Legal Analysis Of "Formal Equity-essential Debt"

"Formal Equity-essential Debt " is a financial innovation trading phenomenon,which is a concentrated expression of the interests game between the market participants and supervisors in financial transactions."Formal Equity-essential Debt " is a mixed state with the dual characteristics of "equity investment" and "debt investment." Its legal definition is still unclear.It is a summary of the rights and obligations of the parties in the series contract in the investment and financing mode.Analyzed from the legal point of view," Formal Equity-essential Debt " is more closely related to "assignment guarantees",that is,a kind of rights transfer security guarantees of creditor's rights,and its legal effects can also be based on the "concession guarantees," the legal validity of the logic of analysis.At present,on the basis of financial regulatory requirements for a demanding reduction of debts,increasing of quity capital,and controlling of financial risks,the supervisors has a negative attitude toward “real stocks”.However,the existence of "Formal Equity-essential Debt" is reasonable.In reality,the main body of investment activities is more sensitive and accurate than the legislature in understanding their own interests and transaction status and establishing trading rules,and demand for increaseing transaction efficiency and lowering transaction costs.If the existing legalrules do not conform to the logic of the market,based on economic rationality,both investment and financing parties will of course use "Irregular behavior" to evade the law.There are no implementable financial instruments or mechanisms until the existing laws or regulatory policies have been revised or introduced.The parties have common interest objectives and incentives,and use contracts to supplement the reasonable willingness to trade beyond the existing regulations.Special contract clauses complement the uncontracted matters of the general contract based on the characteristics of the incomplete contract,which is the autonomy of the specific investment and financing parties for specific commercial transactions.The transaction of " Formal Equity-essential Debt" combines the dual attributes of creditor's rights and equity investment and financing.Because of the asymmetry of information,the agency costs of the management of the commissioned financing party and the incompleteness of the contract,the investor as a rational economic man has to pay more attention to the design of the core clauses in the contract,and reasonably allocate the income rights and control rights.When market participants protect interests outside the law or supervision,the parties in the game between the two parties inevitably appear to be able to formulate rules that are more beneficial to their interests,and ultimately lead to disputes.Based on the characteristics of the contractual intervention organization method in the transaction of " Formal Equity-essential Debt," the conflict that leads to judicial decisions lies in civil law and commercial law,or the conflict between contract law and company law.Judicial adjudication has a certain guiding role for the financial supervision or the practical operation of both investment and financing.Based on the judging logic of the judiciary,the investment and financing entity will more cautiously choose the legal and reasonable boundary when seeking the contractual autonomy space of the company law.In the context of "reducing debt," it is of practical significance to discuss "Formal Equity-essential Debt ".Based on the perspective of legal analysis,this article first clarifies the connotation of the “Formal Equity-essential Debt”,including its legal nature and structural characteristics.At the same time,through the legalanalysis of “transfer guarantees”,we try to clarify the legal effects of “Formal Equity-essential Debt” from the proper level.Secondly,through the financial supervision,judicial judgments and other angles to analyze the current regulatory status,and the logic of its supervision and judicial adjudication.Again,by analyzing the theoretical basis and elements of contract design in investment and financing transactions,analyzing the differences between debt financing contracts and further clarifying equity financing contracts and the necessity of setting clear trading contracts for “Formal Equity-essential Debt”.Finally,making a suggestion that design of the " Formal Equity-essential Debt ",the contract should be based on meeting regulatory compliance requirements,compliancing with legal provisions,and the logic of judicial adjudication.Both investment and financing parties should be able to make explicit agreements of risks and controversial in the trading session of investing shares,exits and all other transactions.