Financial fraud ushered in the strictest delisting system in history, and there are still several loopholes that need to be filled

Pihai Chau

2024-04-25 06:30Published in Hubei Finance and Economics Creator

Cracking down on financial fraud and other illegal and criminal activities has been a task that the regulatory authorities have been attaching great importance to in recent years. However, when it comes to the issue of delisting, it has encountered the weakness of the delisting system. The usual situation is that listed companies have committed financial fraud for many years but have not touched the situation of forced delisting in major violations, so that the financial fraud of listed companies for three or four years is just a child, and financial fraud for seven or eight years is also very common, and the delisting of financial fraud companies has become a laughing stock in the stock market.

The reason why the delisting of a company with financial fraud has fallen into such a laughing stock is obviously due to the major loopholes in the current delisting system. According to the current delisting system, a financial fraud company needs to meet three requirements at the same time in order to delist. First, it is necessary to commit financial fraud for two consecutive years; second, the cumulative amount of financial fraud in the past two years must not be less than 500 million yuan; and third, the proportion of the amount of fraud in the amount of relevant indicators publicly disclosed for two consecutive years must not be less than 50%.

It is precisely on the basis of these three requirements that a listed company cannot be delisted if it only falsifies for one year, even if the amount of fraud in this year reaches 10 billion yuan; and if the cumulative amount of financial fraud in two years does not reach 500 million yuan, or even if the amount of fraud reaches the requirement of 500 million yuan, the proportion of the amount of fraud for two consecutive years does not meet the requirement of 50 percent, it still cannot be delisted. In particular, even if a listed company has committed financial fraud for many years, as long as it cannot meet the above three requirements at the same time, the relevant financial fraud company still cannot be forcibly delisted. This is also the reason why many listed companies have committed financial fraud for five consecutive years, six years, and seven years, and the company still has not touched the situation of forced delisting in major violations. As a result, the delisting system, which involves financial fraud, has become a laughing stock in the stock market.

Now this laughing stock is finally coming to an end, and the financial fraud of listed companies will usher in the strictest delisting system in history. According to the requirements of "scientifically setting the scope of application for major illegal delisting" put forward in the "New National Nine Articles", on April 12, the China Securities Regulatory Commission issued the "Opinions on Strictly Implementing the Delisting System", requiring "further strict mandatory delisting standards", which specifically mentioned that it is necessary to "scientifically set the scope of application for major illegal compulsory delisting", adding serious fraud for one year and continuous fraud and delisting for many years, and resolutely cracking down on malignant and long-term systemic financial fraud.

Based on the requirements of the Opinions on the Strict Implementation of the Delisting System, the Shanghai and Shenzhen Stock Exchanges have amended the content of the Listing Rules related to delisting and solicited public comments. As a result, financial fraud companies are expected to usher in the strictest delisting regime in history. According to the Consultation Paper, the delisting clause of a financially fraudulent company has been significantly revised. The first is to lower the threshold for delisting financial fraud for two consecutive years, reduce the amount of fraud from no less than 500 million yuan in two years to no less than 300 million yuan, and reduce the proportion of fraud from no less than 50% to no less than 20%. As a result, it is easier for companies that have committed financial fraud for two consecutive years to trigger a delisting situation.

Second, two new delisting cases for financial fraud have been added. That is, the delisting of financial fraud for one year and the delisting of financial fraud for three consecutive years. In the case of one-year financial fraud, the amount of false record of operating income, total profit or net profit disclosed by the company in any one year reaches more than 200 million yuan, and exceeds 30% of the amount of the corresponding account disclosed in that year, and in the case of three-year delisting, the financial indicators disclosed by the company in the annual report have been falsely recorded for three consecutive years, and the relevant financial indicators include operating income, total profit, net profit, assets or liabilities in the balance sheet.

In this way, there are clear provisions on the financial fraud of listed companies, involving delisting for one year and three years or more. In particular, if there is financial fraud for three consecutive years, as long as the fact of financial fraud for three years is established, no matter what the amount of fraud is, the delisting situation will be triggered. This is a sharp sword for companies that have been financial fraud for many years, so that there is nowhere to escape for companies that have been financial fraud for many years. The "crackdown on financial fraud" that the management has said for many years will also be implemented, and the delisting of financial fraud companies will no longer be a laughing stock in the market.

Therefore, as far as the delisting of financial fraud companies is concerned, the revision of the delisting system by the Shanghai and Shenzhen Stock Exchanges is undoubtedly successful, which is actually a key point of the entire delisting system. As a result, companies that commit financial fraud will usher in the strictest delisting regime in the history of the A-share market. However, because the recent release of the draft of the revision of the delisting system is for comments, there are several loopholes that need to be filled in order to improve the delisting system of financial fraud companies. That is, the listed company falsifies every other year or N years to avoid the delisting situation faced by "two consecutive years" and "three consecutive years" financial fraud.

In order to avoid the occurrence of "fraud in alternate years" or "fraud in alternate N years", a time limit can be set for fraud, for example, a time limit of five years can be stipulated, and in this regard, within a period of five years, if a listed company has committed financial fraud for a total of 2 years or 3 years of financial fraud, the delisting system can be implemented by reference to the situation of financial fraud for 2 consecutive years and financial fraud for 3 consecutive years.

In addition, for the delisting of financial fraud for one year and the delisting of financial fraud for two consecutive years, one more circumstance can be added respectively, that is, if the amount of financial fraud reaches 500 million yuan in one year, or the amount of financial fraud reaches 500 million yuan for two consecutive years, it can be directly delisted, without considering the proportion of the amount of fraud in the amount disclosed in the public disclosure. After filling in these loopholes, the delisting system of financial fraud companies will basically be improved.

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