St Zhongzhu (600568.SH) and its controlling shareholder and actual controller were disciplined by the exchange due to violations such as letter phi violations and capital occupation.
On the afternoon of October 11, ST Zhongzhu issued a disciplinary decision on the Shanghai Stock Exchange (hereinafter referred to as the "SSE"), in which the company failed to perform the review procedures and information disclosure obligations by providing guarantees for related parties, failed to perform the decision-making procedures and information disclosure obligations in a timely manner for related party transactions, and occupied non-operating funds by controlling shareholders and their related parties.
In accordance with the relevant regulations, the SSE decided to publicly condemn ST Zhongzhu, zhuhai Zhongzhu Group Co., Ltd. (hereinafter referred to as "Zhongzhu Group"), the company's actual controller and then chairman and general manager, and Liu Zhijian, then financial director; Ye Jige, then chairman of ST Zhongzhu, and Jiang Chunqian, then deputy general manager and secretary of the board of directors, were notified and criticized.
It is worth noting that ST Zhongzhu has received the Decision on Administrative Supervision Measures from the Hubei Securities Regulatory Bureau on many occasions, and also received the "Advance Notice of Administrative Penalties and Market Prohibition" from the Hubei Regulatory Bureau of the CSRC in November last year for failing to disclose relevant related party transactions in accordance with regulations and failing to disclose a total of 11 illegal facts for providing guarantees for related parties in a timely manner.
Repeated letters and violations
After the regulatory investigation, ST Zhongzhu has repeatedly violated information disclosure.
One was that the company provided guarantees to related parties for failing to meet its review procedures and information disclosure obligations.
On October 13, 2017, Shenzhen Yiyi Investment Holding Group Co., Ltd. (hereinafter referred to as "Yiyi Group"), the second largest shareholder of ST Zhongzhu, and its co-actors Shenzhen Yiyi Zhengrun Asset Management Co., Ltd. (hereinafter referred to as "Yiyi Zhengrun") and Liu Danning, then director and senior vice president of ST Zhongzhu, borrowed RMB20 million from others, and Shenzhen Yiyi Medical Technology Co., Ltd., a wholly-owned subsidiary of ST Zhongzhu, provided a guarantee for the aforementioned loan.
The above-mentioned related party guarantee accounted for 0.33% of ST Zhongzhu's audited net assets at the end of 2017, but ST Zhongzhu did not submit the related party guarantee matters to the general meeting of shareholders for consideration, and it was not disclosed until April 30, 2020 after self-examination. On April 21, 2020, Yiyi Group, Yiyi Zhengrun and Liu Danning have returned the principal and interest of the above loan and released the guarantee.
Another time was that ST Zhongzhu was involved in related party transactions, but failed to fulfill its decision-making procedures and information disclosure obligations in a timely manner.
On May 30, 2020, ST Zhongzhu disclosed the 2019 annual report that Zhuhai Zehong Enterprise Management Co., Ltd. (hereinafter referred to as "Zehong Company"), a wholly-owned subsidiary of the Company, acquired a 30% equity interest in Zhuhai Zhongzhu Commercial Investment Co., Ltd. (hereinafter referred to as "Zhongzhu Commercial") from Shenzhen Qianhai Shun Yaoxiang Investment and Development Co., Ltd. in May 2019, and agreed that Zehong Company would bear the land price of 200 million yuan for the Xiawan Wholesale Market Urban Renewal Project held by Zhongzhu Commercial.
From May 24 to 27, 2019, ST Zhongzhu Daizehong Company lent 200 million yuan to Zhongzhu Commercial for the above-mentioned land price payment, which accounted for 4.93% of the company's audited net assets attributable to the parent in 2018.
Whereas, Liu Zhijian, the then Financial Director of ST Zhongzhu, was a director of Zhongzhu Commercial, the Company and Zhongzhu Commercial constituted a related party, and the above transaction constituted a related party transaction. However, ST Zhongzhu only regarded the relevant borrowing as a support loan for the 30% shareholding of the associated enterprise, and failed to identify the borrowing matter as a related party transaction.
In accordance with the articles of association and relevant rules of the company, the above-mentioned loan transactions met the deliberation standards of the board of directors of ST Zhongzhu, but the company failed to perform the deliberation and decision-making procedures and information disclosure obligations of the board of directors as required. ST Zhongzhu failed to fulfill the board of directors' review procedures and information disclosure obligations for related party loans in a timely manner, and did not disclose the above related party transactions until the disclosure of the 2019 annual report, and has not supplemented the relevant review procedures so far.
The controlling shareholder occupies non-operating funds
The non-operating capital occupation of ST Zhongzhu controlling shareholders and their related parties has also attracted market attention.
First, ST Zhongzhu repays debts on behalf of related parties, constituting the non-operating capital occupation of controlling shareholders and their related parties.
According to the Decision on Issuing Warning Letter Measures for Zhongzhu Medical Holdings Co., Ltd. and Relevant Responsible Persons ([2020] No. 24) issued by hubei securities regulatory bureau and the reply to the inquiry letter of ST Zhongzhu's 2019 annual report, from May 24 to 27, 2019, after ST Zhongzhu lent the above 200 million yuan to Zhongzhu Commercial, Zhongzhu Commercial did not pay the land price in a timely manner, and the actual debt was repaid by Zhuhai Guanghai Information Technology Co., Ltd., which is controlled by the acting controlling shareholder Zhongzhu Group. Constitutes the non-operating capital occupation of the controlling shareholder and its related parties.
The capital occupied 200 million yuan, accounting for 4.93% of the company's audited net assets at the end of 2018. It was not until December 23, 2019, after the Zhuhai Xiangzhou District Urban Renewal Bureau issued a notice of payment of the land price, that Zhongzhu Commercial recovered the relevant funds and paid them as land price payments, and the relevant capital occupation was lifted.
Second, ST Zhongzhu assumes the guarantee liability for the subsidiary of the controlling shareholder, which constitutes the non-operating capital occupation of the controlling shareholder and its related parties, and the information disclosure of the overdue matters of the guarantee is inaccurate.
On February 13, 2015, ST Zhongzhu disclosed that the company provided a guarantee for a bank loan of 270 million yuan for its wholly-owned subsidiary, Qianjiang Zhongzhu Industrial Co., Ltd. (hereinafter referred to as "Qianjiang Zhongzhu"), with a guarantee period of 5 years.
On December 2, 2016, ST Zhongzhu disclosed the announcement on the related party transaction of the transfer of the equity of its subsidiary company, saying that it transferred 100% of the equity of Qianjiang Zhongzhu to the controlling shareholder Zhongzhu Group, and the loan guarantee originally provided by ST Zhongzhu for Qianjiang Zhongzhu was still 220 million yuan unmature, and the Zhongzhu Group issued a commitment to provide a counter-guarantee.
In September 2019, due to Qianjiang Zhongzhu's failure to perform its debt repayment obligations in a timely manner, and Zhongzhu Group's failure to perform its guarantee obligations to Qianjiang Zhongzhu and its counter-guarantee obligations to the company, the creditor filed a lawsuit with the court, demanding that ST Zhongzhu bear the guarantee liability and freeze some of ST Zhongzhu's accounts and equity assets.
On April 10, 2020, ST Zhongzhu announced that as of the announcement date, the court had executed a total of 195 million yuan on the frozen assets, and ST Zhongzhu had fully executed the relevant litigation-related guarantees of Qianjiang Zhongzhu.
According to ST Zhongzhu's 2019 annual report, ST Zhongzhu formed a claim on the controlling shareholder and its related parties due to its guarantee liability, constituting a non-operating capital occupation of the controlling shareholder and its related parties, and the total amount of related funds occupied was 195 million yuan, accounting for 5.29% of the company's audited net assets attributable to the parent in 2019. As of now, the balance of the funds occupied is 95.0204 million yuan.
At the same time, according to the facts of the violation identified by the Warning Letter ([2021] No. 18) issued by the Hubei Regulatory Bureau of the China Securities Regulatory Commission, due to the overdue loan of Qianjiang Zhongzhu, st. Zhongzhu disclosed on October 31, 2019 in the "External Guarantee Announcement" stated that st. Zhongzhu had no overdue guarantee matters in the external guarantee, and the relevant information disclosure was inaccurate.
Due to the above-mentioned irregularities of ST Zhongzhu, the annual audit accountant believed that ST Zhongzhu failed to maintain effective internal control over financial reporting in all material aspects in accordance with the Basic Norms for Internal Control of Enterprises and relevant regulations, and found that there were material deficiencies in the company's internal control. Accordingly, the annual audit accountant issued a negative opinion on st. Zhongzhu's 2019 internal control evaluation report.
According to the first financial reporter, in order to promote the solution of the problem of capital occupation, the exchange rectified ST Zhongzhu within a time limit, but the "2020 Annual Report" disclosed by ST Zhongzhu showed that the company failed to complete the rectification as scheduled, the controlling shareholder and the actual controller failed to pay off the occupation payment, and the relevant responsible person failed to effectively recover the damage caused by the violation.
As of the end of 2020, the balance of funds occupied by Zhongzhu Group and its related parties was about 602 million yuan, reaching 15.14% of the audited net assets in 2020, and failed to complete the liquidation or rectification within 1 month. The annual audit accountant still issued a negative opinion on the 2020 internal control evaluation report of ST Zhongzhu.