Bonds Mar 24

Shanghai court gives first ruling under new securities law

Plaintiff awarded 150m yuan ($21m) after a majority of bondholders endorsed the claim over payment defaults

Shanghai court gives first ruling under new securities law
The Shanghai Financial Court has issued the first ruling under China's new Securities Law, favouring an unnamed plaintiff in a bond dispute. File photo: Wikiwand  

(ATF) A court in Shanghai has issued the first ruling in a case using China’s revised Securities Law, which came into effect on March 1.

The Shanghai Financial Court applied the new law for the first time to settle a dispute over a corporate bond transaction.

Neither the plaintiff or the defendant were named in the report, but the plaintiff won via a new provision in the law after gaining permission from a majority of bondholders to lodge the case – and were awarded 150 million yuan (US$21.2 million).

According to the court, the plaintiff asserted that a securities company claimed it signed a "bond underwriting agreement" and a "bond trust management agreement" with the defendant’s company. But after the issuance of a "2017 Prospectus for Non-public Issuance of Bonds (Phase 1)", the group company committed defaults such as not paying interest and other dues it was meant to pay.

Meeting of bondholders

In September 2018, the securities company convened a meeting of bondholders and voted that if the company defaulted, the bondholders had the right to announce an accelerated settlement proposal. They authorised the trustee or issuer to take legal action.

In February 2019, the securities company convened a meeting of the holders again and passed the resolution requiring the group company to expedite a settlement. They sent a "notification letter" to the group company, asking it to pay all the principal and interest on the bonds immediately.

The securities company then filed a lawsuit with the Shanghai Financial Court to order the company to repay the bond principal of 150 million yuan and pay the corresponding bond interest.

The defendant tried to argue that the new securities law could not be applied retroactively. But Judge Zhou Quan of the Shanghai Financial Court was reported by paper.cn to have said that, whether or not the new law could be applied, the plaintiff had a lawsuit and the dispute over the qualification of the matter was key to this case.

The plaintiff first obtained authorisation from other bondholders' at a meeting, with voting 66% in favour to seek a resolution, which authorised the trustee or issuer to take legal action.

Secondly, the plaintiff wrote to all bond holders. During the registration period, the court obtained written authorisation from bondholders who were willing to initiate litigation in this case. Therefore, the plaintiff secured the power to initiate litigation or other legal procedures in his own name, which was in line with the Article 92, paragraph 3 of the new law.

Therefore, the Shanghai Financial Court applied the relevant provisions of the new Securities Law to confirm the qualifications of the plaintiff's complaint, and supported the plaintiff's claim.