A Judical Practice Research On Legal Nature Of Formal Equity-Essential Debt

With the increasingly liberal financial environment and the diversified development of the financing market in China,"Formal Equity-Essential Deb" as a new investment method is not unfamiliar to the public.As its literal meaning,Formal Equity-Essential Debt are nominally equity investments,and in fact they are debt financing.In this transaction mode,the equity investment agreement signed by the investor and the financing party stipulates a fixed investment period and yield,and requires the financing party to repurchase equity at the time of maturity,so as to ensure that the principal and the proceeds based on the investment plan can be paid on schedule.During the period,the investor generally does not participate in the operation and management of the financing company,and there may be credit enhancements such as pledges and joint liability guarantees of the financing party or related parties for the withdrawal of its share repurchase.The emergence of Formal Equity-Essential Debt is a concentrated reflection of the interests of all parties involved in the investment and financing process.However,due to the unclear nature of their stock or debts and complicated transaction structure,the operational risks can not be ignored.In recent years,disputes arising from the operation of Formal Equity-Essential Debt have been increasing.However,In terms of it’s nature,the regulatory level tends to be deemed as debt investment,and the judicial level reflects the entanglements and uncertainties of qualitative determination because of it’s non-strict legal concept.At the same time,the industry has always been controversial about how to determine it’s nature.Therefore,it is really necessary to explore the path of judicial adjudication of the legal nature of Formal Equity-Essential Debt.Through a detailed analysis of the selected typical cases,it was found that our country’s courts identified the nature in the case of disputes over Formal Equity-Essential Debt mainly from the following points:(1)Whether investors have the qualifications of shareholders;(2)Whether the equity transfer price is fair;(3)Whether the source of income of the investor is related to the company’s operating conditions;(4)Whether the investor participates in the company’s operation and management;(5)Whether there are other guarantee measures for the investment;(6)Is there a bankruptcy situation in company?However,different courts have a decisive factor in determining the nature of Formal Equity-Essential Debt in the name of the above one or two focuses.In fact,the court should not only comprehensively examine each of the above-mentioned focuses,but also fundamentally distinguish the nature of debt securities.It should also attach importance to the consultation process between investment and financing parties and explore the nature of legal actions with the innermost feelings of both parties when they implement investment activities.In addition,facing the ever-changing financial innovation in business practices,courts need to add more commercial thinking in the trial process to find a balance between financial innovation and relatively lagging legal provisions,and make correct judgments and judicial decisions.For investment and financing parties,when adopting innovative investment methods,they should also strengthen risk awareness,rationally arrange transaction links,try to avoid disputes,and ensure transaction security.