Research On Termination Of Perpetual Bond Contract From The Perspective Of Investor Protection

Perpetual bonds are not independent bond products,but a general term for bonds with common characteristics.It has both "shares" and "debt",and is a new type of financial instrument that is different from ordinary bond products.The main characteristics of my country’s perpetual bonds are: bond issuers can extend the bond duration and defer the payment of interest,while bond investors have no right to require bond issuers to repay the principal and interest at maturity.The corresponding checks and balances are the interest rate reset and jump mechanism: if the perpetual bond issuer extends the bond term or defers the payment of interest,the bond interest rate will jump.Perpetual bond issuers may use the "perpetual" rights to implement commercial speculations to harm the interests of investors.In reality,there are also cases where the issuer delays or defers the payment of interest due to reasons such as deterioration of creditworthiness.Due to the lack of better protection in terms of the design of the clauses,investors put the realization of the protection of interests in the judicial process.The judicial process seems to have achieved fairness and justice to protect investors in the results of the judgment,but there are many flaws in its legal application.This article takes investor protection as the perspective and focuses on the termination of perpetual bond contracts.The core issue discussed in this article is: In judicial application,can perpetual bond investors successfully terminate the contract with the existing institutional arrangements.Based on the observation of the perpetual bond and its investor protection peculiarities,this article comprehensively analyzes the legal application issues in the judgment of the perpetual bond contract termination,and give corresponding countermeasures.The first chapter of this article is an observation on the peculiarities of perpetual bonds and investor protection.The special feature of perpetual bonds is that at the level of accounting treatment,perpetual bonds are generally included in equity instruments rather than debt instruments;at the level of legal nature,perpetual bonds are recognized as bonds.This can help the issuer lock in funds,stabilize the issuer’s equity structure,and reduce the debt-to-asset ratio.In terms of investor protection,investors in perpetual bonds seem to lack a powerful weapon against the issuer.At the level of contract design,the issuer’s strength in transaction arrangements led to an imbalance in the interests of investors,and bond restrictive clauses were abandoned due to the need for accounting confirmation.At the level of judicial relief,if the issuer wants to use the "perpetual" right to evade debt,it seems difficult for investors to terminate the contract by triggering the issuer’s liability for breach of contract.In judicial practice,the judgment case on the cancellation of perpetual bonds seems to have given investors the light,but the judgment has errors in the application of law and cannot be a normal way for investors to terminate the perpetual bond contract.The second chapter of this article examines the effect of the current legal relief rules by analyzing the reasons for the judgment of the perpetual debt cancellation case.In the judgment of the perpetual bond cancellation case,the judge dissolved the perpetual bond contracts between many investors and China Urban Construction Holdings Group Co.,Ltd.through a fundamental breach of contract,the right to rescind due to uneasy defenses,or an anticipated breach of contract.However,there are misunderstandings of the purpose of the perpetual bond contract,misunderstanding of the applicable conditions of the right of uneasy defense,and unauthorized use of the anticipatory breach of contract system without reaching the level of "demonstration of non-performance of the debt".The court actually approved the perpetual bond contract was terminated by the exercise of judicial intervention.Although this is a retreat option limited by the insufficient supply of the current system,it will cause the problem of destabilizing the bond market and forming the path dependence of contract judgments.In addition,because the perpetual bond contract does not meet the definition of an indefinite contract,the right of advance notice of cancellation cannot be applied to this type of contract.The third chapter of this article gives the countermeasures to introduce the German "termination of major causes" system.The “termination of material cause” system in the German Law of Obligation is a general rule that arises from the analogy application of many sub-clauses in judicial practice.It uses material grounds as the exercise condition for the parties to terminate the contract in the continuation contract,and whether it has The expectation of the performance of debt is the key factor for judgment,which is precisely the core issue of long-term continuing contracts such as perpetual bonds,and it also bypasses the need to demonstrate the purpose of the contract and the liability for breach of contract.Observing perpetual bonds with the theory of incomplete contracts will find that the transaction costs are higher and the transaction risks are greater,and require long-term governance by the parties;observing perpetual bonds with the theory of relationship contracts,you will find that the trust relationship between the parties is a perpetual bond The cornerstone of survival.The author proposes to design contract termination clauses based on regular continuing contracts and the existence of a trust relationship as an important factor for judging major issues.However,in order to avoid the risk of abuse,we should still take a conservative stand and wait for the judicial system to accumulate sufficient experience before implementing legislation.