Dialogue Between Disputing Parties: The Whole Story Of Typical Subsidiary Disputes Caused By Far East'S "Strategic Shareholding"

An acquisition that started eight years ago seems to be changing without warning.

At the beginning of September this year, Far East Co., Ltd. issued a notice on the removal of the original legal representative, director and general manager of Shengda Electric Co., Ltd.

According to the announcement, Shengda electric held a general meeting of shareholders and the board of directors respectively on June 7 and June 12 to pass relevant bills. Li Min no longer served as the legal representative, director and general manager of Shengda electric (after the labor relationship was terminated), and Jiang Chengzhi served as the legal representative and chairman of Shengda electric and performed the duties of general manager on behalf of Shengda electric.

But then, the 21st century economic reporter learned exclusively that in July, August and September this year, many staff members of far east company, including the directors, supervisors and auditors of banks and accounting firms, went to Shengda electric, a holding subsidiary, in order to hand over to Li Min, the former general manager. All of them were rejected by the opposite party, and even physical conflicts occurred between the two sides.

Earlier, Far East Co., Ltd. disclosed that Shengda electric, a subsidiary, started the lithium battery copper foil project in 2017, which was put into production and sold in the same year, and phase II 4.5 μ M ultra thin lithium battery copper foil project has entered the stage of equipment installation. It is expected to be put into production in the first quarter of 2021 and reach the production capacity and efficiency in the second quarter.

At the moment when the new energy industry chain continues to be hot, this news makes far east shares receive much attention. So far this year, as of the evening of September 23, the stock price of Far East stock secondary market has risen by 71.18%.

However, this is also the source of the situation.

At present, the announcement of the listed company does not disclose the reason for Li Min's dismissal. However, a document learned by 21st century economic report reporter shows that Shengda electric started the construction of high-precision lithium battery copper foil workshop in early 2017. Li Min and Tao Bingzhen (former assistant to the general manager) violated laws and regulations in visa and payment during the construction of the project, resulting in the project cost being 2.5 times of the original contract price, Far beyond the actual cost of the project, illegally embezzled huge property of the company.

Recently, Jiang Xipei, chairman of Far East Co., Ltd., confirmed the authenticity of the content of the document to the 21st century economic reporter. However, Li Min denied the above-mentioned information completely. He believed that the basis for Shengda electric to hold a general meeting of shareholders, amend the articles of association, and remove him from office with a number of former senior executives was not sufficient and the procedures were not in conformity.

Earlier, Li Min has filed a related lawsuit. Recently, he changed the original lawsuit of "revoking the resolution of the shareholders' meeting" to the lawsuit of "invalid resolution of the shareholders' meeting". This case will be held again on September 29.

What is the truth of this "Rashomon" behind the two sides' insistence?

Since the beginning of this year, as of the evening of September 23, the stock price of Far East stock secondary market has risen by 71.18%. Visual China

"Luoshengmen" opens

The story begins with an equity acquisition in 2012.

At that time, Far East Holdings Group had completed the overall listing of cable assets (i.e., the current far east shares), and raised 1.466 billion yuan in November 2011 through non-public offering of shares.

In order to rapidly enter the high-speed railway catenary wire market, in 2012, Far East Co., Ltd. purchased part of the equity of Taixing Shengda Copper Co., Ltd. (the predecessor of Shengda electric, hereinafter referred to as "Taixing Shengda") with part of the raised funds, and increased its capital and shares. It is understood that one of the leading products of Taixing Shengda is copper and copper alloy contact wire for high-speed railway, which has a place in the production and processing of various oxygen free copper products, copper alloys and special-shaped copper products.

In this equity acquisition and capital increase, far east shares spent 42 million yuan, taking 60% of Taixing Shengda's equity. After several subsequent transactions, up to now, far east shares hold 75.05% of the shares of Shengda electric, and Li Min and Yang Jilin hold 8% and 7% shares of Shengda electric respectively.

In 2020, Shengda Electric will achieve an accumulated operating revenue of 819 million yuan, accounting for 4.13% of the total revenue of listed companies, and achieve a net profit of 10.8375 million yuan, but it still has a cumulative loss of more than 39 million yuan in the past nine years; In that year, far east stock made a loss of 1.691 billion yuan due to merger and acquisition.

In the first half of 2021, due to the rapid growth of new energy vehicles, Shengda Electric's performance soared, and its operating revenue and net profit were 599 million yuan and 46.2257 million yuan respectively, accounting for 6.62% and 15.31% of the total revenue and net profit of the listed companies, respectively.

According to a reporter's investigation, the source of the contradiction between the two sides comes from a strategic stake in Shengda electric to be introduced in 2020. At that time, Shengda electric planned to introduce strategic investors with 6-10 yuan / share and planned to go public.

According to Jiang Xipei, Li Min tried to become the controlling shareholder himself, but asked the major shareholder to transfer it to him at the price of 1 yuan / share, and he had to owe the debt. "His reason is that you (the Far East) increased the capital by 1 yuan / share several years ago, but other strategic investors all wanted 6-10 yuan / share. We are a listed company. How can this be possible?"

During this period, after more than nine months of multi-party communication, there was no result. At the same time, the Far East found that Li Min was also suspected of serious violations of the law and crime.

This will start with the "copper foil project" that far east shares is proud of. At the beginning of 2017, Shengda electric started the 20000 ton high-precision ultra-thin lithium battery copper foil project, mainly for the production of high-end power lithium batteries. The first phase of the project has been completed and trial production.

However, this project foreshadows the "mother son" company's rebellion. Jiang Xipei, chairman of Far East Co., Ltd., told the 21st century economic report that the company noticed the abnormality of Li Min and others, which started from the audit of the project.

"About a year ago, the accounting firm we hired conducted an audit on this project. Through the audit and staff report, Li Min was also suspected of a number of serious violations of the law and crime. We had to report to the local government leaders in Taixing, and removed Li Min from all positions in accordance with the law and regulations. However, Li Min refused to hand over the project and still assumed himself as the general manager He also illegally engraved and used the official seal, falsely claimed that the financial seal was lost, pretended to be the chief financial officer, illegally changed the bank seal account, and incited some employees and other people from society to occupy the company violently, "said Jiang Xipei.

In the course of subsequent investigation, Jiang Xipei said that Li Min and others also illegally conducted futures trading under the pretext of hedging contracts with "enterprises of the Ministry of Railways", resulting in a loss of about 20 million yuan of the company. Up to now, they have refused to perform the contract and undertake compensation, and have taken away the book profit of more than 8 million yuan from the relevant contracts. However, the company has sued Li Min and Yang Jilin to the court, The court will hold a hearing in the near future.

However, the 21st century economic reporter contacted Li Min, but he did not agree with this statement.

Li Min responded: "this is actually a personal attack on us by the Far East trying to grab all our achievements. Five years ago, we launched a new project, copper foil project in lithium battery industry, and they didn't give anything except CFO. In eight years, they didn't give any other money except 75 million yuan for capital increase and share expansion All the money comes from bank loans. "

However, the 21st century economic reporter noticed that the chairman, marketing director and purchasing director of Shengda electric were appointed by the Far East, and the announcement showed that in recent years, Far East had provided loan guarantee for Shengda electric for many times. As of the end of March 2021, the balance of guarantee provided by far East Company for Shengda electric was 401 million yuan, and the guarantee amount was 700 million yuan.

When it comes to hedging, Li Min explained that this is purely corporate behavior. "All our agreements are very clear. It is a kind of risk hedging. Although we lose 16 million yuan on the book, we have made 21.4 million yuan in spot operation, so in fact, hedging is not a loss, it is a profit."

In addition, Li Min also pointed the spearhead at the capital operation plan of "Shengda electric." in the past two years, we have a good reputation in the industry. We are the main supplier of Ningde era. The capital market is very fond of us. We want to invest in US and can be listed independently, which is actually a good thing. But the Far East wants to take all the control right, because the management right of the company has been here for 8 years. "

"Confrontation" of two capital increase agreements

The conflict between the two sides was finally triggered in September 2021.

On September 3, Far East Co., Ltd. announced the dismissal of Li Min as Director / general manager and Tao Bingzhen as assistant to general manager. However, the subsequent process of power transfer was not smooth, and there were many physical conflicts between the two sides.

Li Minfang did not agree with the result of his dismissal. He initiated a "company resolution revocation lawsuit" on the grounds of the non-compliance of the "capital increase and share expansion agreement" signed by six shareholders in 2012 and the notice procedure of the meeting. Recently, his change petition was "invalid resolution of the shareholders' meeting". The case will be held again on September 29.

"They used the advantage of large shareholders to violate the then" capital increase and share expansion agreement "and the articles of association at that time, unilaterally revised the articles of association, re elected the board of directors, and then removed my general manager and legal representative with the board of directors. We have already sued, and I am still the legal representative and general manager until now," Li Min said.

According to Li Min, Far East became a shareholder of Shengda electric by increasing capital and shares in 2012. When it entered the company at a price of 1:1 of capital contribution and net assets, the two sides had agreed on three conditions.

"First, in terms of the right of discourse of the management, the agreement on capital increase and share expansion" It is clearly stipulated that the general manager, technology, quality, production and other senior executives are recommended by us; secondly, on the board of directors, we recommend two fifths of the board of directors; thirdly, before far east completely acquires Shengda, we have one vote veto power for the subsequent capital increase and share expansion of the company. This is also reflected in the articles of association. However, on June 7, Far East held a shareholders' meeting with 75% of the shares held by far east to amend the articles of association. "

Li Minfang said that during the court hearing, the validity of all resolutions made by the shareholders' meeting and the board of directors is still to be determined. During this period, the court has also preserved the change of general manager and legal representative of the industrial and commercial administration. The Far East has no way to form a resolution through the illegal board of directors and shareholders' meeting.

However, from the perspective of Far East shares, the basis for Li Minfang's lawsuit is a capital increase agreement in 2012, which has already been fulfilled and expired. This capital increase agreement does not have legal effect.

At the same time, far east also provided another capital increase agreement of Shengda Electric Co., Ltd. (hereinafter referred to as "capital increase agreement") signed by all parties on March 29, 2019.

In this capital increase agreement, all shareholders of Shengda electric, including far east shares and 11 natural persons such as Li Min, Yang Jilin and Yang Xiaokun, signed an agreement. All parties reached an agreement on the company's capital increase and made an agreement on the "rights and obligations of shareholders of the company":

"The shareholders of the company will enjoy the rights of shareholders and undertake the corresponding business in accordance with the company law, the articles of association and this agreement." after the completion of the capital increase, the shareholders' equity (including undistributed profits and capital reserves) of the company shall be enjoyed by all shareholders after the capital increase in proportion to their holding shares. "

According to Jiang Xipei, the capital increase agreement is also an important basis for the holding of the interim general meeting of shareholders and the board of directors of Far East Co., Ltd., which deliberated and passed the proposal on the change of directors, the proposal on the election of the chairman and vice chairman, and the proposal on the adjustment of the general manager and relevant senior executives.

According to the data of qixinbao, far east shares has indeed experienced four equity changes since 2012. After Far East first participated in the capital increase and share expansion of Shengda electric in 2012, in August 2014, Yang Jilin, Wu Liang and others agreed to transfer part of their equity to far east; In August 2017, Wu Liang, Zhang Yuanjian and others transferred their shares to other natural person shareholders and formally withdrew from Shengda electric.

The latest capital increase was in March 2019. 12 shareholders including Far East Co., Ltd. increased the capital of Shengda electric and signed the capital increase agreement, which agreed to govern the company in accordance with the company law and the articles of association.

According to the provisions of Article 43 of the company law, the resolutions on Amending the articles of association, increasing or reducing the registered capital, and the resolutions on merger, division, dissolution or change of company form made by the shareholders representing more than two-thirds of the voting rights shall be adopted by the shareholders.

"The basis of Li Min's lawsuit is the original capital increase agreement that has already been fulfilled and expired. Later, we signed four capital increase agreements, the latest of which was March 29, 2019, and made it clear that everything should be implemented in accordance with the company law." Jiang Xipei believed that.

It is worth mentioning that according to the reporter of 21st century economic report, Shengda electric factory has been shut down due to power failure. The company has been on holiday for one month, and the employees have not gone to work normally.

Where to go?

At present, far east shares are also preparing and executing the prosecution against Li Min and others.

The 21st century economic report reporter understands that at present, Shengda Electric has sued Li Min and Yang Jilin for the company's loss compensation caused by breaking the rules and breaking the trust, and reported Li Min, Tao Bingzhen and Liu Meihua suspected of illegal crimes to the public security organ.

It is understood that based on Li Min's suspected criminal acts of occupation, forgery and use of official seal, disruption and destruction of production and operation, the Far East has reported more than ten times to the public security organ where Shengda Electric is located, involving five criminal cases, one of which has been accepted and the other four have not yet been accepted.

In addition, far east shareholders also applied to the people's Court of Yixing City to freeze the shares of Shengda electric held by Li Min and Yang Jilin.

At the same time, a special report of Shengda electric to Taixing municipal Party committee and municipal government provided by Far East Co., Ltd. mentioned that Yuandong filed the following written petition, including filing and investigating the illegal behaviors of Li Min and others in accordance with laws and regulations; Allow and assist the relevant personnel of far east company to enter Shengda electric, which is its investment holding company, and exercise its legal management rights; Within the scope of laws and regulations, timely coordinate and adjudicate the lawsuit of revoking the resolution of the shareholders' meeting initiated by Li Min and Yang Jilin as soon as possible, so as to promote the enterprises to resolve the crisis and develop healthily, and pursue the responsibility and compensation according to the regulations; Continue to perform the equipment lease agreement signed by Shengda electric and hongqiaoyuan Industrial Development Co., Ltd. in 2020 or coordinate and negotiate to solve the problem as soon as possible.

But for now, the dispute may continue for some time.

Jiang Xipei also told reporters that although Taixing Shengda has encountered difficulties and uncertainties, the company's business situation this year is still relatively optimistic, "Our products are in short supply this year. Far East's smart cable network, smart batteries, including copper foil, and smart airport are operating well. Most of the impairment risks have been cleared. This year, only a small part needs to be digested," Jiang said.