Research On The Ownership Of Property Interests After The Invalidation Of Equity Entrustment Agreement

In the absence of a clear legal provision,it is a difficult task for adjudicators to determine the ownership of property interests in the event that the shareholding agreement is invalid.The question of to whom the shareholding should be vested and how the investment income should be appropriately distributed is a matter for adjudicators to address carefully.At present,China is in an important period of comprehensively promoting the rule of law,and commercial activities,as an important hub of social and economic development,provide a healthy rule of law environment for commercial activities,which is in line with the strategy of comprehensively following the rule of law and is also an important guarantee for the orderly conduct of economic activities.In view of this,this article,by summarising the results of decisions in relevant typical cases,points out the problems that exist in judicial decisions regarding the disposal of property interests after the invalidation of an agreement,further analyses the reasons for the problems,and finally proposes solutions to the problem.The first chapter of this article introduces three typical cases involving the disposition of property interests after the invalidation of an equity subrogation agreement,namely,the case of Hua Mao Company Limited and SME Investment Ltd.in a dispute over entrusted investment,the case of Yang Jinguo and Lin Jinkun in a dispute over entrusted investment agreement,and the case of Sampo Lixin and Gong Yin in a dispute over the transfer of equity interests.The case illustrates the general outcome of the disposal of property interests after the invalidation of the shareholding agreement in practice: the nominee shareholder was found to be entitled to the shareholding and the nominee shareholder was ordered to return the investment money to the actual contributor,and the investment proceeds were distributed between the nominee shareholder and the actual contributor taking into account various factors.Chapter 2 identifies the problems with the outcome of the decision: firstly,the arrangement of finding that the nominee shareholder was entitled to the equity was unjust and ignored the general rules of transfer of equity.Secondly,the allocation of investment income between the nominee shareholder and the actual contributor,taking into account various factors,was not reasonable,as there was no clear criterion for the allocation,leading to inconsistent decisions in similar cases.Moreover,after the distribution,it emerged that counterparties benefited through irregularities.Chapter 3 analyses the reasons for the problematic arrangements in judicial practice regarding the attribution of property interests after the invalidity of an equity subrogation agreement.On the one hand,this is due to the lack of clear provisions in the adjudication norms,and on the other hand,it is inappropriate to determine the attribution of property interests after the invalidation of an equity subrogation agreement according to the legal consequences of the invalidation of the contract.Chapter 4 proposes a solution to the issue of the vesting of property interests following the invalidation of a shareholding agreement.In respect of the arrangement for the vesting of equity interests: firstly,no matter who is deemed to be entitled to the equity interests,in order to maintain judicial justice,certain restrictions should be imposed on the equity interests,such as restricting the right of the party entitled to the equity interests to request the convening of a shareholders’ meeting for a certain period of time;secondly,in principle,the equity interests should be deemed to be enjoyed by the nominal shareholders;thirdly,if the actual contributor is qualified and complies with the provisions on the transfer of equity interests,the equity interests should be deemed to If the actual contributor is qualified and complies with the relevant regulations on transfer of equity,the equity shall be deemed to be enjoyed by the actual contributor.The arrangement for the attribution of investment income:firstly,it defines the investment income,and secondly,it proposes to differentiate the distribution of investment income under the premise that no one can profit from its violation.Where the other shareholders of the company are aware of the existence of the shareholding agreement,the investment income should be forfeited,whereas where the other shareholders of the company are unaware of the existence of the shareholding agreement,the company should be deemed to be entitled to a portion of the investment income.