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Selected Insurance Cases


Case 10

Supervision and law enforcement layers to promote thousands of shareholders finally get compensation

In 2012, the Guangdong Bureau found in its daily supervision that Z, the former chairman and general manager of a listed company in the jurisdiction, concealed the fact that Company A had an associated relationship with a number of companies and conducted related transactions by carefully weaving a net of interests, some of which were set up by his son. Company A's 2009 annual reports, 2010 and 2011 interim reports and annual reports did not disclose related relationships and related transactions with related related parties in accordance with the law, and related transactions that meet the temporary announcement standards have not been reviewed by the company's board of directors and disclosed in a timely manner, violating Relevant information disclosure laws and regulations.

In order to curb relevant illegal acts in a timely manner and prevent greater losses to the broad masses of shareholders, in July 2012, the Guangdong Bureau issued a "decision on Administrative Supervision measures" to Company A and its former chairman Z, warning Company A and ordering the company and Z to make a public explanation. Company A subsequently issued an announcement acknowledging the omission of disclosure of related parties and related transactions in the company's past disclosures.

Due to the serious nature of the illegal behavior of Company A, the relevant administrative supervision measures are not enough to punish, and its legal responsibility must be investigated. In October of the same year, the Guangdong Bureau decided to formally file an investigation into the company. In the face of the large number of people involved in the case and the long time span of violations, the Guangdong Bureau organized elite troops to overcome difficulties and speed up the pace. It took more than 100 days to complete all the investigation and trial of the case. In March 2013, the bureau formally issued an administrative penalty decision to Company A, deciding to impose a warning and a fine of 400000 yuan on the company and a fine of 150000 yuan on Z. At the same time, other supervisors or directly responsible personnel were also given corresponding penalties.

Administrative punishment is not the end of the legal liability of listed companies. According to the regulations, after a listed company is punished for illegal information disclosure, shareholders can file a compensation lawsuit with the listed company for investment losses.

After the announcement of the results of the administrative penalty on Company A, a large number of shareholders began to contact the Guangdong Bureau to consult on the prosecution of rights protection matters. In order to effectively protect the legitimate rights and interests of investors, the Guangdong Bureau has carefully provided professional guidance for hundreds of stockholders' litigation rights protection through the phone, and sent the theme of "Civil litigation is an important way for investors to protect their rights" through the investor protection mobile phone information platform in the jurisdiction Public welfare reminder information guides shareholders to claim compensation from infringers by entrusting lawyers or suing the court on their own.

At the same time, Guangdong Bureau informed the relevant court of the administrative penalty decision in the first place, and the two sides repeatedly discussed the calculation of investor losses, the determination of relevant time points and the impact of systemic risks. Contact the professionals of relevant securities companies to develop software programs for calculating the compensation amount, thus reducing the accounting workload and providing professional support for the court to successfully conclude the case. Timely interview the current executives of Company A and require the company to actively cooperate with the court, solve the demands of shareholders legally and reasonably, and minimize the cost of safeguarding their rights.

According to the announcement of Company A, from March 2013 to May 2015, more than 2700 shareholders have filed a lawsuit with the court, with a cumulative claim of 0.384 billion yuan. As of June 2015, in more than 950 cases in which the court made a final judgment, Company A was sentenced to compensate shareholders for losses of more than 6000 million yuan.

Comments:

1. In this case, Z has been leading the company's affairs for a long time. In the later period, he gradually relaxed his own requirements and took a chance. He refused to disclose the information that the company should disclose. This not only damaged the good reputation of Company A in the capital market, but also led to the punishment of the company, himself and relevant responsible persons. The company was sentenced to bear huge compensation liability, leaving a stain of dishonesty in the securities market and a profound lesson. It is hoped that the controlling shareholders and actual controllers, directors, supervisors and senior executives of listed companies will learn from this, know and abide by the law, and never try the law by example, otherwise they will regret it.

2. The purpose of establishing the disclosure system of related transactions of listed companies is to promote fair transactions and prevent the controlling shareholders, actual controllers and directors, supervisors and senior executives of listed companies from using related transactions to transfer benefits. A prominent feature of this case is that some of the related transactions occurred between the listed company and the company set up by the son of the chairman of the company, and the perpetrator carried out black-box operations by concealing the related relationship and related transactions, and it is difficult to ensure fairness and justice in the related commercial transactions. After the regulatory authorities found the problem, they stopped the relevant illegal acts in time, punished those responsible, and gave the violators a slap in the face, thus protecting the legitimate rights and interests of investors.

Case 11

Continuously improve the shareholding structure of the collective selection of directors

At the beginning of May 2012, Company C issued an announcement that the chairman of the "overdue service" will formally step down at the annual general meeting of shareholders on May 25. At the same time, the company's board of directors will be re-elected, and the voting of directors will adopt a cumulative voting system.

The company immediately notified major shareholders and institutional investors with more shares, and recommended that all parties actively recommend candidates for directors. Subsequently, the actual controller nominated four people, including Y, as candidates for directors of the company through the controlling shareholder. Among them, Y had been working in banks and government departments before and had just parachuted into the post of president of the controlling shareholder of the company. The remaining three candidates had served in the company for many years. At the same time, a QFII and public fund also jointly recommend the director candidates. The media generally predicted that Y would be elected as the general manager of the company and become the new head of the company.

The reason why institutional investors participate in C corporate governance stems from the fact that the company has taken various measures to continuously optimize its shareholding structure since 2005, and institutional investors have a greater say. First, the company has basically solved the problem of one share dominance. The shareholding ratio of major shareholders has gradually decreased from 50.28 before the share reform to 19.45 at the end of 2011, completing the transformation from absolute holding to relative holding. The second is to introduce downstream dealers as strategic investors. Major shareholders transferred 10% of their shares to 10 core regional sales companies to achieve integration with dealers' interests. Three is the implementation of equity incentives. Major shareholders set aside 4.23 percent of the shares to implement equity incentive plans for company executives, middle-level cadres and business backbones. The above measures have tied the interests of the company, various shareholders and management together, thus attracting a large number of institutional and individual investors to hold shares for a long time. The market value of the company increased 12.3 times from 2005 to 2012.

At the shareholders' meeting on May 25, most of the small and medium-sized shareholders expressed the same question: "the major shareholders hold only 19% of the shares, but they have recommend 1/2 candidates for directors. Airborne Y has neither enterprise management experience nor familiarity with the company's business. As soon as he arrives at the company, can he be the managing director?"

Sure enough, in the subsequent re-election of the board of directors, investors actively exercised their power and voted for the director candidates recommend by institutional investors. The candidate was finally elected with a high vote rate of 113 percent, while Y of the major shareholder recommend only received 36.6 percent of the votes and was rejected. After the vote, the actual controller of the company showed a good concept of the rule of law and an enlightened style, clearly stating: "Respect the resolutions of this general meeting of shareholders, and we believe that the new board of directors will correctly perform its rights and obligations".

Comments:

1. Company C has a diversified shareholding structure. Shareholders of all parties have negotiated with each other and put forward opinions rationally in major decisions involving senior management candidates, profit distribution, investment and financing, and gradually formed a good governance mechanism.

2. Listed companies shall, in accordance with the law, establish a voting mechanism that is fair and reasonable and aimed at reflecting the wishes of small and medium-sized investors. Company C provides for a cumulative voting system for the election of directors in its articles of association, which provides conditions for small and medium-sized investors to have a greater voice.

3. The controlling shareholder of a listed company should be aware that although it is the single shareholder holding the largest number of shares, it is not absolutely controlling in terms of the overall distribution of the company's shares, so the majority shareholder should respect and protect the independence of the operation and governance of the listed company and respect the final outcome of the investor's motion on the company.

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Nanhua Instruments Co., Ltd.

Add: 1 Kehong, Rd., Guicheng, Nanhai District, Foshan City, Guangdong 528251 CHINA
Tel: +86 757 86718778
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Tel: +86 757 86718629
Email: Export@nanhua.com

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