Dacheng Represents Client in Solving Sina Structure-related Cross-border Shareholder Disputes

In August 2010, the founder of a well-known Shanghai-based online game company and its investors were intertwined in a serious of cross-border litigations over management right disputes. In 2001, having been injected venture capital, the game company signed a number of contractual arrangements on management control and profits transfer with a WFOE (wholly-foreign owned enterprise) invested by a BVI company under a VIE structure (a.k.a. Sino Structure in China). Accordingly, equity of the game company was transferred to the BVI company over which a NASDAQ-listed Cayman Islands company had absolute control. Later, due to irreconcilable differences on internal management and operation and equity disputes between the company and the BVI company’s majority shareholder, a Taiwanese company, investors filed a serious of lawsuits against founding shareholders in courts of Shanghai Pudong New Area, the High Court of Hong Kong SAR, District Court of Los Angeles and the High Court of Singapore, asking the latter to hand out the right of control over the company, accusing them of infringement of right to reputation and claiming trust benefits compensation. The founding shareholders, likewise, filed lawsuits and sought arbitration in the People’s Court of Xuhui District, Shanghai, CIETAC Shanghai Branch and the District Court of Los Angeles to win back control over the company and shareholders’ rights. The two parties went through 17 proceedings where issues were debated over the effectiveness of control arrangements under a VIE structure, whether it violated PRC law for a Chinese company to transfer business profits over to the WFOE and the BVI company, whether senior executives fulfilled their duties as well as how management right was distributed between the Chinese company and the WFOE.
 
Having been given the assignment from the game company, Shanghai-based senior partner Shang Jiangang and his team collaborated with the Singapore team led by attorney Huang Mingcheng and New York-based attorneys Xiao Ling and Matthews to provide cross-border dispute resolution service for the client. Attorneys in Hong Kong issued written opinion letters on charges under the jurisdiction of the High Court of Hong Kong SAR and devised a detailed and thorough counter-plan. They took into consideration the 17 cases worldwide and adopting a strategy of focusing on key issues, proactively sought arbitration on the effectiveness of the control arrangements. By combining negotiation and litigation and achieving success bit by bit, the Dacheng team eventually sent the opposing party to an extremely unfavorable position.
 
After two years of efforts, the founding shareholders won key lawsuits related to the effectiveness of the VIE structure and destroyed completely the defense line of the opposing party. On December 14, 2011, the two sides reached a settlement agreement in the US, an encouragement for the successful settlement of cases in other jurisdictions.