Research On The Path Of Judicial Judgement Of “Nominal Equity With Debt Essence”

This paper is about a research on the path of judicial judgement of “Nominal Equity with Debt Essence(NEDE)”.The framework of this paper goes as following:1)after study on judgement of sample judicial cases on NEDE,the author concludes the high-frequency dispute issues and analyzes the underlying causes,and summarizes the current status of judicatory ground on NEDE in judgement;2)based on the above analysis and conclusion,the author teases out the domestic regulations regarding to the essence of NEDE and finds out the dilemma of law application.Then the author tries to refer to the legislative and judicial practice of the United States;3)the author finally concludes the path of judicial judgement of NEDE combined with the above reference and relevant theorieThe first chapter of this paper begins with the background research of NEDE.Firstly,this chapter sorts out the reasons for the emergence of NEDE.Initially,NEDE was originated from the demands of investment and financing between enterprises which was prohibited by law.With the improvement of Contract Law,the reasons for invalidity of contracts was redefined.At the same time,inter-enterprise loans began to be recognized.Later,the function of NEDE changed.Currently,the purposes of applying NEDE include: 1)obtaining finance,making investment,and acquiring arbitrage beyond the supervision and restriction of policies;and 2)setting a new type of financing tool to satisfy investors' different preferences.Secondly,this chapter distills the characteristics and transaction processes of NEDE which mainly contains investing by nominal equity,acquiring guaranteed earnings independent of the company's business condition,withdrawing capital byequity repurchase.Under such arrangement,the purpose of the debt financing can be achieved by the appearance of equity financing.The second chapter of this paper analyzes the current judicial judgement of NEDE through studying the sample cases.Firstly,in this chapter,the author analyzes 37 cases on NEDE happened from January 1,2012 to October 31,2018.,and finds out three dispute issues with high frequency,including the validity and essence of the contract,the validity and performance of the repurchase clause,the validity and performance of the corresponding guarantee measures.Among them,the essence of the contract is the most fundamental issue.Secondly,this paper concluded reasons for why the validity and essence would be the most common dispute issue.The validity of the contract would directly cause the fulfillment of relevant rights.The essence of the contract would influence parities on the following aspects: 1)the legal effect and law application of the earnings,2)the validity of the guarantee measures,3)the law application of capital withdrawal,and 4)the order of compensation under liquidation.Thirdly,this chapter summarizes the judgments on the essence of NEDE.In judicial practice,1)some of the courts cautiously explored the real intentions of the parties,observed the actual performance of the contract,and identified NEDE as equity investment;2)some followed the specific transaction structures of NEDE,analyzed the content of specific agreements,explored the real intentions of the parties,and thus identified NEDE as debt investment;3)some failed to determine the essence of NEDE,and followed the specific agreement to judge whether it could be performed.Still,there is no agreed path of judicial judgement of NEDE.The third chapter of this paper takes the essence of NEDE as the focus.Firstly,the author returns to domestic laws,and finds that the dilemma on application of laws to make distinguish between equity and debt.Although the judicial interpretation on joint venture contract has not expired,it has been in existence for 29 years.With tremendous change of social and economic environment,it has its limitation.The judicial interpretation on land use rights in 2005 stipulate that following index should be considered when distinguishing equity and debt: 1)whether the investor participates in business operation of the financing company;2)whether the investor takes risks;3)whether the investor acquires fixed income.However,the application of this interpretation only regards the land use rights,alsohas its limitation.The State Administration of Taxation promulgated some relevant regulations and tried to define NEDE.As a tax rule,although it cannot be quoted by judge directly,it has great reference meaning to judges.Secondly,the author teases out the practical developing history on NEDE of the United States,from which the author concludes some enlightenment to domestic practice on NEDE: 1)to identify the essence of NEDE by its economic nature;2)to establish a standard of distinction between equity and debt about NEDE;3)to regulate the NEDE identified as debt by judgement.The fourth chapter of this paper returns to the construction of the path of judicial judgement of NEDE.Firstly,the author expressed the way to identify the essence of NEDE in different conditions which depends on whether it applies to the principal of economic nature or rechtsschein theory.Secondly,the author respectively expounded the specific applicable law and judicial path of NEDE in different situation.When the principal of economic nature should be applied,NEDE should be judged differently with different types.When it is identified as equity investment,and the agreement is able to be performed,the court should respect its performance.When it is identified as debt investment,the theory of alienation guarantee could be applied.When the rechtsschein theory should be applied,NEDE would be identified as equity investment.The court shall protect the bona fides third party,and respect the substantive performance of the agreement as far as possible.