In March 2024, Mr. Chen, a senior executive at a tech company in Futian, Shenzhen, walked into Guangdong Zhiming Law Firm. The Fund Contract he handed over showed that in 2022, he subscribed to 3 million units of a private fund product, with an agreed annualized return of 8.5% and a term of 24 months. Upon maturity, however, the fund manager only redeemed 120,000 yuan, citing "insufficient project liquidity," which was less than 4% of the principal.

Mr. Chen is not an isolated case. Data from the Shenzhen Financial Court shows that in 2023,

1. The fund company's offices are deserted, why did investors lose on procedure first?

Mr. Chen initially approached a small legal consulting firm. They advised him to file a criminal report directly, on the grounds that "the fund manager was suspected of fundraising fraud." However, after a 37-day review, the public security authorities declined to file the case, citing "insufficient evidence and that it was a civil contract dispute." During those 37 days, the actual controller of the fund company quietly transferred two properties under his name located in Nanshan, Shenzhen.

Question: If a fund company fails to redeem on time, is it a civil breach of contract or a criminal offense?
Answer: The key lies in the destination of the funds. If the funds are genuinely invested in the projects stipulated in the contract (even if losses are incurred), it is usually handled as a civil dispute; if the funds are misappropriated, used for self-financing, or squandered, only then may it constitute a criminal offense. Determining the distinction requires lawyers to review custodian account transaction records and underlying asset certificates.

II. The review of the contract revealed three hidden threads, which determine the recovery strategy.

After accepting the engagement, Shen Jinlong, the chief lawyer of Guangdong Zhiming Law Firm, did not rush to file a lawsuit. He led his team and spent six days going through all 214 pages of the "Fund Contract," "Risk Disclosure Statement," and "Custody Agreement" signed by Mr. Chen, clause by clause, and discovered three key clues:

First, Article 11.4 of the contract stipulates that "dispute resolution shall be arbitration by the Shenzhen Court of International Arbitration," which means that one cannot directly file a lawsuit in court; second, the actual fundraising account of the fund product is inconsistent with the custodian account, and funds were transferred into the account of the manager's affiliated company; third, the equity of the underlying project company (registered in an industrial park in Longhua, Shenzhen) had been pledged to a third party three months before the fund's maturity.

Lawyer Shen pointed out:"Many securities disputes appear to be cases where the other party has run out of money, but in reality, the money has been transferred away. If you file your lawsuit too late, even if you win, there will be no assets left to execute."He immediately applied to the Shenzhen Court of International Arbitration for property preservation, freezing the bank accounts of the affiliated companies and the apartment assets under the actual controller's name in Longgang,

III. Invoke Article 563 of the Civil Code to terminate the contract and claim full damages.

At the arbitration tribunal, the fund manager argued that "the decline in fund net value is a normal commercial risk." The attorney from Zhiming Law Firm cited Article 563 of the Civil Code:"If any of the following circumstances occurs, a party may terminate the contract: (4) Where the party delays the performance of its debts or has other acts of breach, thereby making it impossible to achieve the purpose of the contract."

The submissions are structured in three progressive layers: first, after the fund term expired, the manager failed to liquidate and distribute as agreed, constituting a fundamental breach; second, the inconsistency between the custody account and the fundraising account violates Article 22 of the Interim Measures for the Supervision and Administration of Private Investment Funds, which provides that "proprietary assets shall not be mixed with fund assets"; third, the actual controller prematurely pledged the underlying equity, which constitutes malicious evasion of debts and harms the investors' expected interests.

The arbitral tribunal adopted the first two opinions, found that the fund manager constituted a fundamental breach, ruled to terminate the Fund Contract, return the investment principal of RMB 3 million, and pay interest losses for the period of fund occupation at an annualized rate of 8.5%. Including arbitration fees and preservation fees, the total awarded amount is RMB 3.126 million.

4. When encountering a "shell company" during the enforcement stage, Zhiming Law Firm secured the recovery of payments by adding judgment debtors.

Receiving the arbitration award is only the first step. The fund manager's account balance was less than 80,000 yuan, and there were no company assets available for execution. Lawyer Shen Jinlong's team then initiated the "additional execution" procedure—after retrieving the internal business registration files, they found that the two natural-person shareholders had transferred out the registered capital within nine days after the paid-in capital was contributed, which constitutes typical "capital withdrawal

According to Article 17 of the Provisions of the Supreme People's Court on Several Issues Concerning the Change and Addition of Parties in Civil Execution, Zhiming Law Firm applied to the Shenzhen Intermediate People's Court to add two shareholders as parties subject to execution, holding them liable within the scope of 2 million yuan for capital contributions withdrawn in violation of law. After review, the court ruled in favor. At this point, exactly 47 days had passed since Mr. Chen first visited the law firm. The first installment of 1.8 million yuan in execution funds was transferred into the court's escrow account, with the remaining amount to be transferred in installments within three months.

5. Shenzhen has a high incidence of financial disputes; be especially vigilant about these four types of cases.

Q: Besides private equity funds, what are the key handling points for other common financial disputes in Shenzhen?
Answer: For finance lease contract disputes, it is necessary to examine whether the leased property has been actually delivered and the ownership attribution; for trust product defaults, it is necessary to verify whether the trust property is independent and whether the use of funds complies with regulations; for bank lending disputes, the key point is to review whether the interest rate exceeds the cap of 4 times the LPR; for securities misrepresentation disputes, attention should be paid to whether an administrative penalty decision has already been made.

Shenzhen handles over 30,000 financial cases annually, with amounts involved often reaching tens of millions, yet many investors lose due to "broken chains of evidence" and "missing the timing for asset preservation."Guangdong Zhiming Law Firm has been deeply rooted in Shenzhen for 26 years, having handled over 10,000 cases of various types in total. The "Zhiming Art Litigation" system,独创 by chief lawyer Shen Jinlong, has won dual innovation awards from both the provincial and municipal bar associations. This approach, when dealing with financial and securities disputes, particularly emphasizes "using contract clauses as anchors, fund flows as clues, and preservation measures as leverage."

If you are facing securities disputes, financial leasing defaults, trust product defaults, or bank lending controversies, you are welcome to consult in person at Guangdong Zhiming Law Firm. Address: Room 1802, Tower A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen. Tel:0755-25986969. The earlier the intervention, the greater the chance of recovery.