Whether Huafang Textile Bribed Or Faked Said That The Case Would Not Affect Restructuring

Source: Securities Daily 2013-10-22

With Huafang spin With the escalation of the loan dispute case, the market's attention to Huafang Textile is warming up again. Many shareholders of the company are worried about whether this case will stop the ongoing restructuring of the company.

For this reason, Huafang Textile issued a supplementary announcement again, denying that the company had "forged the loan agreement and paid bribes". At the same time, the company said that "the litigation matter will not affect this asset restructuring".

Litigation or impact on reorganization

According to the suggestive announcement on litigation progress issued by Huafang Textile a few days ago, the company recently received the notice of response from the Jiangsu Provincial High Court. In the case of the loan dispute between Zhangjiagang Huatian New Material Technology Co., Ltd. (Zhangjiagang Huatian for short) and Xiao Zhaoya and the company, the other party refused to accept the civil judgment of the Suzhou Intermediate Court of Jiangsu Province, and applied to the Jiangsu Provincial High Court for retrial and has been accepted.

The announcement shows that Zhangjiagang Huatian and Xiao Zhaoya pointed out that the reasons for overturning the original judgment are as follows: the judges in charge of the first and second instance of the case accepted bribes from Huafang Textile, and there were cases of favoritism, fraud and perversion of the law; The key evidence "loan agreement" submitted by Huafang Textile to the court was forged; The loan facts determined in the first and second instance do not exist, and the judgment seriously violates the procedure, which shall be revoked; There is new evidence that is enough to prove that there is no loan fact claimed by Huafang Textile (now referred to as Zhangjiagang Huatian).

A lawyer said that if Huafang Textile really committed bribery and forgery, the possibility of its major asset restructuring would be very small. The CSRC would ask the company to deal with the loan dispute before restructuring.

In response to this news, many shareholders of Huafang Textile were worried about the restructuring of the company and were called off. In this regard, the company said that the lawsuit would not affect the asset restructuring.

In addition, Yang Zhaoquan, a lawyer from Beijing Weinuo Law Firm, told the Securities Daily that whether the loan dispute case would affect the company's restructuring should mainly depend on the amount involved in the case. If the amount is not large, the company will make special arrangements for audit during the restructuring process, which will not affect the restructuring. On the contrary, if the amount involved is large and has a significant impact on the company's future operations, the company's restructuring may be affected.

According to Huafang Textile's previous announcement, according to the final judgment of Suzhou Intermediate People's Court, the defendant Zhangjiagang Huatian should return the plaintiff Huafang Textile's loan principal of RMB 12.01 million and the fruits. The total amount involved in this loan dispute is 12.3077 million yuan.

Doubtful provision for bad debts of involved loans

The reporter found that Huafang Textile accrued a bad debt provision of up to 14.107 million yuan in the first half of 2013 with a period of 1-2 years. The company said that the company that accrued the bad debt was within the scope of the original consolidated statements.

It is understood that according to the relevant criteria of Huafang Textile for withdrawing bad debts, the company should withdraw 10% of bad debt reserves for other receivables from one to two years. However, Huafang Textile has withdrawn 100% of this single significant amount of other receivables in the first half of this year, up to 14.107 million yuan. This is really unreasonable.

Some analysts speculate that Huafang Textile may refer to Zhangjiagang Huatian as the "company within the scope of the original consolidated statements". If this guess is correct, then Huafang Textile's handling of this loan is somewhat inappropriate.

It is understood that in 2011, the company transferred 70% of its equity in Zhangjiagang Huatian to Xiao Zhaoya, a shareholder holding 30% of the company's equity. Since then, the controlling shareholder of Zhangjiagang Huatian has changed from Huafang Textile to Xiao Zhaoya.

In October 2011, Huafang Textile filed a lawsuit against Huatian New Materials and Xiao Zhaoya, requiring Zhangjiagang Huatian to repay the principal and interest of the loan of 12.798 million yuan to the company, and exercised the pledge right over the 30% equity of Huatian New Materials pledged by Xiao Zhaoya to the company.

In July 2012, Zhangjiagang People's Court ruled in the first instance that the defendant Zhangjiagang Huatian should return the company's loan principal of 12.0143 million yuan and fruits of 303400 yuan. Zhangjiagang Huatian appealed to Suzhou Intermediate People's Court against the judgment of first instance. On March 20, 2013, the final judgment of Suzhou Intermediate People's Court was to reject the appeal and uphold the original judgment.

After that, Xiao Zhaoya filed a lawsuit against Huafang Textile again, requiring the company to return its equity transfer deposit of 4 million yuan and compensate the fruits of 100000 yuan, rescinding the equity pledge agreement signed between the company and it, and requiring the company to hand over financial information such as warehouse statements to it.

It is puzzling that this loan dispute case has lasted for two years since 2011, and the Suzhou Intermediate People's Court has decided that Zhangjiagang Huatian should return the loan principal and fruits of Huafang Textile. Why did Huafang Textile fully withdraw bad debt provision for this loan in the first half of this year?

In this regard, Huafang Textile explained that the reason for 100% provision for bad debts of other receivables was "difficult to recover".

However, a person familiar with the matter told the reporter that since Huafang Textile filed a lawsuit to the court in October 2011, Zhangjiagang Huatian had been seized at the end of that year. On August 12 this year, Huafang Textile also said that Zhangjiagang People's Court was still in the process of implementing the above-mentioned case and was in the stage of evaluating Zhangjiagang Huatian's seizure equipment.

It can be seen that if Zhangjiagang Huatian seizure equipment is evaluated, it can compensate the company for part of the loan. It is worth noting that the loan dispute case has been accepted by the Jiangsu Provincial High Court, and the final trial result has not yet come out, but Huafang Textile has withdrawn the bad debt provision for this loan in full as early as the first half of 2013. How should the company deal with the bad debt reserves that have been accrued after the trial results come out?

The company denies bribery

No matter how Huafang Textile will solve the problem of fully withdrawing Zhangjiagang Huatian loan in the future, at present, the market is most concerned about whether the company has bribery and fraud.

The above informed person disclosed to the reporter that Zhangjiagang Huatian submitted relevant evidence to the Jiangsu Provincial High Court in June this year for another prosecution, and the case will be held in the afternoon of October 23. According to the above-mentioned insiders, Zhangjiagang Huatian has mastered the evidence of bribery and fraud of Huafang Textile and submitted it to the Jiangsu Provincial High Court.

For this lawsuit, Huafang Textile said that the company participated in the proceedings of this case in strict accordance with the law. The evidence provided by the company to the court in this case was true and effective. There was a real debt relationship between Zhangjiagang Huatian and Huafang Textile, and there was no case of forging the loan agreement, let alone bribery.

According to the above insiders, Zhangjiagang Huatian found that the details of the loan agreement in Huafang Textile's hands were different from the data found by the bank. Not only that, Zhangjiagang Huatian also had the gift reimbursement form of Huafang Textile bribing the judge.

In this regard, Huafang Textile said that "the facts and reasons of Zhangjiagang Huatian's application for retrial do not exist".