Huayi Electric Self Explosion 2 Billion "Financial Black Hole" 900 Million Violation Guarantee Or Will Be Invalid

Along with the stricter enforcement of supervision, the phenomenon of "self disclosure" of listed companies is increasing.

In November 24th, Hua Yi electric (600290.SH) announced that its controlling shareholders had the problem of illegal guarantee and undisclosed capital occupation. The amount of security violation amounted to 926 million yuan, of which the overdue external guarantee amounted to 214 million yuan, while the related party funds occupied a scale of up to 1 billion 58 million yuan.

It is worth mentioning that the supreme law has just issued a summary of the National Conference on Civil and commercial trial of the national court (hereinafter referred to as the minutes), which explicitly unified the thinking of many controversial issues in the field of economic and financial affairs, and proposed that the "people's court should affirm the validity of the guarantee contract made by the creditors according to the information disclosed by the publicly listed companies on the matters that have already been decided by the board of directors or the shareholders' meeting."

This undoubtedly emphasizes the necessary procedures for the legality of the guarantee of the listed companies, and the illegal guarantee that fails to fulfill the procedures of the listed companies will not be protected by law.

Therefore, in the eyes of the legal profession, the 926 million yuan external guarantee of Hua Yi electric company is likely to be invalidation under the principles of the above minutes, and the corresponding claim dispute does not require joint liability of the listed company.

Huayi Electric incident

A total of about 2 billion yuan of major shareholders illegal occupation and security issues, Huayi Electric pushed onto the cusp.

According to the announcement of Huayi Electric announcements, the scale of illegal guarantee and illegal occupation is 926 million yuan and 1 billion 58 million yuan respectively, accounting for 22.75% and 26% of the net assets of the latest audited company, respectively. However, the scale of external guarantee has reached 214 million yuan, accounting for 5.26% of the net assets of the same period.

In the above 926 million yuan violation guarantee, the guarantee amount for the controlling shareholder and its affiliated party is 494 million yuan, accounting for 12.13% of the latest audited net assets of the company; the guarantee amount for the other third parties is 432 million yuan, accounting for 10.62% of the company's latest audited net assets.

Huayi Electric said that the company will urge the controlling shareholders and related parties and other third parties and other relevant parties to take effective measures to actively raise funds to repay debts as soon as possible, remove the guarantee and solve the occupation of funds, so as to eliminate the impact on the company.

"Controlling shareholders have committed to settle the above-mentioned external guarantee and capital occupation within one month. If the controlling shareholder fails to solve the aforementioned problems within one month, the company may be warned by the Shanghai stock exchange for other risks. Hua Yi Electric said, "the above violation guarantee system is a guarantee that the Chinese instrument group did not provide the guarantee for the affiliated party and other third parties without the company's board of directors and shareholders' meeting. The board of directors of the company did not know the above matters, which led to the failure to fulfill the obligation of information disclosure in a timely manner."

In fact, as early as several years ago, the financial problems of Hua Yi electric were subject to many regulatory inquiries. In the view of the industry, similar violations and guarantees were not uncommon in some listed companies and controlling shareholders whose governance structure was not standardized.

"Because the controlling degree of some controlling shareholders of A shares is too high, it is easy to breed illegal profits, guarantees and other violations of the interests of listed companies." "This kind of eventual exposure is often revealed by regulatory supervision and large shareholder capital chain breakage," said Dong Ming, a listed company in Beijing.

As a matter of fact, the appearance of Huayi Electric is related to the debt crisis of Huayi Group. On the one hand, Huayi Electric shares have been frozen by waiting. On the other hand, since 2019, Huayi Group has been sentenced to 8 times by the court as the executor and at least 21 judicial risks.

The exposure of illegal guarantees and occupying money has further hurt Huayi Electric's share price.

On the next day of the announcement, Huayi Electric Co., Ltd. closed all day, and the stock price fell to 3.43 yuan / share. From the annual market view, it has withdrawn 63% from the high point of the year.

While the major shareholder violating operation, the performance of Huayi Electric was also affected. Huayi Electric Company's operating income in the first three quarters of this year was 808 million yuan, down 25.75% compared with the same period last year, while the net profit of its parent company was only 11 million 22 thousand and 800 yuan, while it was 29 million 828 thousand and 500 yuan after the deduction.

"From this case, it may further affect the annual performance of Huayi Electric, and it is very likely that it will lose money as it did last year, leading to the risk of delisting." A strategist at a large brokerage firm in Beijing said.

Violation guarantee or invalid

Although the emergence of a violation guarantee will be further placed in the risk situation as a listed company's Huayi Electric, judging from the direction of the supreme law's release, the listed company may not be liable for joint liability even if it is unable to lift the warranty of violation.

According to the "summary" issued by the supreme law of the day, external guaranty is required to perform corresponding compliance procedures.

"The act of guaranty is not a matter that a legal representative can decide independently, but must be taken as the basis and source of authorization by the resolutions of the company's shareholders (big), board of directors and other companies." "Minutes" pointed out that "a legal representative who has not authorized an unauthorized guarantee for others constitutes an ultra vires representative."

"Minutes" pointed out that the court should, in accordance with the relevant provisions of the contract law, distinguish between creditors' bona fide determination of the validity of the contract in the conclusion of the contract: the bona fide creditor and the contract are effective; otherwise, the contract is invalid.

This means that under the circumstances of failing to fulfill the decision procedure or announcement of the board of directors or shareholders' meeting, the external guaranty contract, which is privately listed in the name of the listed company, will be deemed invalid.

In twenty-first Century, the business reporter reported that most of the financing provided by shareholders of listed companies included the guarantee of listed companies. The financing institutions usually asked the listed companies to fulfill the corresponding guarantee procedures.

"Before controlling shareholders' financing and the guarantee of listed companies, we usually require the listed companies to announce them." A group of people who conduct credit loan business in a listed company in Beijing said, "this kind of financing of illegal guarantee mainly appears in some desperate mutual fund platforms or non-governmental financial institutions, usually in the case of high borrowing interest rates, large risks and tight capital chain of the controlling shareholders. These institutions will pick up those projects that the organizations do not want."

In the industry view, this measure will further protect the legitimate rights and interests of shareholders of listed companies and so on, and it will also aggravate the difficulty of controlling shareholders to use the control rights of listed companies to carry out illegal financing. However, some analysts have pointed out that this measure may also add to the tight financial situation of most of the shareholders of listed companies. It should be vigilant for the listed companies and controlling shareholders who may have similar risks.

"This regulation will further curb the phenomenon of illegal guarantee and effectively protect the rights and interests of minority shareholders." A broker dealer in Shanghai said, "however, the phenomenon of illegal guarantee may not be rare in some listed companies. Once it is considered invalid, the shareholders' capital chain of these listed companies will be further strained, and the secondary risk will not be ruled out. This is a matter to be vigilant."