As the investment and financing market has cooled and lost vitality, the introduction of new regulations has further exacerbated the existing difficulties. Private equity funds are currently facing the harsh reality of challenging exits and immense pressure. With a large number of projects stalled and traditional listing exits becoming unrealistic as investment periods expire, investors are increasingly turning to repurchases by companies and founders. However, this trend has also led to a rise in disputes between these parties.
In response to the recent challenges in the private equity market, Llinks and Appleby successfully co-hosted a seminar on 'Practical Issues of Repurchase Clauses at Home and Abroad' on June 19, 2024. The seminar was led by Ms. Joyce Zhang and Ms. Aurora Zhang, both contractual partners at Llinks Corporate team, and Ms. Crystal Au-Yeung, counsel from Appleby's Dispute Resolution team. The three speakers focused on 'Core Disputes and Negotiation Strategies of Repurchase Clauses', 'Exercise of Repurchase Rights in Domestic PE/VC Projects' and 'Offshore Winding-up, Repurchase of Investments, and Related Disputes' to deliver a keynote sharing and relevant discussion respectively.
Ms. Joyce Zhang delivered the keynote address, focusing on the intricacies of repurchase clauses in the current market environment. She began by tracing the history and use of repurchase clauses in international commercial practices, explaining their rise to prominence as 'mandatory clauses' in domestic private equity and venture capital (PE/VC) projects. Ms. J. Zhang then delved into the legal implications of these clauses under Chinese law, examining them through the lens of both legal norms and judicial precedents. This analysis provided a foundation for exploring how repurchase clauses are handled during domestic and overseas listings. She specifically addressed issues surrounding the termination, reinstatement, and impact of the drawer agreement, all of which are topics of significant practical concern. Finally, she concluded by dissecting the core points of contention and negotiation strategies between companies and investors regarding repurchase clauses. This included analyzing factors like the events triggering repurchase, the scope of the repurchase obligation, limitations of liability, and the procedures for exercising the clause. By presenting these considerations from the perspectives of both companies and investors, Ms. J. Zhang effectively illustrated the negotiation process for repurchase clauses.
Ms. Aurora Zhang focused on the exercise of repurchase rights in domestic PE/VC projects. He began by discussing the practical concerns involved, including the legal rationale behind the repurchase right, the company's potential obstacles to exercising it, how the type of liability impacts litigation claims, issues surrounding liability assumption during repurchase, and the calculation of the repurchase amount. Next, Ms. A. Zhang addressed the New Company Law and its impact on repurchase provisions. She analyzed how legislative changes to the statutory repurchase right affect the drafting of transaction documents and the practical steps involved in capital reduction procedures under the new law. Finally, she explored the specific challenges faced by foreign shareholders in the repurchase process, offering insights into the advantages and disadvantages of various solutions based on his practical experience.
Then, Ms. Crystal Au-Yeung delved into the complexities of offshore liquidation and investment repurchase disputes. She began by outlining the two types of offshore liquidation: voluntary and compulsory. Ms. Au-Yeung then detailed the key players involved in each process, their respective authorities, and the election procedures. Subsequently, she compared the liquidation rules of the Cayman Islands and BVI, highlighting differences in minimum statutory requirements, services offered, and avoidance mechanisms. Based upon above aspects , Ms. Au-Yeung explained the investor's repurchase rights under Cayman and BVI law during liquidation procedures, outlining the path to realization. She also provided a real-world example from his own experience to illustrate the potential judicial obstacles encountered when liquidation coincides with a right of repurchase. Finally, Ms. Au-Yeung addressed the enforcement procedures and conditions for foreign judgments, arbitral awards, and local judgments within the Cayman and BVI legal frameworks.
This seminar offered a valuable learning platform for both investors and companies. It provided not only a deep understanding of repurchase terms and practical challenges, but also a platform for participants to exchange ideas with peers. We believe the insights shared by the speakers will inspire investors and companies to proactively address repurchase issues.
Llinks remains committed to delivering high-quality legal services. We firmly believe that deeper collaboration, knowledge sharing, and experience exchange will further promote transparency and efficiency in business transactions. This, in turn, will reduce legal risks and strengthen trust and cooperation among market players. Meanwhile, we will continue to monitor market trends and regulatory changes to ensure our services remain current and meet the evolving needs of our clients.
