Original title: (Economic Observation) Capital Dispute in Pretty Jiangnan Makes Waves Again Family Trust Attracts Attention

Beijing, March 3 (ZXS) -- The capital dispute surrounding the Chinese food brand "Qiujiangnan" has recently attracted the attention of public opinion again, and the trigger for the incident was the "breakdown" of the overseas family trust of Zhang Lan, the founder of Qiujiangnan.

Recently, a verdict put Zhang Lan on the cusp. According to media reports, Zhang Lan's overseas family trust was "broken" due to the arrears of about US$1 million and interest owed to European private equity firm CVC Capital Partners (hereinafter referred to as CVC), and a New York apartment purchased with the family trust funds will be repaid. In response, Zhang Lan responded that she was calculated by capital and would appeal to the court again.

Zhang Lan's dispute with CVC has a long history. According to media reports, in 2014, CVC acquired 82.7% of the equity of Qiujiangnan, becoming the largest shareholder of Qiujiangnan. But after a brief honeymoon period, in March 2015, CVC filed a lawsuit in a Hong Kong court, arguing that the whereabouts of the large sums of money paid to Qiu Jiangnan were unknown, while Zhang Lan argued that "there is insufficient evidence to prove that there is a real risk of asset loss." The court ultimately rejected Zhang Lan's claim and issued documents to freeze Zhang Lan's assets.

In April 2019, CVC won an arbitration against Zhang Lan and two of her affiliates, winning more than US$4 million. The CVC applied for enforcement of the arbitral award in Hong Kong, while Zhang Lan applied to set aside the award in the Mainland courts.

In order to recover the arrears, CVC carried out a "sniper" attack on Zhang Lan's family trust.

According to public information, in 2014, Zhang Lan established a family trust shell company, and on this basis, an overseas trust was established, and the beneficiaries were Zhang Lan's son Wang Xiaofei and his children.

In November 2022, a Singapore court ruled that Zhang Lan was the actual owner of her family trust assets and therefore granted CVC's application to appoint a receiver, which also meant that the family trust, which originally had the effect of asset segregation, was "broken down" and her trust assets would be taken over.

Generally speaking, due to the independence of trust property, information security and privacy, family trust is also regarded as a safe haven for wealth, which can effectively isolate risks.

Talking about the reason why the Zhang Lan family trust was "broken" this time, Weng Guanxing, director of Shanghai Wintai (Lingang New Area) Law Firm, said that the fundamental reason is insufficient independence. Zhang Lan has repeatedly instructed the direct disposal of the trust assets, which led the Singapore court to find in its judgment that the actual owner of the funds under the family trust established by Zhang Lan is still Zhang Lan herself, so Zhang Lan's creditors have the right to recourse the funds.

Li Wei, a senior partner at Beijing Yingke (Shenzhen) Law Firm, believes that the main reason why Zhang Lan's family trust was "broken" was that she had unlimited control over the trust property, the right to arbitrarily retrieve and dispose of it, and used the trust property to meet her own interests; The trustees and other beneficiaries do not have any capacity to intervene. This situation is usually considered to be a nominee holding in the name of the trust, which is a fictitious trust. Therefore, when encountering disputes such as external debts, such family trusts are very likely to be "broken", resulting in the trust property being recognized as the property actually owned by the settlor and used to settle debts.

Public information shows that the modern trust system originated in Britain in the 11th century, and the earliest trust was mainly expressed in the form of "family trust". The first attempt at family trusts in China began in 2012 and has grown rapidly in recent years. According to data from China Trust Registration Co., Ltd., as of September 2022, the scale of family trusts in China was about RMB9 billion, an increase of about 4700% from the end of 2021, and the number of surviving family trusts was about 34,2.

Zhang Lan's overseas family trust was "broken", which also caused public concern about whether family trusts in China will also be easily "broken". In this regard, Wang Xu, executive director of the Family Office Law Center of Dentons, said that family trusts in China may also be "broken", but they are more difficult than overseas family trusts.

Wang Xu analyzed that first of all, there are differences between domestic and foreign legal rules, overseas trust rules have undergone long-term evolution, and there are clear legal provisions on issues such as the retention of the settlor's rights and false trusts. In contrast, there are not sufficient rules to invoke in the context of a family trust that wants to "break" down. In addition, the legislative genes of offshore trusts and domestic trusts are also different, and domestic trusts are more open to the retention of rights of family trust settlors, and even clearly stipulate the mandatory rights enjoyed by the settlor in the legislation.

However, Wang Xu stressed that domestic family trusts may also be "broken". When the source of the trust is the proceeds of crime or fraud, or the trust is established for illegal debt avoidance, concealment of illegal property, etc., it may cause the trust to be enforced; In addition, if the settlor's rights are retained too large and there is no difference between the trust property and the assets in his personal name, a false trust may be involved in this case, which may also lead to the trust being "broken". (End)