Introduction

This case is an outsider to enforce the objection, but this case involves a very important issue, state-owned assets transactions (this article mainly discusses the transfer of state-owned enterprise property rights and enterprise capital increase) before the signing of the "intention agreement", "memorandum", etc. are valid? In practice, before the transfer or capital increase of state-owned property rights, in order to determine the transferee or investor in advance, the two parties to the transaction often sign the "Agreement of Intention" or "Memorandum" in private. Audit and evaluation, and finally disclose the property rights transfer information through the property rights transaction agency, and publicly solicit the transferee. In most cases, both parties to the transaction can properly handle disputes regardless of whether they enter the market and delist, and whether the transaction is ultimately successful, but there is no lack of recourse to the court to request the determination of the validity of the Agreement of Intent. There are many problems surrounding the validity of the Agreement of Intention and the Memorandum of Understanding, and there are also different judgments in judicial practice. This article does not discuss the issue of the execution objection lawsuit, but in the light of the the People's Republic of China Civil Code (hereinafter referred to as the Civil Code), the Law on State-owned Assets of the People's Republic of China Enterprises, the Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises (hereinafter referred to as Decree No. 32) and other laws and regulations to discuss whether the Agreement of Intention and the Memorandum are consultation documents, appointment contracts or contracts? How to determine the validity?

Judgment

Before transferring the 75.273 percent equity of Fanggang Jingyuan held by Fanggang Group, Fanggang Group had signed the Memorandum of Understanding and the Agreement of Intention with Bingtai Company in private, and did not disclose the information of property rights transfer through the property rights trading institutions, and openly solicited the transferee. After signing the Memorandum of Understanding and the Agreement of Intention with Bingtai Company, Fanggang Group started the procedures of state-owned assets transfer such as evaluation, approval and public trading in accordance with the agreement, in fact, it conceals the purpose of private direct transactions in the form of public listing transactions, infringes on the right of unspecified subjects to participate in bidding under the same conditions, and harms social and public interests. The Memorandum and Agreement of Intention signed between Fanggang Group and Bingtai Company shall be deemed invalid.

Brief of the case

1. in 2012, Guangxi Guijian Real Estate Co., Ltd. used its real estate worth more than 1.3 billion yuan to provide mortgage guarantee for Guangxi Lianzhuang Investment Group Co., Ltd. to provide 1 billion yuan loan to Jiangxin International. Guangxi Lianzhuang Investment Group Co., Ltd. should pay the corresponding guarantee fee to Guangxi Guijian Real Estate Co., Ltd, liuzhou Erhai Real Estate Development Co., Ltd., Liuzhou Fanyu Investment Co., Ltd., Qin Bingquan, Qin Lingjun, Qin Lingchao, etc. provided guarantee for the guarantee fee. The guarantee fee case was issued by the Supreme People's Court (2017) Supreme Law Minzhong No. 52 Civil Judgment, and the Guangxi Zhuang Autonomous Region Higher People's Court designated the court of first instance to execute the Guangxi Zhuang Autonomous Region Liuzhou Intermediate People's Court. In the execution of the case, the enforcement court found that shareholders and employees of Lianzhuang Company and other companies had transferred 50 million yuan that had not been declared to the enforcement agency to Bingtai Company, and Bingtai Company transferred 50 million yuan involved in the case to Fangcheng Port Group Co., Ltd. (hereinafter referred to as Fanggang Group) in the form of equity acquisition, but the equity acquisition was not actually performed. Therefore, the enforcement court froze and withdrew the 50 million yuan involved. The civil air defense port group outside the case raised an objection to this, and after being rejected, filed a lawsuit against the outsider to enforce the objection.

2. Fanggang Group holds a 75.273 per cent stake in Fangchenggang Jingyuan Mining Investment Co. On June 28, 2018, Fanggang Group and Bingtai Company signed the Memorandum of Special Meeting on Fanggang Jingyuan Reorganization, agreeing on Bingtai Company's intention to acquire 75.27 per cent of Fanggang Jingyuan held by Fanggang Group: on the date of signing the memorandum, Bingtai Company paid 10 million yuan to Fanggang Group as a deposit for this equity acquisition; Pay 40 million yuan before July 13, 2018 as the performance bond for this equity acquisition; After Fanggang Group receives the above payment in full amount, the two parties jointly select audit and evaluation institutions from the alternative database of Guangxi SASAC intermediary agencies to carry out audit and evaluation of Fanggang Jingyuan. After the audit and evaluation results are confirmed and agreed by both parties, Fanggang Group will publicly list and transfer 75.27% of Fanggang Jingyuan's equity in accordance with the procedures and the pricing principles agreed by both parties. Bingtai Company or its designated entities shall sign up and participate in the bidding as required; if Bingtai Company or its designated entity does not sign up or participate in the auction, the deposit of 10 million yuan and the performance bond of 40 million yuan paid will not be refunded. On August 15, 2018, Guangxi Zhongyi Asset Evaluation Land and Real Estate Evaluation Co., Ltd. entrusted by Fanggang Group issued the Asset Evaluation Report on the Value of All Shareholders' Equity Involved in Fanggang Jingyuan to be Transferred by Fanggang Group.

3. of August 28, 2018, Fanggang Group and Bingtai Company signed the Equity Transfer Intention Agreement, agreeing that Bingtai Company intends to acquire 75.273 percent of Fanggang Jingyuan held by Fanggang Group, and the starting price and final transaction price shall not be lower than 445.953857 million yuan. It is also agreed that Fanggang Group shall follow the pricing principle of equity transactions agreed by both parties. And again agreed: if Bingtai Company or its designated entity does not sign up or participate in bidding, the deposit of 10 million yuan and the performance bond of 40 million yuan paid will not be refunded.

4. of November 7, 2018, Fanggang Group was listed for the transfer of 75.273 percent of Fanggang Jingyuan's equity on the Beibu Gulf Equity Exchange. By December 4 of the same year, the announcement of the transfer project expired and Bingtai Company did not sign up to participate in the auction. On December 5, 2018, Fanggang Group made a "Letter on the Implementation of the Agreement of Intention to Transfer Equity", which informed Bingtai that it constituted a breach of contract and intended to confiscate the 10 million yuan deposit and 40 million yuan performance bond paid by the company. Bingtai did not respond to the letter.

5. Fanggang Group proposed to the court of first instance a lawsuit against outsiders for the execution of objections. The court of first instance held that the evidence provided by Fanggang Group was not sufficient to prove that it had a substantive right to 50 million yuan involved in the case, and that the basis for excluding enforcement of 50 million yuan involved in the case was insufficient. Fanggang Group filed an appeal, and the court of second instance rejected the appeal and upheld the original verdict. Fanggang Group filed a retrial application, and the Supreme People's Court ruled to reject the retrial applications of Fangcheng Port Group Co., Ltd. and Guangxi Bingtai Investment Co., Ltd.

focus of controversy

Validity of Memorandum and Agreement of Intent

Referee's point of view

The 75.273 per cent equity interest in Fanggang Jingyuan held by Fanggang Group is a state-owned asset, and the transfer of such assets shall comply with the procedures and methods for the transfer of state-owned assets as prescribed by laws and regulations and relevant administrative rules. Article 54 of the Law on State-owned Assets of the People's Republic of China Enterprises stipulates: "The transfer of state-owned assets shall follow the principles of equal compensation and openness, fairness and impartiality. Except for those that can be transferred by direct agreement in accordance with the provisions of the State, the transfer of state-owned assets shall be carried out openly in the property rights trading places established in accordance with the law. The transferor shall truthfully disclose the relevant information and solicit the transferee." The "Memorandum" and the "Agreement of Intention to Transfer Equity" were not reached through a public listing transaction. Fanggang Group's public listing of the equity involved in the case, and its private intention to transfer the equity involved in the case to Bingtai Company are two different legal acts. After signing the agreement with Bingtai, Fanggang Group initiated the procedures for the transfer of state-owned assets such as evaluation, approval, and public trading in accordance with the agreement between the two parties, which violated the legal procedures for the transfer of state-owned assets.

Before transferring the 75.273 percent equity of Fanggang Jingyuan held by Fanggang Group, Fanggang Group had signed the Memorandum of Understanding and the Agreement of Intention with Bingtai Company in private, and did not disclose the information of property rights transfer through the property rights trading institutions, and openly solicited the transferee. After signing the Memorandum of Understanding and the Agreement of Intention with Bingtai Company, Fanggang Group started the procedures of state-owned assets transfer such as evaluation, approval and public trading in accordance with the agreement, in fact, it conceals the purpose of private direct transactions in the form of public listing transactions, infringes on the right of unspecified subjects to participate in bidding under the same conditions, and harms social and public interests. Therefore, according to the invalid circumstances stipulated in items (IV) and (V) of Article 52 of the the People's Republic of China contract Law, the "Memorandum of intent Agreement" signed between Fanggang Group and Bingtai Company shall be deemed invalid.

Questions, Summary and Suggestions

　　1. What is the nature of the Agreement of Intention?

The nature of the Agreement of Intention can be divided into three categories. One is a consultative document, which has not established a contract and is not legally binding, and the two parties have not formed a civil legal relationship. The subject matter and quantity of this kind of intention agreement are uncertain, and there is no indication that the parties are bound by it. You can refer to the Supreme People's Court, Yangpu Economic Development Zone Management Committee and Aohua Asset Management Co., Ltd. for other real estate development and operation contract disputes. Civil Ruling Letter [(2014) Minshen Zi No. 263]].

The second type is the appointment contract. The appointment contract is a contract in which the parties agree to conclude this contract in the future. The main feature is that both parties clearly agree in the contract that the letter of intent is only as the intention of cooperation, and its final performance, the two parties will sign a formal equity transfer agreement as the basis, and its legal binding force is mainly reflected in that both parties should negotiate and conclude this contract based on the principle of good faith. The relevant provisions of the Civil Code shall apply to the evaluation of the effectiveness of the appointment. Please refer to the civil judgment of the second instance on the equity transfer dispute between Anhui landing holding group co., ltd. and Shanghai zaihe industrial investment co., ltd. [(2015) min er zong zi no 143]].

The third category is the establishment of a contract, the validity of the contract to determine the application of the Civil Code, for the Civil Code before the entry into force of the facts, the general application of the Contract Law.

　　2. The transaction of assets of state-owned enterprises, whether it is the transfer of property rights or the increase of capital, it is recommended not to sign an "agreement of intent" with the effect of an appointment contract and contract.

Some people think that if the transfer of state-owned property rights adopts non-bidding methods such as auction and online bidding, then before the public transfer of state-owned property rights, in order to lock in the time arrangement of the transferor's preparatory work and the transferee's sincerity in entering the market for public bidding, signing an intentional agreement with the intended transferee does not violate the relevant mandatory provisions of state-owned property rights transactions. The judgment of this case is the best answer to this question.

If the transfer of state-owned property rights adopts the method of bidding, then as long as the "Agreement of Intention" conducts substantive negotiations on the transfer price and transfer plan and reaches substantive opinions, it will inevitably violate the provisions of Article 43 of the the People's Republic of China Bidding Law (hereinafter referred to as the "Bidding Law") and will inevitably lead to the serious consequences of invalid winning the bid in Article 55. Thus, according to Article 153 of the Civil Code, the Agreement of Intention was found to be invalid.

In the case of a company's capital increase, the "Agreement of Intent" conducted substantive negotiations on the investor's lock-in, capital increase price, capital increase plan, etc., reached a substantive agreement, and agreed on the liability for breach of contract. According to Article 42 of Order 32 "When the number of prospective investors who have passed the qualification review is large, multiple rounds of selection can be conducted by means of bidding, competitive negotiation, comprehensive evaluation, etc. The property rights trading institution is responsible for uniformly receiving bids and quotation documents from interested investors and assisting enterprises in the selection of investors. The board of directors or shareholders' meeting of an enterprise shall consider the selection of investors on the basis of the results of asset appraisal and in the light of the conditions and quotations of the intended investors." Can the provisions of Article 40 of the Bidding Law be invoked and the Agreement of Intention shall be deemed invalid in accordance with Article 153 of the Civil Code? There are different understandings in judicial practice. However, from the point of view of the judgment in this case, it is a very important, correct and brave judicial judgment, which directly determines that this kind of behavior is to cover up the illegal purpose in a legal form and harms the social and public interests. It is a very important, correct and brave judicial judgment, which has universal guiding significance for similar cases.

　　Case Index

　　(2021) Supreme Fa Min Shen No. 89
The retrial applicants Fangcheng Port Group Co., Ltd., Guangxi Bingtai Investment Co., Ltd. and the respondent Guangxi Guijian Real Estate Co., Ltd. and the third party in the first instance Guangxi Lianzhuang Investment Group Co., Ltd., Liuzhou Fanyu Investment Co., Ltd., Liuzhou Erhai Real Estate Development Co., Ltd., Qin Bingquan, Qin Lingjun and Qin Lingchao

　　Attached: Relevant laws and regulations

　　1. the People's Republic of China Civil Procedure Law

Article 227: "In the course of execution, if an outsider raises a written objection to the subject matter of execution, the people's court shall examine it within 15 days from the date of receipt of the written objection, and if the reason is established, it shall rule to suspend the execution of the subject matter; if the reason is not established, it shall rule to reject it. If an outsider or party to the case is not satisfied with the ruling and believes that the original judgment or ruling is wrong, it shall be handled in accordance with the trial supervision procedure; if it has nothing to do with the original judgment or ruling, it may bring a lawsuit to the people's court within 15 days from the date of service of the ruling".

　　the People's Republic of China Contract Law 2. (expired)

Article 52 [Statutory Circumstances for Invalidation of a Contract] A contract shall be null and void under any of the following circumstances:

(I) a party to enter into a contract by means of fraud or coercion, to the detriment of the interests of the State;

(II) malicious collusion to harm the interests of the state, the collective or a third party;

(III) cover up illegal purposes in a legal form;

(IV) damage the public interest;

(V) violation of mandatory provisions of laws and administrative regulations.

　　the People's Republic of China Civil Code of 3.

Article 146 [Effect of False Representation and Concealment] A civil juristic act performed by the perpetrator and the counterparty with a false expression of intent is invalid.

The effect of a civil juristic act that is concealed by a false expression of intent shall be dealt with in accordance with the relevant legal provisions.

Article 153 [Effectiveness of Civil Legal Acts Violating Mandatory Provisions and Violating Public Order and Good Customs] Civil legal acts that violate the mandatory provisions of laws and administrative regulations are invalid. However, the mandatory provisions do not cause the civil juristic act to be invalid.

Article 157 [legal consequences of invalidity, revocation or determination of invalidity of civil juristic acts] after a civil juristic act is invalid, revoked or determined not to be effective, the property acquired by the actor as a result of the act shall be returned; if it cannot be returned or is not necessary to return it, it shall be compensated at a discount. The party at fault shall compensate the other party for the losses suffered as a result; if all parties are at fault, they shall each bear the corresponding responsibility. Where the law provides otherwise, such provisions shall prevail.

　　Law of 4. on State-owned Assets of the People's Republic of China Enterprises

Article 54 The transfer of state-owned assets shall follow the principles of compensation for equal value and openness, fairness and impartiality.

Except for those that can be transferred by direct agreement in accordance with the provisions of the State, the transfer of state-owned assets shall be carried out openly in the property rights trading places established in accordance with the law. The transferor shall truthfully disclose the relevant information and solicit the transferee; if there are more than two transferee parties resulting from the solicitation, the transfer shall adopt the transaction method of public bidding.

　　Order of the State-owned Assets Supervision and Administration Commission and Order of the Ministry of Finance No. 32 of 5.-Measures for the Supervision and Administration of State-owned Assets Transactions of Enterprises

Article 11 After the transfer of property rights is approved, the transferor shall entrust an accounting firm to audit the enterprise subject to the transfer. Where it is not appropriate to conduct a separate special audit involving the transfer of equity participation rights, the transferor shall obtain the latest annual audit report of the enterprise subject to the transfer.

Article 12 For the transfer of property rights that must be evaluated in accordance with the requirements of relevant laws and regulations, the transferor shall entrust an evaluation institution with corresponding qualifications to evaluate the assets of the subject matter of the transfer, and the transfer price of property rights shall be determined on the basis of the approved or filed evaluation results.

Article 13 The transfer of property rights shall, in principle, be carried out openly through the property rights market. The transferor may, according to the actual situation of the enterprise and the work schedule, adopt a combination of information pre-disclosure and formal disclosure, disclose the property rights transfer information in stages through the website of the property rights trading institution, and openly solicit the transferee. The time for formal disclosure of information shall not be less than 20 working days.

If the actual control of the enterprise subject to the transfer is transferred as a result of the transfer of property rights, the transferor shall pre-disclose the information through the property rights trading institution within 10 working days after the transfer is approved, and the time shall not be less than 20 working days.

Article 14 In principle, the transfer of property rights shall not set qualification conditions for the transferee. If it is really necessary to set them, they shall not have clear directionality or violate the principle of fair competition. The relevant contents of the qualification conditions shall be reported to the state-owned assets regulatory agency at the same level for the record before information disclosure. If the state-owned assets regulatory agency fails to give feedback within 5 working days, it shall be deemed as consent.

Article 42 When there are a large number of prospective investors who have passed the qualification examination, they may conduct multiple rounds of selection by means of bidding, competitive negotiation, comprehensive evaluation, etc. The property rights trading institution is responsible for uniformly receiving bids and quotation documents from interested investors and assisting enterprises in the selection of investors. The board of directors or shareholders' meeting of the enterprise shall consider and select the investor on the basis of the results of the asset appraisal, taking into account the conditions and quotations of the intended investor.

　　Notice of the Supreme People's Court of 6. on Issuing the Minutes of the National Courts' Conference on Civil and Commercial Trials

119. [Trial of an Outsider's Lawsuit for Objection to Enforcement] The purpose of an Outsider's Lawsuit for Objection to Enforcement is to exclude the enforcement of a specific subject matter. Procedurally speaking, if an Outsider's objection to enforcement is rejected in accordance with Article 227 of the Civil Procedure Law, he may file an action for objection to enforcement in the People's Court of Enforcement. The people's court shall generally judge whether the outsider has rights to the subject matter of execution, what kind of rights he enjoys, and whether the rights are sufficient to exclude enforcement. Whether or not a specific affirmative decision is made depends on the claim of an outsider. If an outsider fails to file a claim for confirmation of rights or payment of a lawsuit, he shall not make a judgment for confirmation of rights, but shall only make an analysis and judgment in the reasons for the judgment and make a judgment on whether to exclude execution. However, if an outsider makes both a request for confirmation of rights and payment and a request for exclusion of execution, the people's court shall clarify in the specific judgment whether the request is supported and whether the execution is excluded.

　　the People's Republic of China Tendering and Bidding Law of 7.

Article 43 Before determining the winning bidder, the tenderer shall not negotiate with the bidder on the substantive contents such as the bid price and the bid plan.

Article 55 For a project subject to tender according to law, if the tenderer, in violation of the provisions of this Law, negotiates with the bidder on the substantive contents of the tender price, tender plan, etc., he shall be given a warning, and the person in charge directly responsible for the unit and other persons directly responsible shall be punished according to law.

If the acts listed in the preceding paragraph affect the outcome of the bid, the bid shall be invalid.