There will be nowhere to hide from the flickering reorganization, and listed companies will meet the new rules for bankruptcy reorganization

Under the path of diversified delisting, the number of bankruptcy reorganization cases of A-share listed companies has been increasing, but at the same time, many new situations and new problems have emerged. Under this background, listed companies will usher in new regulations on bankruptcy reorganization and prevent flickering reorganization.

"There are a lot of situations now, we are doing civil claims, and the listed companies are going to reorganize." A securities rights protection lawyer told the first financial reporter that at present, most listed companies have a new opportunity after reorganization, reflecting the value of reorganization, and a small number of companies are still subject to regulatory investigation after reorganization.

For this situation, the exchange has already intervened to restrain it. Recently, the Shanghai Shenzhen Stock Exchange announced the draft bankruptcy reorganization opinions of the self-regulatory guidelines for listed companies, and publicly solicited opinions. The content shows that the opinion draft has made specific provisions in many aspects, such as preventing flickering reorganization, standardizing the introduction of reorganization investor methods, and restructuring investors obtaining share consideration.

Focus on preventing flickering reorganization

Recently, Shenzhen Exchange recently solicited public comments on the promulgation of the Guidelines for Self-Regulatory Supervision of Listed Companies – Bankruptcy Reorganization and Other Matters (Draft for Comment), (hereinafter referred to as the Guidelines), with a deadline of 11 January 2022.

In recent years, with the increasing number of bankruptcy reorganization cases of listed companies, there have been many new issues and new situations involving the disclosure of bankruptcy reorganization information, and it is necessary to further clarify and standardize them.

According to the SSE, the drafting of the Guidelines mainly follows four principles: first, to give play to the role of bankruptcy reorganization and effectively improve the quality of listed companies; second, to adhere to information disclosure as the core and standardize the information disclosure of listed companies such as bankruptcy reorganization; third, to clarify relevant procedural requirements and fully protect the interests of investors; fourth, to tighten the responsibilities of intermediary institutions and better play the role of intermediary institutions.

The Guidelines consist of 8 chapters and 53 articles, the main contents of which include general provisions, suspension and resumption of trading and prevention and control of insider trading, application and acceptance of bankruptcy matters, reorganization of investors, creditors' meetings, meetings of investors and equity adjustment arrangements, court rulings and implementation of bankruptcy matters and by-laws.

In terms of specific content, the Guidelines in principle require that the reorganization period should not be suspended, the information should be disclosed in stages, and the relevant parties should do a good job in the confidentiality of insider information and the prevention and control of insider trading; to prevent flickering reorganization, it clarifies the content that the listed company should disclose at the application stage and the court acceptance, and requires self-examination of whether there is any capital occupation, illegal guarantee, commitment performance and other matters.

In practice, in most cases, restructuring investors are introduced to provide cash to repay debts and resume operations for the company. The rules clarify the disclosure requirements for public solicitation and other means to confirm the reorganization investor, and urge relevant parties to timely disclose the basic information, related relationships, investment agreements, payment consideration, lock-up arrangements, and relevant commitments of the reorganization investors in a timely manner.

In terms of the price of the transferred shares, the Guidelines stipulate that if it is lower than 80% of the closing price of the company's shares on the day of signing the investment agreement, the listed company or manager shall engage a financial consultant to issue a special opinion on the reasonableness of the price of the reorganization investor and the basis for pricing and disclose it.

In order to prevent some participants from participating in bankruptcy reorganization for the purpose of shell cashing out, the Guidelines regulate the implementation of the reorganization plan, the share lock-up commitments of related parties, the business plan and the performance commitments.

The Guidelines make it clear that if a reorganization investor becomes the controlling shareholder or actual controller after acquiring shares in a listed company, it shall undertake to lock in for 36 months from the date of obtaining the shares, and other reorganization investors shall lock in for 12 months; if the reorganization plan involves commitments, the relevant parties to the commitments must have a clear performance period, fully disclose important matters such as the content of the commitments and the ability to perform the contracts, and fully demonstrate the realizability of the commitments.

More and more listed companies are joining the reorganization army

The Opinions of the State Council on Further Improving the Quality of Listed Companies require smooth access to diversified exit channels for listed companies such as voluntary delisting, mergers and acquisitions, and bankruptcy reorganization. Against this background, the number of listed companies that have implemented bankruptcy reorganization in the A-share market has shown an increasing trend in recent years.

According to the recent A-share market announcement, at present, many companies such as *ST Huaying and *ST Setia are undergoing restructuring. Among them, the reorganization plans of *ST Hemei, *ST Soling, *ST Daji, *ST HNA, *ST Kerry, *ST Setia and so on have been executed.

"For the majority of shareholders, restructuring is a good thing, although it has ceded some benefits, but it is better than delisting and bankruptcy liquidation." The restructuring system has certain value, but it is also necessary to guard against the flickering reorganization of a small number of companies. The above-mentioned securities rights defense lawyer said.

Judging from the recent completion of the reorganization plan of *ST Kangmei (600518.SH), the company's misrepresentation liability dispute case became the first securities class action, according to the judgment, *ST Kangmei case 52037 investors awarded a total of about 2.459 billion yuan in damages.

These awards are currently being liquidated through reorganization. On December 21, 2021, the first class action lawsuit began to be executed, and 52,037 investors will be reimbursed about 2.459 billion yuan in cash, debt-to-equity swaps, trust income rights, etc.

In addition to getting the debtor out of bankruptcy difficulties, the purpose of bankruptcy reorganization is to restore the operating ability of listed companies, which has an irreplaceable role in resolving corporate risks and preventing social problems caused by corporate bankruptcy.

However, after the reorganization of some listed companies, the bad deeds of violating laws and regulations still exist. For example, *ST Liyuan, on January 4, 2021, disclosed the announcement of the completion of the implementation of the reorganization plan. However, not long after, on May 26, 2021, the company received a "Notice of Investigation" issued by the CSRC and was investigated by the CSRC for suspected violations of laws and regulations on information disclosure.

In addition, in July 2021, the exchange issued a letter of concern, requesting *ST Liyuan to verify again whether the bank accounts of the company and its subsidiaries within the scope of the consolidated financial statements have been fully unfrozen, and to explain whether there is a risk that the company's main bank accounts will be frozen again in light of the company's production and operation conditions and whether there are potential legal disputes in the future.

In this regard, *ST Liyuan replied that the company once again verified all bank accounts within the scope of the merger, there is no freezing situation, the current production and operation are normal, but the company's main bank accounts may still have the risk of being frozen again.

According to the announcement, *ST Liyuan was involved in a misrepresentation liability dispute case, and as of December 31, 2021, a total of 230 litigation materials were received, involving a total of 160 million yuan in litigation amounts. In addition, the company has not disclosed a total of 2 small claims and arbitration matters, involving a total amount of 196,800 yuan.