[Direct answer]In the Beijing area, private equity exits are hampered. Investors can claim their rights according to the partnership agreement and the "Partnership Enterprise Law of the People's Republic of China" (amended on August 27, 2006 and implemented on June 1, 2007). They can protect their rights through negotiation, exercising the right to repurchase, initiating litigation or arbitration, etc. Common obstacles include the investee company failing to fulfill its repurchase obligations, the controlling shareholder's delay, and disputes triggered by the anti-dilution clauses. It is recommended to first fix the investment agreement, the anti-dilution clauses, and the evidence of performance, and refer to them when necessary.\nCross-border financeIn this column, we will combine the transaction structure to choose negotiation, litigation, or arbitration, and grasp the time limit to avoid losing rights and interests.

1. Problem background and typical scenarios

In private equity investment, investors often enter the market through capital increases or the acquisition of existing shares, and agree on exit guarantees such as listing-based earnout clauses, performance-based earnout clauses, or repurchase clauses. Typical scenarios include: the investee company fails to list on the stock market as scheduled, triggering a repurchase obligation, but the controlling shareholder delays payment; the fund's term expires and investors need to be distributed, but the underlying assets cannot be monetized; and some cross-border structuring projects are delayed due to obstacles in foreign exchange and red-chip repatriation. Relevant cross-border matters can be referred to for more information.\nCross-border financeColumn; The actual controller transferred assets, causing the repurchase to fail; The GP and LP had a disagreement over the exit plan, which involves partnership governance and can be referred to for referenceBusiness and contract disputes in enterprisesThe column. When handling similar cases in the Beijing area, we usually first clarify the transaction documents and performance milestones, and then determine the path to protect rights and interests.

II. Key points of contention

First, to determine whether the triggering conditions for the repurchase obligation have been met, it is necessary to review the provisions of the shareholders' agreement, the listing period, and the agreed performance indicators. Second, the basis of the right to request repurchase is either the partnership agreement, the shareholders' agreement, or a separate repurchase commitment. Third, the exercise period and procedures for the right to repurchase, whether a notice of default is required and whether arbitration jurisdiction has been agreed upon. Fourth, the scope of the controlling shareholder's liable assets and their enforceability. Fifth, foreign exchange and jurisdictional obstacles in cross-border projects. Sixth, the collective action of LPs and the diligence obligations of GPs. Specifically, the current effective laws and regulations and judicial rulings shall prevail. For debt enforcement matters, reference can be made to the relevant provisions.Creditor's rights and debts, and enforcement casesColumn.

III. Professional analysis by Henglue Lawyers

Judging from the practical experience of lawyers handled by our firm, the key to resolving disputes over private equity exit lies in the evidence chain and path selection. Common situations include: the ambiguity of the anti-dilution clauses in the investment agreement, leading to conflicting interpretations regarding whether they are triggered; the lack of sufficient assets in the repurchaser's name, making it difficult to enforce even if the case is won; and some projects stipulating overseas arbitration, which requires separate arrangements for preserving domestic assets. When handling such cases, lawyers from our firm typically first systematically review transaction documents, payment receipts, performance anti-dilution data, and reminder records to clarify the basis of the claim and jurisdiction. They then develop a combination of litigation, arbitration, or negotiation for repurchase, while simultaneously investigating the liable party's responsible assets and transfer clues. Securing performance evidence and asset clues as early as possible is the key to ensuring the success of rights protection.

IV. Practical suggestions and legal basis

Action suggestions: First, organize a complete set of transaction documents, including the partnership agreement, the capital increase agreement, the provisions on the betting and repurchase, and the payment vouchers; Second, fix the triggering evidence, such as the proof of non-listing, the audit report, the reminder letter and the reply; Third, investigate the property of the obligors, including real estate, equity, bank deposits, and foreign investments; Fourth, clarify the jurisdiction and statute of limitations. It is recommended to apply for arbitration or sue the court in accordance with the agreement first. For relevant key points, please refer to the following content for referenceSpecial services and other cases1. Column; 2. Fifth, apply for property preservation to prevent transfer when necessary. 3. In terms of legal basis, the "Partnership Enterprise Law of the People's Republic of China" stipulates the rights and obligations of partners and the settlement rules for withdrawal from the partnership. Articles 509 and 577 of the "Civil Code of the People's Republic of China" regulate the performance of contracts and breach of contract liability. The investment and repurchase arrangements should also be in accordance with the adjudication rules on the effectiveness of the investment party's betting with the target company set forth in the "Memorandum of the National Court's Civil and Commercial Trial Work Conference" (No. 254 of 2019, issued on November 8, 2019).

5. Henglu Law Firm's Reminder

Risk Warning: First, the wording of the repurchase clause and the triggering conditions must be clear. Ambiguous agreements are prone to disputes; Second, if the obligor has no property, winning the lawsuit does not necessarily mean recovering the money. It is necessary to conduct advance investigations and preservations; Third, cross-border projects need to pay attention to foreign exchange registration and jurisdictional connection; Fourth, LPs should pay attention to the fund's survival period and distribution points to avoid being passive due to exceeding the time limit. It is recommended to entrust professional lawyers to evaluate the transaction documents and evidence as soon as possible, and to consult when necessary.Beijing Henglue Law FirmOn the official website, under the same category, we develop protection plans that balance recovery of funds and efficiency.

VI. Frequently Asked Questions

Q1: If the exit of private equity is blocked, can investors still successfully retrieve their investments?

The success of the exit depends on whether the repurchase clause is clearly triggered, whether the obligor has liable assets, and whether the evidence is complete. If the hedging conditions are met, the agreement is valid, and the obligor has enforceable assets, it is usually feasible to claim repurchase through litigation or arbitration; but if the clauses are vague, the obligor has no solvency, or the evidence is lacking, it will be difficult to recover the money. It is recommended that lawyers first evaluate the documents and the asset situation before deciding on the path of protecting rights, and it is not advisable to presume a guaranteed victory in advance.

Q2: What evidence do I need to prepare to exit successfully?

The following materials should be prepared: first, transaction documents, including partnership agreements, capital increase agreements, equity transfer agreements, and repurchase and hedging clauses; second, investment certificates, bank statements, capital verification reports, or payment receipts; third, triggering evidence, such as public information about the failure to list on schedule, or materials showing that the audit or performance did not meet the standards; fourth, records of reminders, including lawyer's letters, emails, and receipts; fifth, clues to the debtor's assets, including equity, real estate, and account information. The more complete the materials are, the more proactive the protection of rights will be. For contract disputes, you can refer to the relevant provisions.Business and contract disputes in enterprisesColumn.

Q3: Approximately how much does it cost to protect one's rights after exiting a private equity investment?

The fees include attorney fees and litigation or arbitration costs. Attorney fees are usually determined through negotiation based on the value of the subject matter, the complexity of the case, and cross-border factors, with no standardized rates. Litigation fees are charged in increments based on the amount of the claim, while arbitration fees are calculated according to the rules of the arbitration institution. In cases of partial success, the fees are shared proportionally. For cross-border cases involving property preservation, additional costs may arise for notarization, translation, and preservation. The specific fees should be evaluated based on the repurchase amount and the difficulty of enforcement. It is recommended to consult with a lawyer about the case before providing a quote.

Q4: How long does it usually take to protect one's rights after exiting a private equity investment?

The duration of the process varies depending on the path taken. Negotiating or discussing a buyback may take several months; the first-instance ordinary procedure of domestic litigation generally does not exceed six months, and the second-instance procedure takes about three months; arbitration according to arbitration rules usually takes several months to a year; if the obligor has no property to be executed and controlled, the recovery period may be even longer. Cross-border projects also involve the connection between overseas procedures and domestic preservation. The key is to fix evidence and property clues as soon as possible to avoid delays at critical junctures.

Q5: What should I do if I'm stuck in the exit process of private equity investments?

The first step is to review the transaction documents and confirm the terms of the put and call option and the triggering conditions. The second step is to collect evidence of investment, triggering events, and reminders. The third step is to investigate the obligor's assets and, if necessary, apply for preservation measures. The fourth step is to choose litigation or arbitration according to the agreement and assert the right to repurchase. The fifth step is to continuously track the asset clues during the enforcement phase. If there are disputes over the terms or the obligor is uncontactable, it is recommended to entrust a professional lawyer to develop a comprehensive solution, which can be referenced for reference.\nCross-border financeColumn.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence, to avoid missing the statutory time limit.Financial capital legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.