Viewpoint... The referee path and legal risk prevention of circular financing trade.

Published:

2022-12-20

Introduction There is no legal and normative definition of financing trade, which is in the process of market economy operation, small and medium-sized enterprises in order to solve the difficulties of the source of funds, through a series of appearance of legal forms to achieve the purpose of financing. Based on different means and paths, the mode of financing trade is also divided into different types, of which the more common is the circular financing trade. Over the years, China has adopted a relatively strict regulatory model for non-financial enterprises to lend funds abroad, coupled with the low tide of economic development in recent years, enterprises involved in financing trade are facing increased risks, and the entire transaction chain is on the verge of thunderstorms. This paper intends to analyze the different adjudication paths of the court's disputes arising from circular financing trade in practice, and put forward its own suggestions on how to prevent such legal risks. The concept of 1. circular financing trade. Under normal circumstances, small and medium-sized enterprises as financiers are small in scale and lack of assets, so it is difficult to obtain loans from banks and other financial institutions. However, state-owned enterprises or listed companies with strong financial strength and high credit rating can achieve performance growth and complete task assessment, and the intermediate party can also achieve performance growth or extract part of the expenses from it. Therefore, financing trade has become a bridge to meet the needs of all parties. This transaction model has the advantages of "low threshold, fast speed, and flexible transaction", and its business scale continues to expand. After the country gradually relaxes the restrictions on capital lending between enterprises, It is still the path chosen by some enterprises for financing. Circular financing trade refers to the financing parties, funders and intermediary enterprises with capital needs to enter into contracts for the sale of goods, through the mutual issuance of receipt confirmations and other forms to achieve the concept of the flow of goods, and ultimately achieve the purpose of financial communication. For example (Figure 1) is that Company A (financier) sells the goods to Company B (intermediate party), Company B sells the goods to Company C (funder), Company C sells the goods back to Company A, and the payment (funds) is paid by Company C to Company B, Company B pays to Company A, and Company A returns to Company C. In view of the many trading practices in the market, the academic circles have summarized the characteristics of circular financing trade and reached a basic consensus, including: 1, the trading chain cycle is closed. The flow of goods starts from the financier, through the intermediate party, the funder, and finally reaches the financier itself or the enterprise associated with the financier, the flow of funds starts from the funder, and finally the financier or the enterprise associated with it returns to the funder, showing the characteristics of the financier's "self-buying and self-selling. 2, the goods do not actually flow. Since only formal sales contracts are signed between the parties, the substantive purpose is to realize the borrowing of funds. In order to avoid the high transportation, storage and other expenses required for the operation of goods, most of the parties use written documents such as receipt confirmation documents to realize the outward circulation of goods. The delivery time interval recorded in some documents is too short, which does not conform to the objective reality of bulk cargo transportation, indicating that the goods do not transfer or even exist. 3, the transaction link deviates from the general concept of market economy. In order to leave a profit margin for the intermediary or financier, the funder usually sells the goods at a low price and buys them at a high price, which deviates from the normal business behavior of the profitable entity. 4, the content of the sales contract is highly consistent. The parties have agreed in advance on the various processes of the goods transaction, which are reflected in a high degree of consistency in the content of the contract, the type and quantity of the subject matter, the time of signing, etc. The Referee Path of 2. Circular Financing Trade The law does not provide a fixed basis for adjudication of circular financing trade disputes between enterprises, and courts in different periods and regions have different adjudication philosophies, roughly forming the following adjudication paths: The contract of sale and loan between the parties to the (I) is null and void. For example, the bulletin case (2015) issued by the Supreme People's Court, Minti Zi No. 74 civil judgment. Regarding the sales contract signed between the parties in the case, the court held that Rizhao Port Transportation and Sales Department (investor) and Shanxi Coking Coal Company (intermediate party), Shanxi Coking Coal Company and Zhaoqing Company (financier) respectively signed the Coal Purchase and Sales Contract with the same subject matter, quantity, quantity index, delivery time, delivery port, delivery method, quality standard and quantity acceptance, with Zhaoqing Company as the final supplier, in fact, through Shanxi Coking Coal Company as an intermediary, in the form of coal sales indirectly from the Rizhao Port Transportation and Marketing Department to obtain payment, Shanxi Coking Coal Company to obtain a price difference of 13 yuan per ton. The transportation and marketing department of Rizhao Port signed a sales contract with Zhaoqing Company to resell the purchased coal to Zhaoqing Company at a price of 533 yuan per ton, thus obtaining a price difference income of 10 yuan per ton. Through the above three transactions, the transportation and marketing department of Rizhao Port, Shanxi Coking Coal Company and Zhaoqing Company formed a closed circular transaction with the same target. Zhaoqing Company is both a seller and a buyer, selling at a low price and buying at a high price, it knows that in this kind of circular trading is bound to be damaged, the more transactions, the greater the loss, but still engaged in related transactions, and as a for-profit legal person status is obviously inconsistent, contrary to commercial common sense, enough to make people have reasonable doubts about the authenticity of the transaction. Such unusual buying and selling is in fact a legal relationship between enterprises in the form of buying and selling. The contract of sale signed between enterprises for this purpose is a false expression of intention jointly implemented by the parties and shall be deemed invalid. In the actual legal relationship between enterprises, the court held that the Rizhao Port Transportation and Marketing Department did not have the qualifications to engage in financial business, but to lend as a regular business, the actual operation of financial business, contrary to the relevant financial regulations and judicial policies. Shanxi Coking Coal Company borrowed money from Rizhao Port Transportation and Marketing Department in the form of trading, not for production and business needs, but for the purpose of lending to Zhaoqing Company for profit. Therefore, the loan contracts actually formed in the form of sale between the Rizhao Port Transportation and Marketing Department and Shanxi Coking Coal Company, Shanxi Coking Coal Company and Zhaoqing Company shall be deemed invalid. As an intermediary, the pallet enterprise is not borrowing for production and business needs, but for the purpose of re-lending for profit, so the loan contract should also be considered invalid. The contract of sale between the parties to the (II) is invalid, and the legal relationship between the loan is valid. For example, Hunan Provincial Higher People's Court (2021) Xiangmin Final Civil Judgment No. 449. With regard to the validity of the sales contract in this case, the court held that there was no real evidence of the goods transaction in this case, and that none of the parties had been able to submit actual transaction documents such as coal entry rail scales and goods storage records to perform the contract in question. There are many paradoxical aspects in the sales contract involved in the case. Shanxi Energy Investment (financier and final consignee) is located in a large coal-producing province, but it is far away from Xingang Company (investor) to purchase coal, and Guizhou Hengli and Inner Mongolia Youtai (intermediate party) are used as transaction chains, which obviously increases transaction costs, which is contrary to the practice of minimizing transaction costs and maximizing profits in normal commercial transactions. The price agreement for coal of the same type and specification in the same period of time involved in the contract is obviously unreasonable, and Shanxi Energy Investment has the situation of buying high and selling low. Combining various factors, it can be concluded that the parties in this case are through the signing of a contract for the sale of goods that is not true. With regard to the legal relationship of lending in this case, the court held that in commercial trials, the nature and effect of inter-enterprise lending hidden in circular trade should be distinguished. For those who do not have the qualifications to engage in financial business, but actually operate the lending business and use the proceeds of lending as the main source of profit for the enterprise, the loan contract shall be deemed invalid. For temporary capital lending between enterprises that do not have the qualifications to engage in financial business for the needs of production and operation, if the party providing the funds is not in the ordinary business of capital finance and does not violate the mandatory provisions of national financial control, the loan contract shall not be deemed invalid. The loan involved in this case is a temporary inter-enterprise lending, there is no evidence to prove that Hinkang Company is a professional lender, and there are no other statutory invalid circumstances, so the lending between the parties should be considered valid. The contract of sale between the (III) parties is valid. For example, Guangxi Zhuang Autonomous Region Higher People's Court (2020) Gui Min Zhong No. 457 Civil Judgment. In this case, the court held that the "Goods Sales Contract" signed by Weining Company (the investor) and Baimei Company (the intermediary) was the true intention of both parties, and the content did not violate the prohibitive provisions of laws and regulations. The sales contract relationship between the company is established, legal and effective, and both parties should abide by it. Weining Company submitted the Transfer of Property Rights and the Coal Settlement Statement to confirm the fact of the delivery of the goods it claimed, and Bai Coal Company could not provide evidence that the Coal Weining Company on the Transfer of Property Rights did not meet the conditions for delivery, which was confirmed in the Coal Settlement Statement. Accordingly, Weining Company has fulfilled its obligation to deliver the goods, both parties have confirmed the amount owed, and Baimei Company has not raised any objection to the past transactions of the same nature between the two parties, and the sales contract between the parties is valid. (IV), combined with the above-mentioned cases, from the perspective of vertical development, with the prosperity and activity of the market economy, the provisions of the legal provisions for commercial acts are also increasingly improved and perfected, and the judge's concept of adjudication for circular financing trade disputes is also keeping pace with the times: Article 11 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases: "Private lending contracts concluded between legal persons, unincorporated organizations and between them for production and business needs, except for the circumstances stipulated in Articles 146, 153, 154 of the Civil Code and Article 13 of these Provisions, where the parties claim that the private lending contract is valid, the people's court shall support it." Article 143 of the Civil Code: "A civil juristic act is valid if it meets the following conditions: ...... (III) does not violate the mandatory provisions of laws and administrative regulations, nor does it violate public order and good customs." Article 146: "A civil juristic act performed by the perpetrator and his counterpart with a false expression of intent shall be null and void. The effect of a civil juristic act with a false expression of intent shall be dealt with in accordance with the relevant legal provisions." First of all, the contract of sale signed between the parties is no longer simply considered invalid, but the judge needs to synthesize the evidence of the whole case, fully grasp the appearance of the case conditions and the subjective intention of the parties to make a judgment, fully respect the autonomy of the parties. Secondly, even when the sales contract is deemed invalid due to false intention, the inter-enterprise loan contract can only be deemed invalid when the inter-enterprise loan contract is included in the scope of private lending and the validity of the inter-enterprise loan contract concluded for the needs of production and operation is clearly recognized. 3. to prevent the legal risks of circular financing trade. As an intermediary or investor of circular financing trade, an enterprise is involved in a dispute. If the contract is found to be valid, there is a risk of being judged to pay the goods or pay for the goods; if the contract is found to be invalid, the court may follow The provisions of Article 157 of the Civil Code require all parties to return to each other and bear corresponding responsibilities according to the size of their respective faults. Disputes caused by financing trade will not only cause property losses to enterprises, but also lead to adverse effects such as a decline in corporate credit rating and derogation of business reputation, and may even be held criminally responsible for the crime of falsely issuing special VAT invoices and contract fraud. In order to avoid the legal risks of circular financing trade, the following measures are recommended: (I) standardize the business behavior of enterprises themselves. Although financing trade can obtain rich interest income and performance growth for enterprises, but behind the income is also a huge risk and crisis, enterprises should check the source, limit the proliferation of financing trade business. (II) optimize the enterprise operation and management mode, strengthen the internal wind control ability, strengthen the legal awareness. In view of the trade risk of circular financing, enterprises should avoid loopholes and unfavorable clauses at the beginning of the conclusion of the contract, strictly control the circulation of goods, do a good job in the process management of goods into and out of the warehouse, carefully issue receipt documents, timely carry out the popularization of legal knowledge, and actively organize middle and senior management and grass-roots staff to learn the law. (III) establish a partner credit rating system. For different trading objects and partners, we have an in-depth understanding of their cooperation intentions, and have a clear idea of their economic strength, business scope and scale background. In the process of performing the contract, the (IV) actively fixes and collects evidence, plans the litigation strategy in advance, and actively provides evidence on the real situation of the circulation of goods and payment, which can not only help the judge to find out the facts of the case, but also help to strive for a favorable judgment result. Establish a post-event accountability system to pursue legal responsibility for the illegal and criminal acts of relevant personnel.

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