Judicial perspectives in private fund dispute cases in 2022

By Yao Xiaomin and Wang Chengtao, Lantai Partners

Although the number of private fund dispute cases in 2022 was lower than in previous years, the cases still involved significant amounts of money and complex legal relationships, and some points of dispute did not yet have uniform adjudication rules.

The authors have examined the judicial adjudication documents rendered in private fund dispute cases in 2022, focusing on some prominent cases handled, and selected a few typical judicial perspectives involved in private fund dispute cases from the previous year for comparison.


private fund dispute cases 2022
Yao Xiaomin
Lantai Partners

Partners in a partnership without dissolution and liquidation completed do not have the right to demand a direct refund of their capital contributions from the partnership. In Chang’an Insurance Sales v Beijing Xinzhongli Investment, Beijing Xinzhongli Yingda Equity Investment Center and Beijing Xinzhongli Equity Investment Management (2021), Chang’an held that it satisfied the conditions for divestment/liquidation and a profit distribution to it as specified in the partnership agreement, and demanded that the partnership, Yingda Center, refund its capital contribution of RMB100 million (USD14.5 million) and distribute profits at the fixed annual interest rate of 7% on its paid-in capital.

The court held that, pursuant to articles 20 and 21 of the Partnership Law, the capital contribution of Chang’an, as a partner of Yingda Center, the profits it earned in the name of the Yingda Center, and other property that it lawfully obtained were all property of the partnership.

To make such a demand, the liquidation of Yingda Center in accordance with the law was required. Without liquidating the property of Yingda Center, Chang’an’s demand lacked the necessary factual and legal basis and would harm the lawful rights and interests of Yingda Center’s creditors.

The outcome of the liquidation of a fund product is an important basis for recognising an investment loss, but not the sole basis. The mainstream view in past court decisions was that it was impossible to determine whether the investor had suffered a loss, and the amount of such loss, before liquidation of the private fund product was completed.

Consequently, the investor’s claim for damages ought to be rejected, and it should institute a new legal claim after the loss was determined. However, in JuPai Investment Group v Li Hang et al (2021), where liquidation of the fund was at a standstill, and it was not realistically feasible to wait for the liquidation to be completed before confirming the party’s loss, the Shanghai Financial Court held that the outcome of the liquidation of the fund was important but not the sole basis for recognising the investment loss.

If there was other evidence sufficient to establish the investment loss, the court could recognise the loss in accordance with the law. The amount of the loss was determined as being “the amount invested plus interest on the unavailable funds” and, based on the principles of making up losses and fairness, it was clarified that if the fund investor were to receive repayment in the subsequent liquidation, such an amount would be subtracted from the damages received.

private fund dispute cases 2022
Wang Chengtao
Lantai Partners

Qualifications of investor representative as the subject of a legal action recognised for the first time by a court when the manager had absconded. When a fund manager disappears or absconds, it becomes impossible to move forward with matters pertaining to the subsequent liquidation of the fund, and protection of the investors’ rights through the manager.

The People’s Court of Chaoyang district, Beijing, in its recent judgment on the first case in Beijing of the representative of the investors of a private fund instituting a legal action against a party to a transaction, held that a resolution consistent with the collective interests of the fund unit holders passed at a general meeting of the unit holders, and conducted within the scope of its lawful authority by the appropriate procedure, was legally valid as for the fund unit holders, the manager and the custodian (where the provisions of the notice comply with the provisions of the contract).

As the suit brought by the representative of the fund unit holders did not violate the law, was in keeping with the entity characteristics of a contractual private fund, the fund unit holder’s general meeting, and the requirements in respect of the exercise of rights, and consistent with the overall interests of the fund and the investors, the court confirmed the qualifications of the representative of the fund unit holders as subject of the legal action in the case.


Investors in a partnership-organised fund must use lawful and reasonable means to protect their rights and avoid investment losses. They can demand that the partnership liquidate and return their capital contributions in accordance with the partnership agreement. Alternatively, they can demand that the partnership bear liability for breach of contract if the general partner/fund manager fails to perform its fiduciary duty of due diligence and care.

The outcome of liquidation cannot serve as the sole basis for recognising investment losses. Where the amount of the losses becomes undeterminable due to the failure of the manager to perform its liquidation obligations, or liquidation becomes impossible due to the manager having its qualifications revoked, the assets of the fund being maliciously diverted by a party not involved in the case, a suspected criminal offence, etc., and if persisting with the liquidation could result in the unfair scenario where the breaching party consistently fails to perform its obligations while avoiding liability, the losses may be determined by “assuming a total loss” without liquidation of the private fund.

In cases where a fund manager has absconded, investors can proceed with the subsequent liquidation of the fund, recovery of claims and protection of their rights through litigation at a general meeting of the fund unit holders. In terms of its legal attributes, the act of passing a resolution at a general meeting of the fund unit holders constitutes a resolution act. For such a resolution to be valid, it must meet the following conditions:

    1. the organ passing the resolution having the authority to do so;
    2. the content of the resolution must comply with the law and the contract;
    3. the resolution procedure must be in compliance with the law and the contract;
    4. the percentage of votes on the resolution must meet the requirements of the fund contract; and
    5. the content of the resolution must not infringe on the lawful rights and interests of the members.

Yao Xiaomin is a partner and Wang Chengtao is an associate at Lantai Partners

Lantai Partners
29th Floor, Tower B, Disanzhiye Mansion
A1 Shuguang Xili, Chaoyang District
Beijing 100028, China
Tel: +86 10 5228 7777
Fax: +86 10 5822 0039