Indirect equity transfers cannot circumvent right of first refusal

The saga involving two famous Chinese companies, Soho China and Fosun Group, culminated in a highly controversial first-instance judgment made by the Shanghai First Intermediate Court in April 2013. The dispute has been topical in China because it featured a fight for the development right over the most expensive piece of land in Shanghai, Land 8-1 in the Bund area, between two high-profile business gurus. Pan Shiyi is the owner of Soho China, one of the largest real estate developers and Guo Guangchang is the owner of Fosun, one of the largest investment companies in China. The judgment ruled that the transfer of equity in a company without the consent of the company's subsidiary company's other equity-holders was considered as circumventing the other equity-holders' right of first refusal. This has been a topic of heated debate in the Chinese legal and business communities as it may cause havoc on a widespread business practice, especially in the real estate sector.

Case facts

The multi-layer equity transactions in the case involved a range of affiliated parties belonging to four independent groups: Soho China, Fosun, Greentown and Zhengda. In order not to overwhelm the reader, only the relevant steps of transactions will be related here and the various parties will be referred to in their respective group name rather than their own proper individual name.