A dispute caused by related party transactions is rapidly rising to an increasingly fierce shareholder infighting.
On April 9, 2022, Liaoning Sg Automotive Group Co.Ltd(600303) some minority shareholders disclosed the relevant announcement on convening the extraordinary general meeting of shareholders through the website of Shanghai Stock Exchange. Eight shareholders including Shenzhen Zhongneng green Qihang No. 1 investment enterprise (limited partnership) (hereinafter referred to as “Shenzhen Zhongneng”) convened the extraordinary general meeting of shareholders on their own to terminate the purchase of assets, remove the current directors, remove the current non employee supervisors and elect directors Supervisors and other relevant proposals. This also means that the dispute over Liaoning Sg Automotive Group Co.Ltd(600303) since the end of September last year has been fermenting up to now has risen to the competition for the control of the board of directors and the board of supervisors. The related party acquisition strongly promoted by the company may also be affected and become a bubble, and the board of directors and the board of supervisors may also change in a large area.
related party acquisition disputes
In fact, all disputes stem from Liaoning Sg Automotive Group Co.Ltd(600303) the acquisition of the “car shell” assets of related parties.
On the evening of September 27, 2021, Liaoning Sg Automotive Group Co.Ltd(600303) announced that in order to speed up the progress of pure electric passenger vehicle project and promote new energy passenger vehicles to the market as soon as possible, it is proposed to acquire the advanced and mature technology of Chery S18 (Ruiqi M1) and s18d (Ruiqi x1) models held by the related party Tianjin Meiya New Energy Vehicle Co., Ltd. (hereinafter referred to as Tianjin Meiya) to develop and produce pure electric cars and SUVs, with a transaction consideration of 132.3 million yuan.
Tianjin Meiya is a wholly-owned subsidiary of Huatai Automobile Group Co., Ltd. (hereinafter referred to as Huatai Automobile), the controlling shareholder of Liaoning Sg Automotive Group Co.Ltd(600303) company. Ruiqi M1 and Ruiqi X1 involved in this acquisition are two small fuel models developed and listed by Chery automobile from 2008 to 2012. They have been discontinued for many years. Many of the relevant patents have expired, have been applied for a long time, and some patented technologies do not enjoy exclusive use rights. In addition, the formation time of relevant fixed assets is also long, and the whole vehicle has only been trial produced in small batches. At the same time, Liaoning Sg Automotive Group Co.Ltd(600303) at that time, it did not have the development and production capacity of three electricity system of new energy passenger vehicles, did not adjust the existing production line, did not upgrade the supplier system and after-sales service system, and did not supplement relevant personnel. There was also some uncertainty about the smooth implementation of the project after the acquisition. Therefore, once the acquisition announcement was disclosed, it caused great controversy.
In addition, Huatai Automobile, the controlling shareholder of Liaoning Sg Automotive Group Co.Ltd(600303) company, also had large amount of overdue debts, shutdown of automobile business, pledge of all its shares and judicial freeze in the early stage. On September 28, 2021, the exchange sent an inquiry to Liaoning Sg Automotive Group Co.Ltd(600303) asking the company to explain the basis and rationality of transaction pricing and whether it is delivering liquidity to the controlling shareholders and actual controllers. Subsequently, on November 5, 2021, the exchange sent a regulatory letter to Liaoning Sg Automotive Group Co.Ltd(600303) requesting the company to protect the inquiry right of minority shareholders, hold an investor briefing, and demonstrate and study the necessity of submitting related party transactions to the general meeting of shareholders for deliberation in accordance with the principle of prudence.
For the highly controversial related party acquisition, some small and medium-sized investors have also taken corresponding actions. On December 6, 2021, five shareholders of China Securities small and Medium Investors Service Center Co., Ltd. (hereinafter referred to as “investment service center”) and Shenzhen Zhongneng, Yu Jing, Jiang Pengfei and Liaoning Shuguang Group Co., Ltd., as shareholders representing more than 1 / 10 of the voting rights, also proposed to convene an interim meeting of the board of directors to consider the proposal to submit related party transactions to the general meeting of shareholders for deliberation.
In the relevant proposals submitted by the five shareholders, they believed that the two models had been discontinued for many years, the competitiveness of subsequent products was unknown, the formation time of relevant fixed assets was long, and there was uncertainty whether the subsequent normal production could be realized. Moreover, the transaction has a significant impact and high attention from shareholders. It is suggested that the board of directors of the company submit the related party transaction to the general meeting of shareholders for deliberation. However, the proposal was finally rejected by Liaoning Sg Automotive Group Co.Ltd(600303) board of directors.
“In recent years, it is the general trend for automobile enterprises to actively transform to new energy. Liaoning Sg Automotive Group Co.Ltd(600303) this acquisition has caused great controversy, mainly because this transaction is a related party transaction and is suspected of infringing on the interests of minority shareholders.” Bai Wenxi, chief economist of IPG China, analyzed the dispute.
management strongly promotes the acquisition
Although the transaction received much attention and controversy once it was announced, it did not seem to stop Liaoning Sg Automotive Group Co.Ltd(600303) from making great efforts to promote it.
On November 5, 2021, Liaoning Sg Automotive Group Co.Ltd(600303) replied to the inquiry of the exchange and stressed that the transaction was in line with the actual situation of the company and did not involve encroachment on the interests of the listed company. Transaction is a transaction arrangement made by the company according to its own business development plan and needs based on the current development of the automobile market, which is not related to the pledge of the controlling shareholder’s equity and the judicial waiting freeze. It is a normal transaction conducted by the company for business needs, and there is no liquidity transmission for controlling shareholders and actual controllers.
The joint proposal of the investment service center and some minority shareholders was also directly rejected by the interim Board of directors held on December 16, 2021. Relevant directors believe that the transaction amount does not exceed 5% of the latest audited net assets and does not exceed the authority of the board of directors, so it should not be submitted to the general meeting of shareholders for deliberation; Trading is a crucial step for the company to transform and produce new energy vehicles, which can shorten the time for mass production of vehicles and keep the production qualification of new energy vehicles that is very difficult to win; The independent director of the company hired a third organization to review the evaluation results, and the preliminary opinion is that the evaluation value is acceptable; The transaction does not provide liquidity for controlling shareholders and actual controllers.
According to the original agreement signed by both parties, Liaoning Sg Automotive Group Co.Ltd(600303) will pay half of the price within 5 working days after the contract is signed, and the remaining 50% of the price needs to be paid before December 25, 2021. However, due to the great dispute over the transaction, on December 15, 2021, the two parties further agreed that the balance of the second phase would be paid off 12 months after the appraisal conclusion was issued by the appraisal institution, the total transfer price was determined by the two parties, and the assets could reach the normal use state after delivery. At the same time, the acquired assets were put into production and completed the production of the first vehicle on the market.
The twists and turns are that in early January 2022, the appraisal institution originally hired by the company unilaterally terminated the appraisal contract and withdrew the appraisal report. It was not until March 31, 2022 that the appraisal institution re employed by the company issued a new appraisal report on the transaction Liaoning Sg Automotive Group Co.Ltd(600303) also paid the down payment totaling 66.15 million yuan on September 27, 2021. With this acquisition, the raw rice was almost cooked.
“According to the relevant rules of the exchange, if the transaction amount with related parties exceeds 30 million yuan (inclusive) and accounts for more than or equal to 5% of the latest audited net asset value, it needs to be submitted to the general meeting of shareholders for deliberation.
”Some market participants who declined to be named believed that “although from the perspective of transaction rules and articles of association, this transaction did not meet the standard for submission to the general meeting of shareholders for deliberation, due to the large dispute in this transaction, according to the principle of prudence, the company should actively respond to the concerns of investors and properly resolve it.”
Some lawyers who declined to be named told the Securities Daily that related parties need to avoid voting in related party transactions, and the opinions of minority shareholders have a great impact on whether the transaction can take place. The appointment and removal of the members of the board of directors largely depend on the controlling shareholders. Although the company and the controlling shareholders are independent in terms of human, financial and material, many times, the management of the company will also reflect the will of the controlling shareholders to a certain extent. Therefore, listed companies are generally unwilling to submit the related party transactions that do not touch the relevant standards to the general meeting of shareholders for deliberation.
shareholder conflicts escalate
From the initial proposal to submit the acquisition to the general meeting of shareholders for deliberation to the temporary general meeting of shareholders convened by some small and medium-sized shareholders, it is proposed to terminate the transaction and remove relevant directors and supervisors, Liaoning Sg Automotive Group Co.Ltd(600303) the contradictions between relevant shareholders and between management and small and medium-sized shareholders are also escalating.
The reporter noted that after the initial proposal of shareholders such as the investment service center and Shenzhen Zhongneng was rejected by the Liaoning Sg Automotive Group Co.Ltd(600303) board of directors, Liaoning Sg Automotive Group Co.Ltd(600303) later held 43 interim meetings of the ninth board of directors successively rejected two proposals to increase the interim proposal of the general meeting of shareholders submitted by Shenzhen Zhongneng and natural person shareholder Yu Jing. In these two interim proposals, Shenzhen Zhongneng and Yu Jing proposed their own nominees for the upcoming general election of the board of directors and the board of supervisors of the company.
The Liaoning Sg Automotive Group Co.Ltd(600303) board of Directors believes that the nomination of two candidates for directors and supervisors by Shenzhen Zhongneng and Yu Jing will have a negative impact on corporate governance and business stability. It is also unfavorable to the stability of the company’s daily production, operation and management team. And the company has more than one shareholder holding more than 3%. If they follow this example, the impact will be too great. The relevant proposals are not conducive to the stable operation of the company and are not necessary. At the same time, they release the signal of instability of decision-making and management to the market and are not supported.
All the nominations of the two minority shareholders were rejected, and there was no suspense about the general election of Liaoning Sg Automotive Group Co.Ltd(600303) the board of directors and the board of supervisors. Except for the two new faces elected due to the expiration of the independent directors and the directors who resigned before the expiration, the other elected members were the members of the previous board of directors and the board of supervisors.
After the proposal was rejected by the board of directors and the proposal was rejected one after another, and the board of directors and the board of supervisors were not elected, more minority shareholders planned to protect their rights and interests by requesting the convening of an extraordinary general meeting of shareholders. Firstly, relevant applications were submitted in writing to Liaoning Sg Automotive Group Co.Ltd(600303) board of directors and board of supervisors successively, but the board of directors and board of supervisors of the company had not been convened for the reason of incomplete information. Finally, relevant shareholders decided to convene the extraordinary general meeting of shareholders on their own.
A written notice on the convening of the general meeting of shareholders of minority shareholders of Shanghai Stock Exchange was passed and submitted to the Shanghai Stock Exchange on April 3, 2024.
can minority shareholders prevent the acquisition
“If Liaoning Sg Automotive Group Co.Ltd(600303) and minority shareholders can initially communicate well on relevant differences, perhaps the problem will not become more and more acute.” The aforementioned market participants who declined to be named believed that, after all, these shareholders only made suggestions on the transaction dispute at first, and did not have any ideas on the control of the company.
According to the announcement, there are 8 convening shareholders of the extraordinary general meeting, namely Shenzhen Zhongneng, Yu Jing, Jia Muyun, Jiang Pengfei, Li yongdai, Zhou Fei and Liu Hongfang. Eight shareholders held 6 Guangdong Shunkong Development Co.Ltd(003039) 6941228 shares in total for 90 consecutive days, accounting for 14.35% of the total share capital of the company. Among them, Shenzhen Zhongneng is also an important strategic investor introduced by Liaoning Sg Automotive Group Co.Ltd(600303) in 2016. At that time, Liaoning Sg Automotive Group Co.Ltd(600303) planned to acquire and increase the capital of Yineng electronics by means of cash and equity, but failed to make the trip in the end. At that time, only Shenzhen Zhongneng and Changxin fund Shuguang No. 1 subscribed the fixed increase funds. Changxin fund Shuguang No. 1 is Liaoning Sg Automotive Group Co.Ltd(600303) ‘s employee stock ownership plan, which has been withdrawn successively after the lifting of the ban, while Shenzhen Zhongneng has been holding shares until now.
The reporter noted that after Hu Yongheng resigned as chairman at the end of 2021 and completely resigned as a director at the beginning of 2022, Liaoning Sg Automotive Group Co.Ltd(600303) at present, the board of Directors consists of 8 people. The board of supervisors of the company consists of three persons, one of whom is an employee supervisor. The eight shareholders proposed to remove all eight directors and two non employee supervisors of Liaoning Sg Automotive Group Co.Ltd(600303) currently. Among them, Wu Manping and Zhang Fangqing took office only at the end of 2021 and did not participate in the relevant decisions on this related party transaction. On the reason for dismissal, they only mentioned that they were to protect the interests of the listed company and all shareholders and promote the legal and compliant operation of the listed company and its board of directors in accordance with the law. For the other eight directors, supervisors and independent directors who were also members of the previous board of directors or the board of supervisors, the extraordinary general meeting convened the shareholders. In the reason for removal, they believed that the eight persons did not conduct detailed and professional due diligence on the underlying assets involved in the related exchange, and tried their best to promote the purchase of assets eliminated by the industry at a very high price at an unreasonable trading time, failing to fulfill the obligation of loyalty and diligence, Propose removal. In addition, the relevant minority shareholders also want to terminate the related party transaction through the extraordinary general meeting of shareholders.
“Employee supervisors are elected by the employee congress and cannot be elected or removed by the shareholders’ meeting.” The aforementioned lawyer, who asked not to be named, told reporters that according to the proposal of the current eight convening shareholders, almost all directors and supervisors of Liaoning Sg Automotive Group Co.Ltd(600303) have been removed.
“Minority shareholders proposed to remove directors and supervisors, mainly because they believed that these directors and supervisors failed to perform their duties diligently in related party transactions.” Bai Wenxi believes that the dismissal of current directors and supervisors by minority shareholders will affect the effectiveness of corporate governance and the normal operation of enterprises.
According to the announcement, the extraordinary general meeting of shareholders will be held on May 5, 2022. At present, there is still a large gap between the total shareholding of the eight convening shareholders (accounting for 14.35% of the total share capital of the company) and 19.77% of Huatai Automobile. The extraordinary general meeting also involves the public solicitation of shareholders’ voting rights. One month later, it remains to be seen whether the minority shareholders can successfully prevent the connected acquisition and change the personnel of the board of directors and the board of supervisors.
It is noteworthy that Huatai Automobile’s formal ownership in previous years did not bring better development to Liaoning Sg Automotive Group Co.Ltd(600303) as originally described. On the contrary, due to the illegal occupation of funds and illegal information disclosure by major shareholders, Liaoning Sg Automotive Group Co.Ltd(600303) and its controlling shareholders have also been punished by regulatory authorities repeatedly in recent years, and the loss of net profit returned to parent after deduction is also increasing year by year. According to the performance forecast disclosed by Liaoning Sg Automotive Group Co.Ltd(600303) earlier, the company expects that the net profit attributable to the parent company will lose 320 million yuan to 445 million yuan in 2021, and the net profit attributable to the parent company after deduction is expected to lose 370 million yuan to 495 million yuan, which is still difficult.
