Abstract
The valid arbitral award ruled that the fund manager shall open the fund and redeem particular units but failed to specify the opening date and the net asset value (NAV). When the unitholder applies for enforcement of the award, the standards, whether the objects, and scope of the opening and redemption obligation can be defined should be determined in accordance with Paragraph 1 of Article 3 of the Provisions of the Supreme People’s Court on Several Issues concerning the Handling of Cases regarding Enforcement of Arbitral Awards by the People’s Courts. Upon enforcement, the relevant people’s court should, in light of the reality of the fund and the trading rules of the financial market, take the last trading day of the securities market within the performance period provided in the award as the opening date, and calculate NAV on that day. The opening and redemption obligation may be enforced by substituted performance according to Article 259 of the Civil Procedure Law of the People’s Republic of China. In addition, if the monies in the fund are insufficient to redeem the units, other separately disposable fund assets that can be traded on an active secondary market at fair market value may be disposed of to cover the insufficiency. The people’s court should dispose of proper assets without affecting the original portfolio structure to avoid any adverse effects on the subsequent operation of the fund.
Basic Facts
Concerning the arbitration case between Kong X and Bacasso (Shanghai) Investment Co., Ltd., the Shanghai Arbitration Commission rendered the (2020) Huzhonganzi No. 3560 Arbitral Award on March 22, 2021, ordering the company to open the “Bacasso Shenzhou No.1 Fund” and redeem the 2 million units held by Kong X within ten days of the Award. Since the company failed to perform its obligation in accordance with the valid Award, Kong X filed an application with the Shanghai Financial Court for enforcement. The Court accepted the application according to laws on May 10, 2022.
The Fund concerned is an open-end private equity fund still in its duration, under the management of the company and the custody of the China Merchants Securities Co., Ltd. The Applicant held 2 million Fund units of the total 4 million units, and the NAV may be calculated retrospectively. The Fund invested in monetary funds and listed shares. On July 6, 2022, the Fund held RMB 23,504.06 of monetary funds and unrestricted tradable shares in listed companies purchased through Guosheng Securities Co., Ltd., including 500 shares in Everdisplay Optronics (688538), 500 shares in Anda Automation (688125), 1,000 shares in Shandong Publishing (601019), 2,000 shares in China Telecom (601728), 20,000 shares in ST Chalkis Health (000972), 50,000 shares in Jiangxi Copper (600362), 110,000 shares in Xiamen Sunrise Group (002593), and 400,000 shares in Dezhan HealthCare (000813).
Enforcement Results
The Shanghai Financial Court issued the Enforcement Ruling (2022) Hu 74 Zhi No.195 on July 22, 2022, deciding to: 1) open the Fund on April 1, 2021, and redeem the 2 million Fund units of the Applicant at the NAV on that day, i.e., RMB 0.7705 per unit; and 2) sell certain listed shares held by the Fund until the total monies in the Fund reach RMB 1,541,000.00.
Enforcement Details
On August 4, 2022, the Shanghai Financial Court calculated the number of shares of each stock to be sold based on the ratio of the monetary insufficiency to the total current market value of the shares. The Court then served Guosheng Securities a Notice of Assistance in Enforcement, instructing it to sell off the shares in sequence using market orders until the total monies in the Fund reach RMB 1,541,000.00, and transfer such monies to the Fund’s dedicated custodian account. As required, Guosheng Securities sold off 29,000 shares in Jiangxi Copper, 232,000 shares in Dezhan Healthcare, 300 shares in Everdisplay Optronics, 300 shares in Anda Automation, 600 shares in Shandong Publishing, 1,200 shares in China Telecom, 11,600 shares in ST Chalkis Health, and 63,800 shares in Xiamen Sunrise Group. Subsequently, the Court served the Custodian a Notice of Assistance in Enforcement, instructing it to open the Fund and redeem the Fund units of the Applicant by transferring the redemption price of RMB 1,541,000.00 from the dedicated custodian account first to the fund-raising account and then to the Applicant, and cancel the 2 million units of the Applicant. On August 26, 2022, the Custodian opened the Fund and redeemed the units as required by paying RMB 1,541,000.00 to the Applicant. By then, the Shanghai Financial Court had enforced the Respondent’s obligation to open the Fund and redeem the units under the (2020) Huzhonganzi No. 3560 Arbitral Award.
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