[Concerning for Convoy] The company has been suspended from trading for three years and the China Securities Regulatory Commission has not seen it?

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Written by: Commentary Editing Room

2020-11-30 17:29

Last update date: 2020-11-30 17:30

Convoy Global was involved in "Mystery.com Storm" and has been suspended for nearly three years. During this period, apart from the lawsuit, it also received a notice from the Stock Exchange to delist in June this year.

The major shareholders of a company cannot afford to hold on to the equity issue. Once the company is delisted, the minor shareholders will lose money at any time.

The ambiguity of the SFC's role in the incident also revealed that the Hong Kong stock market's protection for minority shareholders is quite insufficient.

In November 2017, Kaisa's "Prince" Guo Xiaoqun, as a shareholder holding 29.91% of Kanghong's equity, proposed to remove eight directors including Wu Ronghui and appoint another five to join the board of directors.

In the same year's special shareholders meeting (EGM), Kanghong Chairman Chen Zhihong decided that Guo Xiaoqun’s shares had a problem and his voting rights were invalid. Guo then sued Chen Zhihong and other senior officials for depriving him of his voting rights.

In December 2017, Convoy Global also launched a lawsuit against Cao Guizi and others for arranging the rights issue by improper means. Guo Xiaoqun and Chen Peixiong, another Convoy shareholder who holds about 7% of the shares, are acting in concert and are closely related to Cao Guizi and others. , Requiring the court to restrict Guo and Chen from exercising the voting rights of Kanghong shares.

Convoy Global’s board of directors disputes started from this.

Cao Guizi was accused of being Kang Hong's shadow director.

(Photo by Liang Pengwei)

The company is suspended for three years and minority shareholders are not protected

The company did not announce its performance during the three-year suspension period. Since 2017, minority shareholders have not been able to know the company's asset trend, and relevant stocks cannot be traded in the market during the suspension period.

This means that even if the relevant stocks are expected to resume trading in the future, the changes in the financial situation of the company in the past three years will greatly affect the stock price changes.

In addition, the Stock Exchange can delist stock issuers after they have been suspended for 18 months (Main Board) and 12 months (GEM). Convoy Global, which has been suspended for three years, has received a notice from the Stock Exchange in June this year. Decide to delist.

The suspension system was originally established to avoid uneven information disclosure in the market and to prevent insider trading in the market.

Stock trading suspension can be initiated by listed companies or regulatory agencies (the Stock Exchange and the Securities Regulatory Commission).

The company's proactive application for trading suspension usually involves major company activities, etc. The reasons for the regulatory agency's request for suspension may also be related to the company's stock price or trading volume changes.

Stock trading suspension is a common situation in the stock market. For example, before the government formally took a stake in Cathay Pacific, Cathay Pacific, Swire and Air China also suspended trading in conjunction with the announcement of important news.

However, if Convoy Global has suspended trading for three years, in addition to being unable to sell shares, minority shareholders cannot sell their shares. Once the shares need to be delisted, unless the controlling shareholder is willing to repurchase the minority shareholders’ shares, or there may be a small amount of money remaining after the company is liquidated and repaid. The amount returned to the hands of the minority shareholders, under normal circumstances, as the investment committee said, "maybe the minority shareholders have to decide to lose, they may lose all."

The China Securities Regulatory Commission should be committed to fulfilling its responsibilities for formulating and implementing market regulations, taking both measures from the protection of minority shareholders and the limitation of the power of the chairman of the board of directors.

(Profile picture / Photo by Liang Pengwei)

The stock source provokes suspension of the SFC's due role

Guo Xiaoqun filed for the decision to deprive him of voting rights by Kanghong Chairman Chen Zhihong on the EGM in 2017, but the court held that the EGM chairman has the right to decide on voting qualifications; and whether Guo Xiaoqun’s method of obtaining shares is legal, the Securities Regulatory Commission should decide whether to prosecute.

Convoy Global’s major shareholders have been controversial. The Securities Regulatory Commission has not been involved in the legality of Guo Xiaoqun’s shares. The incident has fallen into a stalemate with the struggle among shareholders. The small shareholders in Hong Kong have been greatly affected by the incident.

According to the Securities and Futures Ordinance, the SFC has to play multiple roles, the main purpose of which is to balance the interests of market practitioners, other market players, and society as a whole.

These include investigating cases of violations and market misconduct and taking appropriate enforcement actions in this regard; monitoring the merger and acquisition regulations applicable to public companies, and monitoring the performance of the Hong Kong Stock Exchange in regulating listing matters.

If the source of Convoy Global’s stocks caused controversy, the SFC should have actively intervened in the investigation, or in matters of Convoy Global’s special shareholders meeting, to understand whether any directors committed misconduct at the meeting, rather than allowing the dispute to paralyze. The normal operation of listed companies.

The China Securities Regulatory Commission should be committed to fulfilling its responsibilities for formulating and implementing market regulations, taking both measures from the protection of minority shareholders and the limitation of the power of the chairman of the board of directors.

For example, the Securities Regulatory Commission should study the requirement that the company continue to disclose its financial status and submit its annual report after a certain number of days after a company has been suspended, or require similar companies to appoint a designated accountant from a regulatory agency to conduct audits, etc., to prevent corporate executives from using the suspension of trading to hide the truth and harm shareholders interest.

The Securities Regulatory Commission may also study and require relevant companies to appoint directors designated by the Securities Regulatory Commission to join the company's board of directors in order to check and balance the power of the original board of directors during the suspension of the company's trading.

The Convoy Global incident is undoubtedly a warning sign of Hong Kong's securities regulatory system and will challenge Hong Kong's important position as an international financial center.

How to give investors confidence in the regulatory system is an important responsibility of the SFC and the Hong Kong government.

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