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ZhongYin Turns Defeat into Victory in Representing A Trust Company on a Dispute over Stock Usufruct Transfer Contract in the Second Instance before the Beijing Higher Court

2021.01.08  

Author: Zhong Yin Law Firm   

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In respect of the case of a dispute over stock usufruct transfer contract between an international trust company and a company in Hangzhou, the Beijing No. 3 Intermediate People’s Court rejected all claims of the international trust company because it held that the stock usufruct transfer contract was actually intended to realize the pledgee’s right to the stocks, but the pledge on the stocks was not registered and thus was not effectively created. The international trust company refused to accept the first-instance judgment and appealed to the Beijing Higher People's Court (hereinafter referred to as the “BH Court”), and dismissed its former representing attorney and entrusted this case to the team led by Suo Weihua, a senior partner of ZhongYin Law Firm.

After accepting the entrustment, Suo Weihua organized his team members to carefully study the laws and regulations, judicial interpretations, and precedents regarding stock usufruct, and asserted that: the realization of usufruct of stocks is essentially different from the realization of pledgee’s right to stocks, and thereis no substantial obstacle to the realization of usufruct of stocks. The BH Court finally supported ZhongYin’s assertion and held in the second-instance judgment that: the contract on the investment in the usufruct of outstanding shares restricted from trading as a future property right represents the true intentions of both parties to the contract, does not violate any mandatory provisions of laws or administrative regulations, or harm any interest of any third party, and thus should be determined as valid for the purpose of respecting the intentions of both parties and maintaining good faith. The first-instance court’s determination that the stock usufruct transfer contract was actually intended to realize the pledgee’s right to the stocks was inappropriate. The BH Court revoked the first-instance judgment and ordered the company in Hangzhou to sell the shares within ten days after the judgment took effect, with all proceeds to be included into the properties under the collective fund trust plan.

In recent years, the team led by Suo Weihua has been committed to representing trust companies and securities companies on special trust plans, asset management plans and the like, and has accumulated rich expertise and experience in this field. ZhongYin lawyers will continue providing clients with professional legal services based on their needs to facilitate their sound development.

An excerpt of the judgement is attached hereto:



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