related business. Considering the impact of Bitcoin trading activities on China's economic and social order, especially on the financial order, the court in this case denied relevant transaction behaviors and tried to defuse potential financial risks at the front end of the risk chain, conveying the judicial attitude of strengthening financial regulation and preventing financial risks.

Second, this case is also a strong implementation of the principle of ecological civilization stipulated in the Civil Code. The Civil Code establishes the principle of ecological civilization and requires that civil activities engaged in by civil subjects should be conducive to resource conservation and ecological environment protection. In judicial adjudication, the authority should judge and guide the embodiment of this principle in civil activities, and in every individual case, analyze how great the civil activities harm resources and the environment and whether they would damage others' interests and public interests. In this case, the purpose of the sales contract lay in the “mining”, and the “mining” took electric power resources and carbon emissions as the cost, causing a huge waste of electric power resources. Besides, such “mining” was unhelpful in the optimization of our industrial structure and in the energy conservation and emission reduction, inconsistent with high- quality development of the economy and society and with the goal of carbon peaking and carbon neutrality, and against public interests. In this regard, it should be denied.

Third, this case plays a very good value leading and warning role for all kinds of market players. The judgment of this case could tell and warn social entities engaged in economic activities that as the players in the socialist market economy, they shall not only abide by the rules of the market economy, but also shoulder social responsibilities, establish the concept of “ecological civilization” and jointly promote high-quality and sustainable development of the economy and society. Meanwhile, it also reminds the majority of investors to consciously enhance their awareness of risk prevention, keeping an eye on the risks from virtual currency trading and related activities, so as to protect their own “money bags”.

IV. Nanjing Gaoke Xinjun Growth Phase I Equity Investment Partnership (Limited Partnership) v. Fang, Liang, et al.(Dispute over the Listed Company Share Repurchase Contract)

1. Brief Description of the Case

In December 2016, Fang and Liang signed an agreement with Nanjing Gaoke Xinjun Growth Phase I Equity Investment Partnership (Limited Partnership)(hereinafter referred to as Gaoke Xinjun) and Nanjing Gaoke Xinchuang Investment Co., Ltd.(hereinafter referred to as Gaoke Xinchuang), where they agreed that Gaoke Xinjun and Gaoke Xinchuang subscribed the shares of Shaoxing Runkang Biomedicine Equity Investment Partnership (Limited Partnership)(hereinafter referred to as Shaoxing Runkang) with a contribution of RMB 100 million, and as Shaoxing Runkang was one of the shareholders of Jiangsu Bioperfectus, this was an equity investment in Jiangsu Bioperfectus. Thereafter, the parties signed the Revised Partnership Agreement, Article 4.2 of which provided the post-listing redemption option. They agreed that the investors have the right to request any redemption obligor (Fang, Liang or Shaoxing Runkang) to purchase all or part of the earning right corresponding to the partnership shares at the prescribed price upon the expiration of 6 months from the date of Jiangsu Bioperfectus finishing qualified initial public offering. The postlisting redemption price shall be calculated based on the arithmetic average of the closing price of Jiangsu Bioperfectus shares in the secondary market on the 30 trading days prior to the date of the redemption notice.

In December 2019, Jiangsu Bioperfectus was listed on the Science and Technology Innovation Board of Shanghai Stock Exchange (SSE STAR Market). According to Article 10 of Questions and Answers by the Shanghai Stock Exchange on Examination of the Issuance and Listing of Stock on the Science and Technology Innovation Board (II), the above agreement mentioned in Article 4.2 is the VAM that shall be canceled before the issuer applies for stock issuance and listing on SSE STAR Market. However, Jiangsu Bioperfectus failed to disclose and delete the repurchase terms in accordance with regulatory requirements during the issuance process. On July 13,2020, Gaoke Xinjun and Gaoke Xinchuang sent a Redemption Notice to Fang, Liang and Shaoxing Runkang, requesting Shaoxing Runkang to fulfill the post-listing repurchase obligation. On the day, the stock trading price of Jiangsu Bioperfectus in the market index reached a record high of RMB 476.76. Jiangsu Bioperfectus's shares had risen 155% in the previous 30 trading days. From the next day until September 11,2020, the stock price of Jiangsu Bioperfectus had been on a downward trend, with a closing price of RMB 183.80. Fang, Liang and Shaoxing Runkang failed to pay for the share repurchase within 3 months after the Redemption Notice was sent, so Gaoke Xinjun filed the lawsuit in this case, claiming that 1. Fang, Liang and Shaoxing Runkang should jointly pay Gaoke Xinjun RMB 499,023, 228.60 for the repurchase of the partnership shares;2. Fang, Liang and Shaoxing Runkang should jointly pay Gaoke Xinjun for the interest loss arising from their overdue payment for such repurchase;3. Shaoxing Runkang should assist Gaoke Xinjun in going through the registration procedures for the pledge of 2,040, 995 shares of Jiangsu Bioperfectus held by Shaoxing Runkang, and after the aforesaid share pledge registration procedures are completed or if such pledge procedures fail to be completed within the time limit given in the judgment, Gaoke Xinjun has the priority in compensation to the amount discounted by agreement or the amount from auction or sale, no more than the redemption price and the interest loss that Fang, Liang and Shaoxing Runkang should have paid for to Gaoke Xinjun.

In the trial of first instance, the Shanghai No.2 Intermediate People's Court held that the agreement on the post-listing redemption option broke the financial regulation order, so the court decided to reject all the claims filed by Gaoke Xinjun and Gaoke Xinchuang. Then, Gaoke Xinjun and Gaoke Xinchuang appealed to the Shanghai High People's Court. In the trial of second instance, the court held that the Revised Partnership Agreement involved was signed between the partners of Shaoxing Runkang, but Fang and Liang were the actual controllers of Jiangsu Bioperfectus and Gaoke Xinjun and Gaoke Xinchuang used the partnership to essentially sign the repurchase terms directly linked to the market value of stock trading in the secondary market in the short term with the shareholders and actual controllers of the listed company, which not only violated the restriction requirements during the lockup period in a disguised way, but also unfairly treated the investors in the secondary market, generating the risk of manipulating the stock price and disturbing the order of the securities market, thereby breaking the public order and good customs as per Article 153 of the Civil Code, so the Agreement shall be deemed invalid. In this regard, the court rejected the appeal and upheld the original judgment.

2. Expert's Comments: Li Jianwei (Professor of Civil, Commercial and Economic Law School of China University of Political Science and Law)

Adhering to the idea of people-centered development is an essential part of the high-quality development of securities regulation and financial and judicial services and the promotion of the rule of law in China. In recent years, under the guidance of the Supreme People's Court, courts around China have implemented the idea of people-centered development, actively supported the reform of the financial system, adhered to coordinated governance, taken judicial philosophy in line with financial regulation policies, effectively protected the legitimate rights and interests of financial consumers and small and medium investors and ensured the stable, orderly and high-quality development of the capital market. In June 2022, the Supreme People's Court issued the Several Opinions on Providing Judicial Guarantee for Furthering the NEEQ Reform and Establishing the Beijing Stock Exchange which made it clear that the “guaranteed minimum income” clauses for listed companies are invalid. This case shows a demonstration judgment made by the people's court on the validity of VAM for listed companies. The determination of the validity of the post-listing equity purchase terms involved not only touches upon the adjustment of the company's internal relations, but also the maintenance of the stock market trading order and financial security and stability.

This case has two aspects of typical significance. First, the court made a proper judicial determination of the validity of the act violating securities regulatory rules so that financial policies can achieve the mission of improving the governance of the financial market. According to the listing review rules of Shanghai Stock Exchange, the repurchase terms were the VAM that should be disclosed before the issuance and listing of Jiangsu Bioperfectus's stocks and should be canceled in time. The Securities Law empowers stock exchanges with the listing review power and the rule-making power. Although the validity level of the review power of stock exchanges has been reduced, it still has the force in the normative sense. On the one hand, substantially, the purpose of the rules is to strengthen the regulation of illegal acts in the securities market, ensure that the majority of investors can accurately evaluate the value and risk of securities and maintain the normal trading order of the securities market. On the other hand, superficially, the creation of low-level norms is determined by high-level norms, which in turn are determined by higher-level norms. Both regulatory rules and upper-level norms are organic components of the hierarchical system of legal norms. By reference to the spirit of Article 31 of the Minutes of the National Courts' Civil and Commercial Trial Work Conference in 2019, in the effective judgment, the court fully examined the essence of the legal interests protected by the securities regulatory rules and reviewed the legality of the repurchase terms. The price agreed in the repurchase terms involved was completely calculated according to the market value of stock trading in the secondary market in the short term, which has gone against the basic attribute of “valuation compensation” in the valuation adjustment agreement. Moreover, judging from the price trend of Jiangsu Bioperfectus's stocks before and after the redemption notice, there was a possibility that the stock price can be artificially manipulated. The above repurchase terms, which were directly linked to the market value of stocks in the secondary market, disturbed the normal trading order of the securities market and financial security and stability and damaged public interests, so they should be regarded as invalid terms that went against public order and good customs. Second, this case showed synergistic interaction between judicial adjudication and securities regulation, and the advantages of the adjudication and the regulation fed each other, thereby improving the performance of the governance of the risks in the financial market. The parties hereto were professional investors, but they concealed the repurchase terms involved during the target company's IPO application period and illegally obtained the listing qualification. Judicial adjudication is supposed to resonate with financial regulation to resolutely curb such violations. Otherwise, market players will more frequently evade securities regulation by using drawer protocols, establishing vest companies or taking other hidden means, which will erode the institutional foundation of the registration-based system that concentrates on authentic, accurate and complete disclosure of information. The judgment of this case has been widely concerned by the securities market, and also received a good response from the majority of investors and regulatory authorities. Judicial adjudication was used in this case to deny the evasion of the securities regulation requirements, which not only increased the cost for wrongdoers to break the laws, preventing the wrongdoers from improperly benefiting from such illegal acts, but also gave full play to the different functional advantages of financial justice administration and securities regulation to improve the governance of the financial market. Especially, under the background of the current IPO registration-based system, such judicial adjudication is of positive significance in ensuring that the securities regulation requirements are not ignored, the security of the financial system is maintained, the financial sector is promoted to serve the real economy and the high-quality development of the economy is pushed.

V. Guangdong Artech Digital Printing Co., Ltd.v. Zhang Jubiao and Other Shareholders (Dispute over Defective Contribution)

1. Brief Description of the Case

Bayuan Co., Ltd.is a limited liability company registered and incorporated on September 26,2014. According to the original Articles of Association of the company, the registered capital is RMB 500,000. Shareholders Zhang Jubiao, Yan Jingwei and Huang Runlin respectively contributed the capital of RMB 310,000, RMB 100,000 and RMB 90,000, which shall be paid up before September 22,2014. It is recorded in the 2014 and 2015 annual reports publicized by Bayuan Co., Ltd.on the National Enterprise Credit Information Publicity System that the registered capital of the company is RMB 500,000 and the capital contributions made by all shareholders have been paid up on September 22,2014. However, the bank statement of Bayuan Co., Ltd.shows that after RMB 500,000 was deposited into the basic account of the company in October 2014, it was almost withdrawn in cash within a few days. Neither Bayuan Co., Ltd.nor the shareholders could explain the reasons for and the purposes of such cash withdrawal.

On September 15,2015, Bayuan Co., Ltd.formulated a new Articles of Association, stipulating that the registered capital of the company was changed to RMB 1 million, and Zhang Jubiao, Yan Jingwei and Huang Runlin contributed RMB 620,000, RMB 200,000 and RMB 180,000 respectively, which shall be paid up by December 31,2025. It is recorded in the 2016 annual report publicized by Bayuan Co., Ltd.on the National Enterprise Credit Information Publicity System that the capital contributions made by Zhang Jubiao, Yan Jingwei and Huang Runlin have been paid up on May 18,2015.

On December 20,2017, Zhang Jubiao transferred its shares to Yan Jingwei, Huang Runlin and Ren Yongqiang respectively. On the day, they registered the equity change. The four persons confirmed that the paid-in capital of Bayuan Co., Ltd.was RMB 0 as shown in the Information Record Form of Natural Person Shareholders' Equity Change (non-publicized information) they completed with the industrial and commercial administration authority.

Since January 2018, there have been a number of cases with Bayuan Co. Ltd.as the person subject to enforcement, and on June 24,2020, the business license of the company was revoked.

As Bayuan Co., Ltd.had not repaid the payment of the goods owed to Guangdong Artech Digital Printing Co., Ltd.(hereinafter referred to as Artech), Artech filed a lawsuit, claiming that Bayuan Co., Ltd.shall repay the payment of the goods and pay an overdue interest, and that the shareholders of Bayuan Co., Ltd., Zhang Jubiao, Yan Jingwei and Huang Runlin, shall bear a supplementary compensation liability respectively within the scope of unpaid capital and the interest while Yan Jingwei, Huang Runlin and Ren Yongqiang shall bear a joint compensation liability with respect to Zhang Jubiao's liability.

In the trials of first instance and second instance, the courts ordered Bayuan Co., Ltd.to repay the goods payment and the interest to Artech, but rejected Artech's other claims. The court of retrial held that it was the legal obligation of the company to publicize its annual report; the shareholders should have known the paid-in capital information publicized by Bayuan Co., Ltd.on the National Enterprise Credit Information Publicity System but they didn't file an objection, so they shall be deemed to have known and recognize the annual report; creditors' reasonable reliance on the public information should be legally protected, and although the contribution deadline stipulated in the new Articles of Association of Bayuan Co., Ltd.had not expired, Artech has sufficient grounds to claim that the paid-in contribution time publicized by Bayuan Co., Ltd.on the National Enterprise Credit Information Publicity System shall be taken as the deadline for contributions, so Zhang Jubiao, Yan Jingwei and Huang Runlin shall respectively assume a supplementary compensation liability for the debts owed by Bayuan Co., Ltd.to Artech within the scope of unpaid capital and the interest and the time when the interest on the capitals unpaid by the shareholders shall occur shall be subject to the paid-in contribution time publicized by Bayuan Co., Ltd.; and that Yan Jingwei, Huang Runlin and Ren Yongqiang, who accepted Zhang Jubiao's shares with the knowledge that he had not paid the capital, shall assume a joint liability with respect to the supplementary compensation liability on Zhang Jubiao, and such joint liability shall be distributed to each of the three according to the proportion of the shares transferred to each of them in the shares transferred by Zhang Jubiao. The retrial judgment revised the shareholders' liability: for Bayuan Co., Ltd.'s debts, Zhang Jubiao, Huang Runlin and Yan Jingwei were ordered to assume a supplementary compensation liability to Artech within the scope of unpaid capital and the interest, and 50% of the interest shall occur since September 22,2014, and the other 50% shall occur since May 18,2015; for Zhang Jubiao's supplementary compensation liability, Ren Yongqiang, Yan Jingwei and Huang Runlin shall assume a joint liability within their own shares, and if Zhang Jubiao, Huang Runlin, Yan Jingwei and Ren Yongqiang have paid for the supplementary compensation liability for the other debts of Bayuan Co., Ltd.due to the failure to fulfill their contribution obligations, such payment shall be deducted from the joint liability.

2. Expert's Comments: Zhu Ciyun (Professor of School of Law of Tsinghua University)

In this case, the shareholders did not set a deadline for capital contribution and failed to pay the capital, but indulged the company in publicizing that they had paid the capital on the National Enterprise Credit Information Publicity System, so in the judgment, the court ordered the shareholders to assume a supplementary liability for the debts the company could not pay off within their own unpaid capital and the interest, the payable contribution date shall be the paid-in capital date that they agreed to publicize and the interest shall occur since the publicized paid-in capital date. This was to balance the reliance interests of the counterparts in the deal, strengthen the constraint on enterprise credit, maintain the credibility of the Enterprise Credit Information Publicity System and protect and promote trading.

The judgment, in this case, is greatly significant in two aspects. First, it clarifies that the payable contribution date based on which shareholders shall assume the compensation liability to the creditor shall be the publicized contribution date. Second, it shows the great significance of company registration.

As far as a shareholder's capital contribution obligation is concerned, it is commonly known that a shareholder's contribution obligation is subject to the commitment made by the shareholder when establishing the company or joining the company, that is, it is subject to the capital contribution subscribed or the shares subscribed. However, in this case, the shareholders registered the capital contributions subscribed as paid-in capital contributions on the industrial and commercial registration system, that is, they were registered as paid-in capital contributions and publicized on the publicity system, resulting in a publicity effect. Then, the third party trading with the company had reasonable reliance on the publicity, which shall be protected. The liability of shareholders to the creditors of the company shall be determined according to the time of publicization. The court's decision in this case, which accurately reflected this point, was particularly commendable.

As far as company registration is concerned, in the revision of the Company Law, company registration was provided in a separate chapter, reflecting the high attention to this issue. The enterprise credit information publicity system is a basic system to build a new market regulation system, strengthen credit regulation and promote the reform of the commercial system, so it is of profound significance and has attracted much attention. In 2014, The State Council issued the Interim Regulation on Enterprise Information Publicity, which for the first time standardized the enterprise information publicity system by using the administrative regulation and improved the efficiency of credit regulation by strengthening the means of enterprise credit restraint. But up to now, there are still many enterprises and shareholders violating the regulation and publicizing false information in the Enterprise Credit Information Publicity System. As a result, the System cannot normally work to disclose enterprise basic information, protect trading security and reduce credit risks, thereby breaking the market order. In this case, the shareholders did not set a deadline for capital contribution and failed to pay the capital, but indulged the company in publicizing that they had paid the capital on the National Enterprise Credit Information Publicity System. By this means, they misled the public and the counterparty. As the company could not pay off the debts, the creditor requested the shareholders to assume a complementary liability within the unpaid capital and the interest and the court ordered the shareholders to assume a supplementary liability for the debts the company could not pay off within their own unpaid capital and the interest and the payable contribution date shall be the publicized paid-in capital date. The court judgment, in this case, is of certain pioneering and rule-making significance, which is conducive to integrating the power of judicial trial, administrative regulation and social regulation, strengthening constraints on enterprise credit, creating a fair, reasonable and predictable business environment, saving social resources and greatly improving the efficiency of social management.

VI. Zhang Yahong v. Tao Junnan and Beijing Capital Futures Co., Ltd.(Dispute over Futures Trading)

1. Brief Description of the Case

Zhang Yahong (the plaintiff) had futures trading at Beijing Capital Futures Co., Ltd.(hereinafter referred to as Capital Futures) through a broker named Tao Junnan and suffered a loss. Zhang Yahong thought that both Tao Junnan and Capital Futures were at fault to cause the loss, so sued Tao Junnan and Capital Futures in court.

In the trial of first instance, the Beijing No.2 Intermediate People's Court ordered Tao Junnan and Capital Futures to jointly pay RMB 772,717 for the loss to Zhang Yahong. Tao Junnan and Capital Futures refused to accept the judgment of first instance and appealed to the Beijing High People's Court. The Beijing High People's Court reversed the judgment and ordered Tao Junnan to compensate Zhang Yahong for the loss of RMB 579,537.83 and Capital Futures to compensate Zhang Yahong for the loss of RMB 193,179.28. Below are the grounds for the judgment. As a futures broker, Tao Junnan should strictly fulfill the “investor suitability obligation”, and at the same time, should be honest, diligent and responsible to investors, but Tao Junnan failed to fulfill the “investor suitability obligation”, causing Zhang Yahong to make the investment in futures with insufficient knowledge of high risks behind futures, thereby increasing the objective possibility of Zhang Yahong's economic loss, and such high risk was later realized. Besides, Tao Junnan got high remuneration for being the broker from Zhang Yahong's trading. Tao Junnan had a greater subjective fault for the loss suffered by Zhang Yahong from the futures trading, and there was a legal causal relation of the fault to the loss. Therefore, Tao Junnan shall bear the compensation liability for the loss. Although the performance of the contract by Capital Futures did not have a direct causal relation to the loss suffered by Zhang Yahong from the futures trading, but Capital Futures was negligent in the management of futures brokers, which led to the failure of futures broker Tao Junnan to fulfill the “investor suitability obligation”. In this regard, Capital Futures had a certain fault and shall bear the compensation liability on its own part. As an investor with experience in financial products investment, Zhang Yahong's risk tolerance level was commensurate with the risk level of the futures product Zhang Yahong traded. Zhang Yahong's loss occurred directly from the volatility of the futures trading market, and was related to the operation mode taken by Zhang Yahong. Zhang Yahong did not fully analyze and judge the high risk of futures investment, and failed to verify the identity of Tao Junnan, the futures broker appointed by others, with Capital Futures, resulting in the loss from the futures trading. Thus, although the infringement acts by Tao Junnan and Capital Futures respectively caused the same damage to Zhang Yahong with respect to the futures trading, they were not enough to cause all the damage, and a futures broker shall independently bear the civil liability arising from the brokerage relationship. For all of the above facts, considering the faults of Zhang Yahong, Tao Junnan and Capital Futures respectively, the nature and seriousness of the faults, the causal relation of the faults to the loss and other factors, the court of second instance decided that Tao Junnan shall compensate 30% of Zhang Yahong's loss, and Capital Futures shall compensate 10% of Zhang Yahong's loss.

2. Expert's Comments: Ye Lin (Professor of Renmin University of China Law School)

Futures traders can directly entrust futures companies to operate futures trading, or they can resort to the broker services of brokers or Intermediaries. When a futures company is entrusted to operate futures trading, the futures company and the broker shall, in providing services to the trader, separately or jointly undertake the trader suitability obligation for the benefit of the trader. A futures broker shall accept the management of the futures company, and the futures broker's suitability obligation to the trader does not exempt the futures company from its own suitability obligation to the trader, and vice versa. Breach of trader suitability obligation by futures companies and futures brokers are often intertwined, so it is necessary to identify the legal relationship between the trader and the futures broker or the futures company. On a case-by-case basis, a trader can hold the futures broker liable, the futures company liable, and sometimes both the broker and the futures company liable. In this case, the court clearly defined the legal relationship between the trader and the broker and the relationship between the trader and the futures company, and identified respectively the suitability obligation of the broker to the trader and the suitability obligation of the futures company to the trader, thus strengthening the legal basis for handling the case.

During the development of China's futures market, futures brokers are playing a more and more important role and are attracting more and more attention. They have become an indispensable part of futures trading. Futures brokers accept the entrustment from futures companies and act as the medium between futures companies and investors, which can help futures companies to expand their business and help traders get familiar with the trading rules in the futures market as soon as possible, so as to effectively reduce the trading cost of both the traders and the futures companies and make it more possible for them to make a deal. However, China lacks special rules for the broker services in the futures market, and lacks perfect regulation of the broker services in the futures market. Many kinds of civil disputes caused by nonstandard acts by futures brokers often appear in practice. This case is a typical civil case where the futures broker was a natural person and due to the futures company's neglect in the management of futures brokers, the futures broker involved failed to perform the “investor suitability obligation”, which violated the futures broker's obligation to be honest, diligent and responsible, causing a loss to the investor.

As for the rights, obligations and responsibilities of futures companies and futures brokers, there is no clear provision on them in relevant laws, regulations and judicial interpretations in China, and in the Futures and Derivatives Law, which has just been promulgated and effective, there is also not any provision on them, so we need to make proper judgment by combining the civil basic law, past judgments and practices in the industry. Based on the relevant provisions of the Civil Code of the People's Republic of China, the Provisions of the Supreme People's Court on Several Issues concerning the Trial of Futures Dispute Cases, the Administrative Measures for Brokers of Futures Companies (Trial) and other laws and regulations, this case defined the meaning of futures brokers and made it clear that the services futures brokers provide to investors and futures companies are broker services, so futures brokers shall independently bear the civil liability arising from the broker relationship. In particular, if a broker is a natural person, he/she does not belong to any agency, shall carry out the broker activity in its own name and independently bear the legal consequences arising from the broker acts. For the legal liabilities of traders, futures brokers and futures companies, they shall be determined according to whether the parties have any fault, the nature and seriousness of the faults and the causal relation of the faults to the losses. It was particularly emphasized in this case that the futures company and the futures broker were relatively independent, but not “absolutely isolated”, so it was suggested to judge whether the futures company had fulfilled its duty of management of the futures broker by referring to the Administrative Measures for Brokers of Futures Companies (Trial). If the futures company had a certain fault, it shall also bear the compensation liability on its own part.

This case offered an important interpretation of the determination of the legal status of futures brokers, the standards for futures companies' compliance operation, the protection of the legitimate rights and interests of futures traders and other aspects. Such interpretation went with the laws and legal principles and filled the loophole that there are no clear rules for futures broker services, so this case was of great typical significance. Meanwhile, the trial results of this case referred to the Administrative Measures for Brokers of Futures Companies (Trial) and other practices in the futures industry, which helps urge futures companies to better perform their duty of management of futures brokers and to improve the futures broker services, and has an important demonstration and guidance role for the trial of such cases in the future.

VII. Wei Longwu v. Beijing Zhong Fang Xin Fu Investment & Management Consultant Co., Ltd.(Dispute over Securities Investment Consulting)

1. Brief Description of the Case

Beijing Zhong Fang Xin Fu Investment & Management Consultant Co., Ltd.(hereinafter referred to as Zhongfang Xinfu) has the qualification of securities investment consulting. In July 2020, the plaintiff Wei Longwu learned of Zhongfang Xinfu in the advertisement from “Toutiao” and paid RMB 5,800 to Zhongfang Xinfu to buy the stock recommendation software, and later paid RMB 368,000 as a consulting service fee to obtain the membership. On August 17, Zhongfang Xinfu mailed a Zhongfang Xinfu Finance Management Center Service Agreement and a Disclosure of Securities Investment Consulting Business Risk to Wei Longwu, but Wei Longwu refused to sign the agreement on the grounds that what was provided in the agreement was not the original content discussed by both parties. From July to October 2020, Liang Changyuan and Wang Junyong, employees of Zhongfang Xinfu, induced Wei Longwu to operate securities trading with insider information of “main funds”, explicitly advised Wei Longwu to buy two stocks, and repeatedly asked Wei Longwu to operate according to their instructions, promising that Wei Longwu could get income two times of the money invested, but finally Wei Longwu suffered a loss of RMB 573,397.57. Wei Longwu reported Zhongfang Xinfu Shenzhen Branch to China Securities Regulatory Commission Shenzhen Office, and subsequently Zhongfang Xinfu returned Wei Longwu RMB 368,000 and RMB 5,800. On March 11,2021, China Securities Regulatory Commission Shenzhen Office, in its written reply to Wei Longwu, held that Zhongfang Xinfu Shenzhen Branch had problems such as failure to go through the risk notification and the investor suitability management procedures, charge of the fee without signing an agreement, failure to sign an investment consulting agreement before providing the investment consulting services and failure to maintain a record when providing the services. Wei Longwu so filed a lawsuit with the court on the ground that Zhongfang Xinfu's violations led to Wei's loss and claimed that Zhongfang Xinfu shall pay for Wei's loss of RMB 573,397.57 and the interest. In the trial of first instance, the Nanjing Jiangbei New Area People's Court of Jiangsu Province rejected all of Wei Longwu's claims. Then, Wei Longwu appealed to the Intermediate People's Court of Nanjing City, Jiangsu province. The court of second instance held that Zhongfang Xinfu failed to perform the risk notification obligation and the investor suitability management procedure, and had fraud acts against investors in violation of regulatory requirements and industry self-discipline rules, such as promising guaranteed returns to the client, offering the client false publicity and making trading decisions on behalf of the client, so Zhongfang Xinfu shall compensate Wei Longwu for the loss caused by its infringement. Meanwhile, Wei Longwu also had certain faults for its own loss. Considering the seriousness of the faults by both parties, the court decided that Zhongfang Xinfu shall compensate Wei Longwu for 70% of the investment loss, i.e. RMB 401,378.30, and decided to cancel the judgment of the first instance.

2. Expert's Comments: Feng Guo (Professor of Wuhan University School of Law)

The securities market is characterized by high risk. It is of great significance to regulate the investment consulting services provided by securities investment consulting agencies in accordance with the laws to protect the legitimate rights and interests of investors and maintain the order of the securities market. In this case, the court accurately and properly applied the Securities Law of the People's Republic of China, reflecting the ideas of further strengthening information disclosure requirements, standardizing the duty performance of securities service agencies and enhancing the protection of investors in the process of revision of the Law; implemented the spirit of the Several Opinions on Providing Judicial Guarantee for Furthering the NEEQ Reform and Establishing the Beijing Stock Exchange issued by the Supreme People's Court, clarifying the criteria for determining the tort liability of securities investment consulting agencies, as well as the legal consequences of defrauding investors in violation of laws and regulations, regulatory requirements and industry self-discipline rules; and ordered the securities investment consulting agency to compensate the investor for the loss, raising the cost of violations and urging the securities investment consulting agency to fully perform its duties positions, so as to effectively protect the interests of small and medium investors. At the same time, the fairness of trading in the securities market is based on the rational awareness of the trading subjects. The judgment of this case also reflected the warning and education of small and medium investors. That is, first of all, we shall definitely protect the legitimate rights and interests of investors, but second, if any investor blindly believes in false publicity offered by securities investment consulting agencies and wishes to obtain improper high returns far beyond rational investment in this way, which violate the principle of fair trading in the securities markets, the judicial authority would definitely determine that the investor should bear the loss of its own part by itself.

Securities investment consulting agencies and investors are important participants in the securities market, and play an important role in increasing the vitality of the capital market, deepening the reform of the capital market and improving the function of the capital market. The typical significance of this case lies in the fact that the judicial adjudication well balanced the interests between and the liabilities of the securities investment consulting agency and the investor, fully demonstrating the guiding and model function of judicial trials. On the one hand, it standardizes the investment consulting services provided by securities investment consulting agencies, guides the establishment of objective, prudent and customer-loyal industry norms and consolidates the duties of securities investment service agencies, so as to effectively protect the legitimate rights and interests of investors; on the other hand, it guides investors to strengthen the awareness of rational investment, increase the knowledge of risks and reduce irrational speculative behaviors, and at the judicial level, promotes the transformation of China's capital market from the speculative market to the investment-oriented market, so as to help the healthy development of the capital market in China.

VIII. PICC Property and Casualty Co., Ltd. Qingdao Branch v. Qingdao Rilian Huabo Technology Co., Ltd.et al.(Dispute over Insurer's Subrogation Right)

1. Brief Description of the Case

On April 4,2020, the warehouse of Qingdao Rilian Huabo Technology Co., Ltd.(hereinafter referred to as Rilian Huabo) caught a fire which caused property damage to Rilian Huabo, Qingdao Muye Vehicle Assembly Co., Ltd., Qingdao Yourui Plastic Co., Ltd.(hereinafter referred to as Yourui Plastic), Qingdao DMD Medical Technology Co., Ltd.(hereinafter referred to as DMD Medical) and Qingdao Muye Mold Co., Ltd.(hereinafter referred to as Muye Mold). The fire rescue brigade issued a Fire Accident Report confirming that the fire happened at about 15:40 on April 4,2020 in the warehouse at the north of the second floor of Rilian Huabo, which was probably caused by an electrical circuit fault, not on arson and by spontaneous combustion of articles. Rilian Huabo, Yourui Plastic, DMD Medical and Muye Mold have all bought comprehensive property insurance from PICC Property and Casualty Co., Ltd. Qingdao Branch (hereinafter referred to as PICC P&C Qingdao Branch), and agreed that the following property in the addresses specified in the insurance contract was regarded as the subject matters insured:(1) property owned by the insured or shared with others but managed by the insured;(2) property managed by the insured or kept on behalf of others;(3) other legally recognized property in which the insured has an economic interest. After the insurance accident happened, PICC P&C Qingdao Branch signed compensation agreements with Yourui Plastic, DMD Medical, Muye Mold and Rilian Huabo respectively, and compensated Yourui Plastic, DMD Medical and Muye Mold in accordance with the agreements. As some shareholders or actual controllers of Rilian Huabo also served as the shareholders or controllers of Yourui Plastic, DMD Medical and Muye Mold (hereinafter referred to as the three companies), Rilian Huabo constituted a related company to the three companies. The plaintiff, PICC P&C Qingdao Branch, filed a lawsuit, claiming the exercise of subrogation right to the three companies' right to ask for compensation from Rilian Huabo of the amount PICC P&C Qingdao Branch had compensated the three companies. Rilian Huabo argued that it and the three companies were the “community of interests”, which complied with Article 62 of the Insurance Law “the insurer shall not exercise the subrogation right to claim compensation from the family members or the members of the insured”, so PICC P&C Qingdao Branch had no right to claim compensation from Rilian Huabo.

The Qingdao Intermediate People's Court of Shandong Province decided to support the claim filed by PICC P&C Qingdao Branch in the trial of first instance. Rilian Huabo appealed to the High People's Court of Shandong Province. In the trial of second instance, the court reject the appeal and upheld the original judgment. The court held that as a related company to the insured (the three companies), Rilian Huabo had no identity in economic interests with the insured, nor had any dependency in legal personality, so Rilian Huabo was not a “member of the insured” as stipulated in Article 62 of the Insurance Law, and that after compensating the three companies in accordance with the law, the insurer has the subrogation right to claim compensation from Rilian Huabo.

2. Expert's Comments: Yin Tian (Professor of Peking University Law School)

Insurance has the functions of economic compensation and social security to disperse risks and absorb losses. The sustained and healthy development of the insurance industry is conducive to maintaining normal and stable economic and social order. It is a “stabilizer” for modern market economic activities and strong support for all kinds of market entities to work peacefully and start their own business. And, it plays an important service role in the orderly development of the real economy and people's peace and contentment.

In this case, the subrogation system for insurance is derived from the basic principle of insurance law-the principle of loss compensation, which is of great significance to the development of property insurance. This system helps to make up the financial resources of insurers, realize the sustainable development of the insurance industry, guide various subjects to act in accordance with laws and regulations and curb the occurrence of property infringement and various safety accidents. Meanwhile, after compensating the insured, if insurers exercise the subrogation right to the insured's right to claim compensation from the infringers of the amount the insurers have paid, such exercise can also prevent the insured from gaining undue compensation benefits from both the insurers and the third parties.

The understanding of Article 62 of the Insurance Law “the insurer shall not exercise the subrogation right to claim compensation from the family members or the members of the insured” has always been controversial in theory and practice. As for “the members of the insured”, some people think that they are mainly the employees, partners, agents, trustees, etc.of the insured, while others think that they mainly refer to the executive directors or other legal representatives subject to the deductible rule with the insured. But in any case, the legislative purpose of this article is to avoid the case that the insured cannot actually get compensation for the loss due to insurers' exercise of the subrogation right, which leads to the failure of the basic function of the insurance system to make up the loss. Therefore, the “identity” in economic interests between the insured and the counterparts to insurers' subrogation right shall be the first basis for determining the specific scope of “the members of the insured”. The judgment in this case was based on the analysis of the legal status of the insured and their related company. It was pointed out that they had independent legal personalities, namely independent properties and independent interests. The related company did not naturally have insurance interests on the properties that were not owned by it. The legal interests of the insured and the legal interests of their related company were separated at the law level. Accordingly, the court determined that the related company of the insured in this case was not a “member of the insured” as stipulated in Article 62 of the Insurance Law, and that the insurer could exercise the subrogation right to claim compensation from the related company in accordance with the law. This determination was fully in line with the legislative purpose of relevant provisions of the Insurance Law and had important guiding significance for the settlement of disputes of the same kind or similar disputes in practice. It also set up a correct model for the proper interpretation and application of Article 62 of the Insurance Law in judicial adjudication.

IX. Shenzhen Yizhimi Food Technology Co., Ltd.v. Nehe Xinhengyang Biochemical Products Co., Ltd.(Dispute over the Confirmation of Bankruptcy Creditor's Right)

1. Brief Description of the Case

Shenzhen Yizhimi Food Technology Co., Ltd.(hereinafter referred to as Yizhimi Company) and Nehe Xinhengyang Biochemical Products Co., Ltd.(hereinafter referred to as Xinhengyang Company) signed a Sales Agency Contract in July 2016, where they agreed that Xinhengyang Company authorizes Yizhimi Company to be the exclusive sales agent in Guangdong. Xinhengyang Company entered bankruptcy restructuring proceedings in November 2020. Yizhimi Company declared the creditor's right of RMB 578,456.53 to the manager of Xinhengyang Company in April 2021, but the manager did not confirm it upon review, so Xinhengyang Company filed a lawsuit to confirm the bankruptcy creditor's right. In the trial of first instance, the court held that according to the Sales Agency Contract signed by both parties, the condition for payment of the incentive was the exclusive sales agency in Guangdong without cross-region merchandising. However, during the actual performance, both parties changed the sales model and the sales region. In this case, whether and how to pay the incentive should be further negotiated, but there was no evidence of a rearrangement of the incentive terms. In addition, according to all of the reconciliation letters, Yizhimi Company owed a large amount of goods payments of Xinhengyang Company. If there was any incentive, Yizhimi Company should claim to offset the arrears with the incentive, but both parties had never mentioned the incentive during the reconciliation. Wang Hongqi was not only the actual controller of Yizhimi Company, but also an employee from Xinhengyang Company. Wang should be aware of Xinhengyang Company's application for bankruptcy restructuring. If there was any incentive, Wang's failure to declare the creditor's right in time was also not consistent with common sense. From the prompt content of the inquiry letter sent by Xinhengyang Company to Yizhimi Company after Xinhengyang Company entered the bankruptcy restructuring proceedings, we can know that both parties had settled and confirmed the creditor's rights and the debts as of November 30,2020, which further explained that the Sales Agency Contract involved had not been actually performed, and there had been no agreement on new incentive terms. For the above facts, the court didn't support the claim by Yizhimi Company of confirming its creditor's right of RMB 578,456.53 to Xinhengyang Company.

2. Expert's Comments: Li Shuguang (Professor of China University of Political Science and Law School of Law and Economics)

During the implementation of the Bankruptcy Law, there is an important field that is often ignored, that is, every significant bankruptcy case involves a large number of derivative actions. If these cases are not handled well, they will greatly affect the effect of bankruptcy law implementation, increase the judicial cost of bankruptcy proceedings and even affect the stability of economic society. Therefore, bankruptcy derivative actions are playing a very important role in bankruptcy proceedings. Attaching importance to bankruptcy derivative actions can not only promote smooth progress of the bankruptcy proceedings, but also effectively maintain the balance of the interests between creditors and debtors and among creditors and resolve the contradictions and disputes among relevant interest subjects, so as to realize the value of fair liquidation and collective liquidation pursued by the bankruptcy law.

This case was a case of dispute over the confirmation of bankruptcy creditor's right, which was a kind of case that often happened in the bankruptcy derivative actions. The confirmation of bankruptcy creditor's right is a judicial review and confirmation procedure set up in the bankruptcy system to properly resolve the dispute filed by the entity that has an objection to the creditor's right. As an important legal objection handling procedure in the creditor's right confirmation part of the bankruptcy proceedings, the lawsuit for confirmation of bankruptcy creditor's right is very important for the protection of creditor's right in a bankruptcy case, and it has practical significance for the authenticity of the creditor's right declaration and the confirmation of creditor's right to vote in the bankruptcy proceedings.

In this case, the court examined and judged whether there had been a real creditor and debtor relationship between the creditor and the debtor by focusing on the essence of the lawsuit for confirmation of bankruptcy creditor's right, taking the written contract signed by both parties as the basis and considering the actual performance of the contract, the purpose of the contract and trading practices. The correct application of the creditor's right confirmation procedure in this case not only prevented the loss of the debtor's properties and the improper loss of the ultimate interest that would be paid to the creditor, but also ensured the smooth progress of the bankruptcy proceedings and finally protected the legitimate rights and interests of the debtor and the creditor.

At present, Northeast China's economy is in a critical stage of comprehensively revitalizing and optimizing the business environment and deepening the supply-side structural reform. Efficient handling of bankruptcy cases is an important indicator for the optimization of the business environment, while focusing on proper handling of bankruptcy derivative action cases is an important starting point for the excellent handling of bankruptcy cases. In handling the bankruptcy derivative action case, the court in this case took equal protection of the legitimate rights and interests of all market subjects as the fundamental starting point and landing point, paid attention to the substantial value and procedural significance of the derivative action, focused on its influence on the professionalism and authority of the judicial hearing of the whole bankruptcy proceedings and concentrated on the use of legal thinking and market thinking, which was not only helpful for fairly clearing the relationship between the creditor's right and the debts, so as to handle the bankruptcy case well, but also helpful for giving full play to the judicial wisdom, so as to take the troubled company out of difficulties and push it to reborn, realize the market clearing, livelihood guarantee and enterprise rescue, and boost the development of Northeast China's economy.

The typical significance of this case lies in that the accurate handling of the bankruptcy derivative action in accordance with the law provides powerful judicial services and judicial guarantee for the continuous optimization of the business environment in Northeast China, the high-quality development of Northeast China and the promotion of Northeast China to a higher level.

X. Case of Restructuring of Seventeen Companies under Loncin Group

1. Brief Description of the Case

The companies under Loncin Group include the companies under Loncin Group and the companies under the Jinling Group (the two sub-groups). Among them, Loncin Holdings Co., Ltd., under Loncin Group, has been selected as one of China's Top 500 Companies for many consecutive years. Companies under Loncin Group have developed into a diversified industrial group covering motorcycle manufacturing, environmental protection, automobile sales, real estate, finance and other fields. Their assets involve the controlling interest in three companies listed in the A-share and H-share markets and the shareholdings in two listed companies and the equity in overseas companies. Affected by multiple factors, the companies have gradually fallen into an operation and debt crisis since 2018.4 companies under Jinling Group are controlled by Loncin Group. Jinling Group is a well-known automobile dealer group in Chongqing, but affected by related guarantees, it also fell into a debt crisis. On September 29,2021, 13 companies under Loncin Group respectively applied for restructuring and together applied for pre-restructuring. The Chongqing No.5 Intermediate People's Court recorded and registered the pre-restructuring and the pre-restructuring auxiliary agency. The agency guided the 13 companies under Loncin Group to negotiate with creditors, prepare the restructuring agreement and recruit investors. On November 16,2021, the creditor Chongqing Cheshengyuan Trading Co., Ltd.applied for the restructuring of the four companies under Jinling Group respectively. On January 30,2022, the Chongqing No.5 Intermediate People's Court respectively accepted the restructuring of the 13 companies under Loncin Group in accordance with the law, and on March 16,2022, it ruled the substantially consolidated restructuring of the 13 companies. On March 10,2022, the Chongqing No.5 Intermediate People's Court respectively accepted the restructuring of the 4 companies under Jinling Group in accordance with the law, and on May 10,2022, it ruled the substantially consolidated restructuring of the 4 companies. The court coordinated and integrated the trials of the restructuring of the companies under Loncin Group and Jinling Group.

The restructuring of a large comprehensive private group involves many interest subjects and many consideration factors, so it is complicated. In the pre-restructuring stage, the court adopted the way of “weak intervention”, gave full play to the flexibility of the private out-of-difficulty force and maximized the market- oriented function of the out-of-court restructuring stage. The prerestructuring auxiliary agency guided the debtors to negotiate with the creditors, contributors and investors for many times, and the restructuring agreement and the investment agreement concluded by gathering opinions from all parties passed the market filtering. After entering the restructuring process, the restructuring plans prepared based on the restructuring agreement were passed and approved by the creditors' meeting through voting and the court through the ruling. Subsequently, the plans came into being judicially authoritative.

A large comprehensive private group has a complicated internal structure. The internal structures of the companies under Loncin Group and the companies under Jinling Group (the two sub-groups under Loncin Group) were highly confused, but the asset and business relationship between the two sub-groups was weak. Due to the strong relationship between the debts of the two sub-groups, neither of them could be successfully restructured independently. Therefore, substantially consolidated restructuring was conducted for the two sub-groups. Meanwhile, the related debts of the two sub-groups and the adjustment of the contributors' rights and interests were coordinately tried, thereby resolving the debts as a whole.

The recruitment of investors for the restructuring of a large comprehensive private group is generally faced with the difficulties that the amount to be invested is large and single industrial investors cannot cope with diversified industries. During the restructuring, by virtue of in-depth exploration and full and true disclosure of information, investors were attracted to participate in the competition. Fund investors from eastern coastal areas and industrial investors from the western Chengdu- Chongqing area, who had different advantages, were selected to form an investment consortium. Fund investors' ability to raise and manage funds and industrial investors' advantages in industrial background was utilized in a most powerful way. They used their own strengths and cooperated with each other to solve the problem of matching the needs of diversified industries.

The flexible application of “out-of-court restructuring + reorganization” and “substantial consolidation + coordinated trial” explains how to use the bankruptcy system comprehensively and make full use of the market force to solve the difficulty of restructuring a large comprehensive group. The restructuring of the companies under Loncin Group (including the two subgroups) cleared corporate debts of more than RMB 42 billion as a whole, safeguarded the legitimate interests of more than 70,000 small and medium investors and more than 2,000 employees, guaranteed the normal production and operation of more than 1,000 companies in the upstream and downstream industrial chain and achieved the goal of ensuring employment, saving market players and maintaining the stability of the industrial chain. And the restructuring also promoted the company production to upgrade, took the lead in the special IGBT chip design of electric cars and electric motorcycles in China and achieved the quality and efficiency improvement and high-quality development of the companies, injecting a “cardiotonic” into economic recovery in the post-COVID-19 era.

2. Expert's Comments: Xu Defeng (Professor of Peking University Law School)

Pre-restructuring is a kind of auxiliary mode for saving companies, which is produced through the integration and innovation of the two systems of out-of-court restructuring and bankruptcy restructuring. It not only has the practical effects of simplifying the procedures, improving the efficiency, reducing the costs and resolving the disputes, but also has a good social orientation of supporting the parties' autonomy and market- oriented negotiation, active and early self-help and automatical and conscious compliance with the rule of law. The effective implementation of pre-restructuring is inseparable from both full market operation and effective legal constraint. In this case, in the stage of out-of-court restructuring, the court adopted the way of “weak intervention”, gave full play to the market-oriented function of out-of-court restructuring to solve the difficulties, let the companies and all parties conduct market-oriented business negotiations and formed feasible restructuring plans through market-oriented filtering, so as to prevent out-of-court restructuring from being the out-of-court extension of judicial restructuring. At the same time, the court also provided guidance for the legality and direction of pre-restructuring, and realized the effective connection of out-of-court restructuring with judicial restructuring. It was precise because of the effective combination of marketization and the rule of law that fund investors and industrial investors were attracted to make use of their own advantages and form a joint force to better meet diversified investment needs.

In the market economy, it is very common that company groups and related companies to exist. In order to solve the above problems in the bankruptcy of companies, in 2018, the Minutes of the National Court Work Conference on Bankruptcy Trials provided for the bankruptcy of related companies. In the trial of cases, it is required to strictly distinguish the applicable standards for substantial merger and coordinated trial, carefully determine the scope of substantial merger companies, properly grasp the pace of coordinated trial process and create good conditions for the preparation of restructuring plans. In this case, the companies under Loncin Group and Jinling Group could prepare their own restructuring plans and investment plans, but the two subgroups had huge debts related to each other. Without effective coordination, the matters of safeguarding the legitimate interests of creditors and the investors would both be unable to continue. In this case, the restructuring plans for the two sub-groups harmonized the repayment of the related debts, which reduced the doubts of related creditors and investors; the progress of the recruitment of the investors was coordinated, which promoted the preparation of the restructuring plans simultaneously; and the main procedure nodes were adjusted and the restructuring of the two sub-groups was driven each other, which finally together achieved the success of the whole restructuring.

The private sector is an important part of China's economy. It is important duty for people's courts to unswervingly encourage, support and guide the development of the non-public sector and maintain and promote the healthy development of the private sector. The case of restructuring of the companies under Loncin Group (including the two sub-groups) provides a useful reference for people's courts to play the function of the bankruptcy restructuring system and explore a way to save large comprehensive private companies.