[Direct answer]If a private equity fund cannot be redeemed upon maturity or expiration of its survival period, investors can protect their rights in three steps: First, verify the authenticity of the fund's investment direction and underlying assets by checking the manager's registration and product filing information through the China Securities Investment Fund Industry Association; Second, exert non-litigious pressure by sending written reminders to the manager, filing complaints with the association, and reporting to the local securities regulatory bureau to urge them to provide feasible redemption or liquidation plans; Third, seek judicial remedies. If no agreement can be reached, investors can initiate arbitration or litigation to claim compensation for the manager's breach of contract or violation of information disclosure and suitability obligations. If they discover evidence of fictitious projects or illegal fundraising, they should promptly report the case to the police and seek restitution through asset recovery procedures. The statute of limitations for litigation is three years (Article 188 of the Civil Code of the People's Republic of China). For related business, please refer to the following documents:Financial capital and cross-border legal services involving foreign affairsAndBeijing Henglu Law Firm.

1. Problem background and typical scenarios

Private equity funds often experience delayed payouts in several scenarios: the real estate projects, equity projects, or targeted fixed-income investments in which the funds have invested suffer from liquidity drying up, making it impossible to exit and realize profits at maturity; the fund managers unilaterally extend the repayment period under the guise of announcement of extensions, share conversion, or phased repayments, but fail to provide clear solutions; the sales channels promise guaranteed returns and exaggerate the safety of underlying assets, leading investors to make decisions based on misleading information; and there are deficiencies in fund custody and information disclosure, with fund assets being misappropriated for related projects or used to cover losses in other products. Investors often realize several months after the delay that the fund managers have lost contact and vacated their offices, at which point they are in a race against time to protect their rights and prevent assets from being transferred away.

II. Key points of dispute

  • The qualification of legal relations: Whether it is a true private placement or a public offering disguised as a private placement, it depends on the number of investors, whether the fundraising method is publicly advertised, whether there is a threshold for qualified investors, and whether the product has been registered. With different qualifications, the priority of civil claims and criminal reporting is completely different.
  • The effectiveness of the guaranteed return clause: The clause where the seller promises to guarantee the principal and returns is generally invalid according to regulatory provisions and judicial interpretations. However, the invalidity of the clause does not mean that investors have to bear all the losses themselves. If the manager and the sales agency are at fault, they can still be held accountable.
  • Responsible parties and scope of compensation: The obligations of managers, trustees, and sales agencies vary. Whether the losses are calculated based on the principal amount or the liquidation value, and whether the extension agreements are valid, all directly affect the final amount of compensation that can be obtained. For issues involving the validity of contracts and agency sales responsibilities, the parties involved can refer to the relevant provisions of the Civil Code and other laws and regulations to resolve the disputes.Business and contract dispute resolution services for enterprisesEvaluation.

III. Professional analysis by Henglue Law Firm

The starting point of private equity rights protection is to conduct a thorough investigation of three aspects: 1. **Qualification Check**: Verify whether the fund manager is registered, whether the product is filed with the authorities, and whether there are any abnormal operational alerts. Products without filing records are inherently risky. 2. **Fund Audit**: Cross-check the information of the contractually agreed escrow accounts, review disclosure reports, and verify through public channels whether the underlying assets truly exist and whether the funds are invested as contractually specified. 3. **Sales Process Audit**: Collect promotional materials, chat records, video recordings, and qualified investor confirmation documents, and compare these with the sales pitches and contractual provisions. If the fund manager fails to invest according to the contract, misappropriates fund assets, or discloses false information, investors may claim compensation in accordance with the provisions of the *Securities Investment Fund Law of the People's Republic of China* and contractual agreements. If the fund manager delays liquidation after termination, investors may sue for forced liquidation and distribution of remaining assets. For cases involving fictitious projects used to raise funds, arbitrary squandering or transfer of funds after fundraising, or continued fundraising despite known lack of repayment capacity, the perpetrators may be suspected of violating Article 176 of the *Criminal Law of the People's Republic of China* (illegal absorption of public deposits) or Article 192 (fund-raising fraud). In such cases, civil recovery and criminal reporting can proceed concurrently to recover losses through asset seizure, freezing, and restitution. Multiple investors should coordinate their efforts and gather evidence separately to prevent the fund manager from transferring assets during individual litigation.Creditor-debtor relations and enforcement case servicesPromote the disposal of property.

IV. Practical suggestions and legal basis

Legal basis: The Securities Investment Fund Law of the People's Republic of China establishes the obligations of fund managers to register, file products, and conduct fund custody and information disclosure for non-publicly offered funds, which is the basic basis for determining whether a fund manager has fulfilled its duties. The Guidelines on Regulating Asset Management Business of Financial Institutions (issued in 2018) explicitly prohibit financial institutions from promising guaranteed returns or rigid redemptions when conducting asset management business. The Summary of the National Court's Civil and Commercial Trial Work Conference (issued in 2019) clarifies that clauses guaranteeing minimum returns and rigid redemptions are invalid, and investors' losses are allocated according to the principle of fault. Article 157 of the Civil Code of the People's Republic of China stipulates the rules for returning property and compensating for losses after the invalidation of civil legal acts, Article 577 stipulates that the defaulting party shall bear such breach of contract liabilities as continuing performance and compensation for losses, and Article 188 stipulates a three-year statute of limitations. Practical advice: Completely preserve fund contracts, payment receipts, promotional materials, communication records, and net value reports; send written reminder letters to fund managers to keep records; and apply for pre-litigation property preservation immediately if fund managers show signs of concealing assets. In group cases, coordinate with other investors to avoid signing documents that exempt the other party from liability by mistake.

5. Henglue Law Firm's Reminder

The golden period for private equity investors to protect their rights when a project defaulted is in the early stage of the crisis, when there are still funds in the manager's account and the underlying assets can still be controlled. At this time, preservation and negotiation are most effective. Delaying and waiting often leads to losing contact with the project and ending up with an empty shell company. Do not easily believe in so-called internal repayment plans and secretly sign deferral documents to waive your rights. Also, do not spread unverified information in investor groups. It is recommended that you seek professional lawyers' evaluation before choosing a claim path, organizing evidence, and grasping the timing of preservation. You can start with the following steps:\nFinancial capital and cross-border legal services involving foreign affairsGain experience in handling similar cases.

Q1: If a private equity fund fails to make payments upon maturity, can investors directly sue the fund manager?

Yes. An investor and a manager form a fund contract relationship. If the manager fails to carry out investment operations as agreed or fails to liquidate and distribute funds as agreed, it constitutes a breach of contract. According to Article 577 of the Civil Code of the People's Republic of China, the investor may claim for continued performance and compensation for losses; if the manager misappropriates fund assets, fabricates underlying assets, or fails to fulfill information disclosure obligations, the investor may also claim for tort compensation. Before suing, the investor should fix evidence such as the fund contract, filing information, payment records, net value reports, and deferral announcements, and apply for property preservation as soon as possible to prevent the manager from transferring assets. The statute of limitations is three years, starting from the date when the investor knows about the breach of contract in payment.

Q2: During the sales process, they promised guaranteed returns with no loss. Can I ask the seller to compensate me for the losses I've suffered?

Handle the situation on a case-by-case basis. According to the "Guiding Opinions on Regulating Asset Management Business of Financial Institutions", asset management products shall not promise guaranteed principal and returns. Such commitment clauses are generally deemed invalid; however, if the sales agency exaggerates the returns, promises guaranteed principal, or conceals the product risks during the sales process, it shall be deemed to have failed to fulfill its obligations of appropriateness and disclosure and explanation. In judicial practice, the sales agency may be ordered to bear corresponding compensation liabilities for the investors' losses according to the degree of its fault. The key lies in fixing evidence: promotional leaflets, screenshots of WeChat Moments, chat records, and double-recording audio and video can all prove the sales misleading. Signing a risk disclosure document does not necessarily exempt the sales agency from liability.

Q3: If the manager goes missing and absconds with the money, can the investors still recover their invested funds?

There is a chance, but the difficulty will increase. The earlier the action is taken, the greater the probability of recovery. For managers who have lost contact, investors can file a complaint with the China Securities Investment Fund Association and push for the cancellation of their registration, and at the same time report it to the local securities regulatory bureau; for those suspected of illegally absorbing public deposits and fund-raising fraud, they should immediately report the case to the public security organ, and through the criminal recovery of assets procedures, seize and freeze the involved accounts and assets, and refund the losses proportionally. At the civil level, the investors can also review the investment situation of the managers' shareholders, and claim that the shareholders who have not paid the actual investment and withdrawn the investment should bear supplementary liability. Waiting and watching will only give time for the transfer of assets. It is advisable to start the reporting and preservation simultaneously.

Q4: The fund has been postponed. Is it better to sign the exhibition period agreement or not to sign it?

It depends on whether the extension plan provides substantial guarantees. If the extension is accompanied by real and enforceable guarantee measures, such as pledging the underlying assets, providing joint and several guarantees by the actual controllers, a clear schedule for installment payments and default liability clauses, and allowing investors to retain the right to pursue past default liabilities, it can be considered to accept it conditionally; if it's just verbal reassurance, unilateral extension of the fund occupation period, or signing the extension as a precondition for payment, it may be seen as an acknowledgment of the default status after signing, weakening the basis for subsequent claims. It is recommended to have a lawyer review the terms of any extension agreement before signing it, and, if necessary, coordinate actions with other investors.

Q5: What materials are needed to protect private equity rights, and how long does the entire process take?

The basic materials include: fund contracts, risk disclosure letters, qualified investor confirmation documents, subscription payment vouchers, net worth reports or liquidation reports, deferred redemption announcements, communication records with managers and sales staff, and promotional materials. In terms of litigation cycles, cases applying simplified procedures are generally concluded within about three months, and those applying ordinary procedures are generally concluded within six months. Adding pre-litigation preservation, judicial appraisal, or forced liquidation procedures, the overall process often takes about a year; the recovery of illicit gains and compensation in criminal cases takes even longer. It is recommended to file a lawsuit and take preservation measures as soon as possible after ensuring that all evidence is complete, rather than waiting until the criminal case is concluded to initiate civil proceedings. The two paths can be pursued concurrently.

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