*The latest progress in the judicial reorganization of ST China and the Czech Republic has ushered in.
On the evening of December 29, *ST Zhongjie (002021) issued an announcement on the completion of the implementation of the reorganization plan of Zhongjie Resources Investment Co., Ltd., disclosing that the reorganization plan of Zhongjie Resources Investment Co., Ltd. has been completed and the reorganization plan of *ST Zhongjie has been successfully implemented.
It is worth noting that *ST Zhongjie's reorganization plan protects the interests of small and medium-sized shareholders to a large extent, and allocates the full amount of the converted share capital of small and medium-sized investors to small and medium-sized investors, becoming the first case of full distribution of converted share capital to small and medium-sized shareholders in the capital market.
Bankruptcy reorganization has become an important way for listed companies to resolve risks. According to the analysis of industry insiders, in the new environment of accelerating the delisting of listed companies and the long-term growth of the reorganization of listed companies, enterprises should carry out, apply for and participate in reorganization as soon as possible, and apply for bankruptcy reorganization procedures in a timely manner when there is a cause of bankruptcy, so as to get rid of financial difficulties and regain business ability as much as possible.
The first case of full distribution of share capital to small and medium-sized shareholders
According to the latest "Reorganization Plan" disclosed by *ST Zhongjie, the company will implement the conversion of capital reserve into share capital at the ratio of about 7.53 shares for every 10 shares based on the existing total share capital of about 688 million shares, with a total of about 518 million shares, and the total share capital of the company will rise to about 1.205 billion shares after the conversion.
In terms of specific arrangements, among the total 518 million shares, about 106 million shares should be allocated to the controlling shareholder Yuhuan Hengjie Venture Capital Partnership (Limited Partnership) (hereinafter referred to as "Yuhuan Hengjie") (holding 18.84% of the company's shares) and the first actual controller Cai Kaijian (holding 1.58% of the company's shares), all of which should be transferred free of charge to pay off the illegal guarantee debts. The remaining approximately 412 million shares will be distributed to all shareholders except Yuhuan Hengjie and Cai Kaijian, and the relevant shareholders will receive the conversion shares based on the number of shares they hold in the company at that time, according to the ratio of about 7.53 shares for every 10 shares.
In terms of creditor's rights, ordinary claims are repaid by way of conversion of capital reserve into shares and cash settlement. With regard to the illegal secured creditor's rights, Yuhuan Hengjie and Cai Kaijian transferred about 106 million shares to increase their shares free of charge, and according to the average price of 2.27 yuan per share for a total of 10 stock trading days before and after the acceptance date of *ST Zhongjie's reorganization, the repayment of the debt with shares was implemented, and Yuhuan Hengjie compensated an additional 80 million yuan in cash and will be unconditionally exempted from the same amount.
The company said that after the implementation of the investor equity adjustment plan, all small and medium-sized investors except the controlling shareholder Yuhuan Hengjie and the first actual controller Cai Kaijian will receive all the capital reserve to increase shares, which will maximize the protection of the stock rights and interests held by small and medium-sized investors. At the same time, *ST Zhongjie will properly solve the debt crisis caused by the violation of guarantees through the implementation of the reorganization plan, optimize the asset-liability structure of Zhongjie Resources, and greatly improve the company's fundamentals, gradually improve its continuous operation and profitability, and return to the track of healthy development.
In recent years, the conversion of capital reserve into share capital has gradually become the main way to adjust the rights and interests of investors in the bankruptcy reorganization of listed companies, that is, the listed company converts capital reserve into share capital, increasing the scale of share capital, but does not change the rights and interests of shareholders. Guosen Securities pointed out that the investors implemented the conversion of capital reserve into share capital, and the shares of the original shareholders were diluted to varying degrees, accounting for 37%-85% of the diluted shares.
Specifically, in the process of bankruptcy reorganization of listed companies, the adjustment plan for the rights and interests of investors is mainly that all the converted shares are not distributed to the original shareholders, and all are used to introduce reorganization investors or pay off debts. As a result, the shares of small and medium-sized investors are diluted to varying degrees in the reorganization shares of listed companies.
In the reorganization, *ST Zhongjie allocated the full amount of the converted share capital of the small and medium-sized investors to the small and medium-sized investors, and did not let the small and medium-sized investors transfer their shares for debt repayment or be subscribed by the reorganization investors, did not let the small and medium-sized investors share the cost of the company's reorganization, and did not dilute the shares of the small and medium-sized investors, which is the first case in the reorganization market of a listed company.
Yuhuan state-owned assets came to the rescue
*ST Zhongjie is moving towards bankruptcy reorganization, mainly due to the loan contract guarantee dispute in 2020. Due to the fact that the original legal representative of *ST Zhongjie privately exceeded his authority in 2017 to provide guarantees for Huaxiang (Beijing) Investment Co., Ltd. in violation of regulations, according to the second-instance judgment of the Guangdong High Court on February 6, 2023, *ST Zhongjie will bear the compensation liability of 951.4 million yuan, and the direct responsible subject of the case is the parent company, that is, the listed company. As a result of this case, *ST Zhongjie is facing a severe debt crisis and delisting risk.
According to the 2022 annual audit report, as of December 31, 2022, *ST Zhongjie's net assets are negative, and all the company's assets are insufficient to pay off all liabilities. At that time, *ST Zhongjie said that considering that the company's main business has strong market competitiveness and scale advantages, it will strive to resolve debt risks in accordance with the law through judicial reorganization, and actively prepare for retrial.
In an interview with the Securities Times, Zhang Lishu, chairman of ST Zhongjie, said that the reorganization plan of *ST Zhongjie has protected the interests of small and medium-sized shareholders to a large extent, and has also become the first case in the capital market to increase the full amount of share capital to distribute to small and medium-sized shareholders. The company will take this reorganization as an opportunity to resolve the company's crisis, eliminate the company's debt burden, solve the company's historical problems, and reshape its leading position in the sewing machine industry.
It is worth mentioning that in the reorganization process of *ST Zhongjie, Yuhuan State-owned Assets actively took responsibility for the transfer of all the equity rights and interests converted to shares, and paid additional cash for debt repayment free of charge, so as to protect the legitimate rights and interests of creditors, all small and medium-sized investors and more than 1,000 employees of listed companies and their subsidiaries.
According to the reorganization plan of *ST Zhongjie, it can be seen that the controlling shareholder Yuhuan Hengjie and the first actual controller Cai Kaijian transferred all the 105688798 shares they should have obtained, and Yuhuan Hengjie provided an additional 80 million yuan in cash to compensate for the illegal guarantee claims. Yuhuan Hengjie is the controlling shareholder of the company, holding about 130 million shares, with a shareholding ratio of 18.84%. After equity penetration, it was found that the actual controller behind Yuhuan Hengjie was the Yuhuan Municipal Finance Bureau, and in fact the Yuhuan Municipal People's Government was behind it.
*According to the announcement of ST Zhongjie, Yuhuan Hengjie was liquidated by the bankruptcy of the original controlling shareholder at the end of 2019 and obtained the equity of *ST Zhongjie through the auction procedure. The case of violation of guarantee occurred in 2017 and was caused by the legal representative at that time exceeding his authority.
The reporter learned from *ST Zhongjie that Yuhuan Hengjie was completely unaware of the ultra vires when the auction was obtained, and the listed company *ST Zhongjie was also completely unaware, and Yuhuan Hengjie was also the party that caused the decline in the value of the stock in the case. However, in the face of the overall situation, the Yuhuan Municipal People's Government has transferred great rights and interests to protect the interests of all parties, which not only reflects the courage of Yuhuan state-owned assets to take responsibility, but also shows the confidence and determination of Yuhuan City to develop the sewing machine manufacturing industry and reshape the leading position of *ST Zhongjie in the sewing machine industry. *ST Zhongjie told reporters.
The reorganization did not affect the normal operation of the main business subsidiary
Due to the adoption of the group management system, *ST Zhongjie, as the parent company of a listed company, is not directly engaged in the main business operation, and unlike the general enterprise bankruptcy reorganization when the main business encounters greater development difficulties, the main business of the subsidiary Zhejiang Zhongjie Sewing Technology Co., Ltd. (hereinafter referred to as "Zhongjie Technology") has not been affected by the reorganization of the parent company *ST Zhongjie, after the completion of the reorganization of *ST Zhongjie, it will optimize the asset-liability structure and will continue to empower and support the subsidiary Zhongjie Technology.
*Founded in 1994, ST Zhongjie is mainly engaged in the research and development, production and sales of medium and high-end industrial sewing machinery, the main products include industrial lockstitch sewing machines, overlock sewing machines, interlock sewing machines, zigzag sewing machines, special machines and other series, the 2023 semi-annual report shows that the company has an annual production capacity of about 800,000 industrial sewing machines.
According to the previous annual report of *ST Zhongjie, the company's main business is the manufacture and sales of industrial sewing machines, and the business entity is a wholly-owned subsidiary of Zhongjie Technology, which is a wholly-owned subsidiary established by Zhongjie Resources Investment Co., Ltd. by stripping sewing machine-related assets and liabilities and packaging net assets, and has been operating normally since August 2014.
Judging from the performance of Zhongjie Technology in recent years, in 2020, due to the complex and changeable domestic and foreign environment, the subsidiary's operating income declined, but in 2021, Zhongjie Technology's net profit turned losses into profits, the profitability of the company's main business increased, and in 2022, the company's net profit of sewing machine business continued to be positive under the background of increasing pressure on the development of the sewing equipment industry.
In 2022, Zhongjie Technology achieved an operating income of 867 million yuan, a net profit of 22.2599 million yuan, and a gross profit margin of 15.42%, which was basically the same as that in 2021. Among them, affected by the continuous release of consumption of clothing and footwear products in developed countries such as Europe and the United States, as well as the economic rebound of Southeast Asia and other countries, the overseas demand for sewing equipment has increased steadily, and Zhongjie Technology has seized the opportunity of overseas demand growth, with export revenue of 440 million yuan, a year-on-year increase of 12.58%.
Looking back on the development of *ST Zhongjie in recent years, at the end of 2019, Zhejiang Huanzhou, the original largest shareholder of *ST Zhongjie, went bankrupt and liquidated, Yuhuan Hengjie, a local state-owned asset background, became the company's largest shareholder, and Zhang Lishu, chairman of Yuhuan State Investment Corporation, became the chairman of the listed company, and then elected a new governance team and hired a new management team.
The new management team said that after the state-owned assets became the owner, the focus of operation and management will be on the company's main business sector, give full play to the company's superior resources, further expand and strengthen marketing, improve the scale of production and operation, and strengthen research and development efforts.
The latest announcement of the "reorganization plan" discloses the future business plan of *ST Zhongjie, the company will vigorously expand the market, optimize channel management, clarify brand positioning, optimize brand operation, increase technology research and development, create smart sewing products, accelerate information construction, improve digital intelligence capabilities, strengthen organizational construction, optimize the level of governance, etc.
In addition, *ST is also the first listed company in China to propose an equity incentive plan. In April 2006, 45 days after the promulgation of the Administrative Measures for Equity Incentives of Listed Companies (for Trial Implementation), *ST Zhongjie, then known as "Zhongjie Shares", became the first listed company to implement an equity incentive plan in accordance with the Administrative Measures, creating a precedent for stock option incentives and directional issuance as a source of incentive shares.
Grasp the "window period" for bankruptcy and reorganization of listed companies
*The rapid progress of ST's reorganization may help it grasp the "window period" of bankruptcy reorganization under the new delisting rules, that is, the period during which the listed company can improve its financial position and avoid the termination of listing through bankruptcy reorganization even if it encounters financial difficulties and has the risk of delisting.
On December 31, 2020, the Shanghai Stock Exchange and the Shenzhen Stock Exchange respectively issued the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange (Revised in December 2020) and the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange (Revised in 2020) (the "New Rules for Delisting"), which significantly shortened the delisting process. In March 2022, the Shanghai Stock Exchange and the Shenzhen Stock Exchange issued new rules on bankruptcy reorganization, further broadening multiple exit channels and promoting the standardized operation of bankruptcy reorganization from the institutional perspective.
According to the analysis of industry insiders, the new delisting regulations since 2020 have cancelled the suspension of listing and the resumption of listing, and the normative requirements for the bankruptcy and reorganization of listed companies have been gradually improved. The shortening of the delisting process has increased the urgency of enterprises to use bankruptcy reorganization to resolve debt risks, and if the "window period" of bankruptcy reorganization cannot be grasped, the expectation of delisting in the context of normalized delisting will also bring certain difficulties to the bankruptcy reorganization of listed companies.
At present, bankruptcy reorganization has become an important way for listed companies to resolve risks, according to incomplete statistics from the Securities Times reporter, at present, more than 60 listed companies in the A-share market (excluding delisted companies) have carried out bankruptcy reorganization, of which ST companies are the majority, such as *ST Ruide, *ST Yufu and many other "ST" companies have successfully taken off their hats through bankruptcy reorganization.
Gao Jinbang, a partner at Zhejiang Liuhe Law Firm, said that bankruptcy as commonly understood often refers to bankruptcy liquidation, but in fact, for enterprises that have the hope of maintaining value and regeneration, it is often through reorganization to prevent enterprises on the verge of distress from entering bankruptcy liquidation, and the main purpose is to actively rescue distressed debtors to get them out of trouble, and the reorganization system sets up a buffer zone between the debtor's business difficulties and the final liquidation.
Professionals pointed out that in the new environment of accelerating the delisting of listed companies and the long-term growth of listed companies' reorganization, enterprises should carry out, apply for and participate in reorganization as soon as possible, and listed companies and their management can identify bankruptcy risks as soon as possible in the observation of internal and external environments, timely carry out the clean-up of illegal matters such as capital occupation and illegal guarantees, and apply for bankruptcy reorganization procedures in a timely manner when there are bankruptcy reasons, so as to grasp the window period for bankruptcy reorganization of listed companies.
Editor-in-charge: Peng Bo
Proofreading: Wang Chaoquan