On March 21, 2016, the Shanghai Stock Exchange (SSE), in accordance with the review opinions of the SSE Listing Examination Committee, determined to terminate the listing of the shares of Zhuhai Boyuan Investment Co., Ltd. (“*ST Boyuan” or the Company). An official of the SSE answered the following questions concerning the delisting of the Company’s shares.
Q1. *ST Boyuan is the first company that has been delisted in the securities market due to illegal disclosure of important information. Can you explain its delisting process briefly?
A: *ST Boyuan is the first company that has been delisted in the securities market for illegal disclosure of important information after the implementation of “Some Opinions on Reforming, Improving, and Strictly Implementing Delisting System for Listed Companies” (the “Opinions”) issued by the China Securities Regulatory Commission (CSRC) in 2014. In summary, its delisting has mainly experienced the following three stages.
In the 1st stage, *ST Boyuan was transferred to the public security organ according to law after administrative investigation. On June 17, 2014, the CSRC opened an investigation on *ST Boyuan as it was suspected of illegal information disclosure. On March 26, 2015, it was transferred to the public security organ according to law by the CSRC as it was suspected of committing the crimes of illegally disclosing and non-disclosing important information and forging and altering financial notes. On March 27, 2015, the CSRC held a press conference to brief relevant information on the Company’s illegal behaviors and the transfer to the public security organ.
According to the administrative investigation, *ST Boyuan’s illegal act was very serious. The committed capital of RMB380 million related to the equity division reform’s performance performed and paid by its controlling shareholder Zhuhai Huaxintai Investment Co., Ltd., as announced on April 29, 2011, has not been actually fulfilled. To cover this fact, from 2011 to 2014, the Company forged banker’s acceptance bills many times, fabricated such major transactions as buying banker’s acceptance bills, replacing notes, discounting and paying the advanced payment with the committed capital related to the equity division reform’s performance, disclosed the regular report with seriously false financial information, and falsely increased such financial information as its assets, revenue and profit.
In the 2nd stage, *ST Boyuan shares’ listing was suspended. After the Company was transferred to the public security organ by the CSRC, on May 25, 2015, the SSE, in accordance with relevant rules of the “Opinions” and the “Stock Listing Rules”, determined to suspend the listing of the Company’s shares. Before that, the Company’s shares received a risk alert of delisting on March 31, 2015 and had been traded on the Risk Alert Board for 30 trading days.
In the 3rd stage, the SSE made the decision of delisting *ST Boyuan shares. According to the arrangement and requirement of the CSRC on relevant work, the SSE held the Examination Meeting of the Listing Examination Committee on March 21, 2016, and all the 7 committee members present were seniors in the fields of law and accounting outside the SSE. The attending members, after discussion, all voted to agree to the delisting of *ST Boyuan shares. On the same day, the SSE made the decision of delisting *ST Boyuan shares according to the review opinions of the SSE Listing Examination Committee and announced the decision to the public.
Q2. What are the main foundations for the delisting of *ST Boyuan?
A: One important initiative of the CSRC in the new round of delisting system reform in 2014 was to include illegal disclosure of important information that has strong market response, severely impairs investor’s rights and interests and has been commonly agreed by all parties, into the delisting situation. After the issuing of the “Opinions”, the SSE revised the “Stock Listing Rules” accordingly and made clear that being transferred to the public security organ for the illegal disclosure of important information will be a specific situation to impose compulsory delisting on a company. And the main foundations for delisting the shares of *ST Boyuan after it was transferred to the public security organ due to the illegal disclosure of important information are as follow:
1. According to the administrative investigation of the CSRC, the Company was involved in serious illegal acts.
According to the investigation of the CSRC, the Company was involved in serious illegal acts. In terms of its purpose, the Company forged banker’s acceptance bills to cover the fact that its committed capital related to the equity division reform’s performance was actually not fully fulfilled, which led to the falsely inflated deposit in bank and shareholders’ equity of over RMB380 million in its annual report of 2011; in terms of its means, from 2011 to 2014, the Company forged banker’s acceptance bills many times, fabricated note discount and replacement trading, and used false bank deposit receipts and false banker’s acceptance bills to enter into account book many times; in terms of its amount, from 2011 to 2014, the Company falsely increased its assets, liabilities, revenue and profits in its regular reports, and the amount of money involved was huge; in terms of its consequence, the Company’s net asset as it announced in its 2010 annual report was RMB-362 million and that number maintained a negative value for 4 consecutive fiscal years from 2010 to 2013 after retroactive adjustment. The above illegal acts have been announced to the public by the CSRC through a press conference, and the Company has been transferred to the public security organ accordingly.
2. Delisting the Company’s shares conforms to the relevant procedures and requirements as stipulated in the “Opinions” of the CSRC and the “Stock Listing Rules” of the SSE.
On the one hand, delisting the Company’s shares conforms to the relevant procedures and requirements as stipulated in the “Opinions” of the CSRC and the “Stock Listing Rules” of the SSE. The “Opinions” requires implementation of delisting within a prescribed period on the listed company with listing in suspension due to its major illegal behaviors, and Article 7 of the “Opinions” stipulates that “implementation of delisting within a prescribed period” refers to that “A stock exchange shall make the decision of terminating the listing and trading of the company’s shares within one year after the CSRC makes a decision of administrative penalty or a decision of transferring it to the public security organ”. Accordingly, Item 13 of Article 14.3.1 in the “Stock Listing Rules” stipulates that if the shares listing of the company, which has been transferred to the public security organ by the CSRC as being suspected of illegal disclosure of important information, “has been suspended and has not been resumed within the prescribed period”, the SSE shall make a decision of delisting its shares. Article 14.3.13 also stipulates that the SSE shall, “within 15 trading days before the expiration of 12 months” from the day when the CSRC decides to transfer it to the public security organ, make a decision of whether delisting its shares. It has been nearly 12 months since *ST Boyuan was transferred to the public security organ by the CSRC on March 26, 2015, and its shares are still in the suspension of listing. Therefore, the SSE’s decision of delisting the shares of *ST Boyuan conforms to the above stipulations and requirements.
On the other hand, the Company did not possess the conditions of resuming listing when the SSE made the decision of delisting. Article 8 in the “Opinions” stipulates that the company, which has been transferred to the public security organ due to the illegal disclosure of important information, with its shares listing suspended, can apply to the stock exchange for resuming its listing after it has “fully corrected the illegal behaviors, timely replacing relevant responsible persons and appropriately undertaken the civil liability for compensation”. Article 14.2.7 in the “Stock Listing Rules” of the SSE further details the above stipulation, and “completing the responsibility investigation for the illegal disclosure of important information” is one of the requirements for “fully correcting the illegal behaviors”. However, this requirement is not met as the judicial organ has not made any effective adjudication on the *ST Boyuan case. Besides, the Company has neither corrected the illegal facts that have been ascertained in the administrative inspection, nor made any arrangement on undertaking possible civil compensation.
To sum up, the current decision of delisting the shares of *ST Boyuan conforms to the stipulations of the “Opinions” and the “Stock Listing Rules” of the SSE, fully demonstrates the CSRC’s steadfast determination of never tolerating any major illegal behavior, and shows the SSE’s fundamental attitude of strictly implementing the delisting system. Clearing the companies with illegal disclosure of important information out of the securities market will help to remind listed companies of fulfilling the information disclosure duty by law, better protect the legitimate rights and interests of investors, and promote the continuously stable and sound development of the capital market.
Q3. After *ST Boyuan was transferred to the public security organ and the delisting procedure was launched, what regulatory work has the SSE done?
A: After *ST Boyuan was transferred to the public security organ on March 26, 2015, the SSE timely launched the delisting procedure on the Company’s shares. From the time the Company received a risk alert of delisting to the time its listing was suspended, the SSE kept urging the Company to fully unveil the delisting risk, so as to protect the rights and interests of small and medium-sized investors. And the SSE has done the following regulatory work in 4 aspects according to the situation of *ST Boyuan and the features of the delisting mechanism for major illegal acts:
The first is to strengthen the proactive regulation on the information disclosure of the listed company. After the Company was transferred to the public security organ, the SSE regulation department for listed companies suspended the business of direct channel for information disclosure against the Company according to the rules and made proactive examination on its announcements, given that the delisting procedure was to be initiated and that whether the information of Company’s announcements is accurate and complete is of great importance for investors to make rational judgment. From the time the Company received the risk alert of delisting to the time its listing was suspended, the SSE strengthened its efforts on examining such issues as the Company’s annual report of 2014 and the assets donation by its shareholders which were released by the Company, and required the Company to supplement and improve the major information concerned by the investors and make corresponding risk alerts.
The second is to earnestly preserve the trading order during the risk warning period. During the risk-warning trading period, the shares of *ST Boyuan presented great price fluctuation, high turnover rate, and a strong speculation atmosphere. Thus, the SSE strengthened its market supervision efforts, warned and handled abnormal trading and illegal trading in time, and revealed the trading information at appropriate time as needed, which played a positive role in reminding investors of rational trading.
The third is to keep urging the Company to fully reveal the delisting risk. After *ST Boyuan entered into the delisting procedure, its shareholders and the market were much concerned about the changes and the delisting progress of the Company. To better satisfy the investors’ right to know, the SSE urged the Company to strengthen revealing the risk and increase the risk disclosure frequency. From the time it received the risk alert of delisting to the time its listing was suspended, the Company released over 40 risk alert announcements. Meanwhile, the Company was required to announce its replies to investors’ questions once a month.
The fourth is to handle the illegal behaviors of the Company and relevant responsible persons in time. When *ST Boyuan released its 2014 annual report and the report of the 1st quarter of 2015, its Board of Directors, Board of Supervisors, directors, supervisors and senior managers all stated that they cannot guarantee the authenticity, accuracy and integrity of relevant contents, which attracted wide attention from the market. And the SSE urged the Company to complete rectification and made public censure on the Company and its relevant responsible persons. Besides, the SSE timely made trading restriction measures in time on Zhuang Chunhong, the largest shareholder of the Company, for her illegal behavior of shareholding lessening during the period of delisting risk alert, and circulated a notice of criticism on her.
Q4. It is learnt that *ST Boyuan has applied to the court for reorganization, which has not been accepted yet. Can you briefly explain the relation between the reorganization and the delisting of the Company?
A: Judging from relevant rules, reorganization and delisting are institutional arrangements with different focused objectives and mutually independent procedures. In terms of delisting for illegal disclosure of important information, the “Opinions” and the “Stock Listing Rules” have set clear procedures and requirements. And the decision of delisting the shares of *ST Boyuan by law will not be affected by whether the Company will be reorganized or not.
As for the information disclosed by the Company, it applied to the court for reorganization on August 18, 2015. As its application has not been accepted yet, it has not entered into the formal legal procedures. There has no substantial progress in the 7 months after its application for bankruptcy reorganization, and there is no specific binding arrangement for the reorganization.
Besides, the Company previously released the announcement on assets donation by its shareholders, but it has no necessary connection with its delisting due to illegal disclosure of important information. And *ST Boyuan has made it clear in its relevant announcement.
Q5. After the decision is made to terminate the listing of *ST Boyuan, its shares will start trading in the delisting arrangement period. Then, what issues should the investors pay attention to in their participation?
A: The SSE announced on March 21, 2016 the decision to terminate the listing of the shares of *ST Boyuan. According to Article 14.3.20 in the “Stock Listing Rules”, *ST Boyuan will enter the delisting arrangement period on March 29, and its shares will be traded for 30 trading days.
The delisting arrangement period is the trading arrangement made to facilitate the withdrawal of the investors of a company whose delisting has been determined. Before participating in the shares trading in the delisting arrangement period, the investors should be familiar with the “SSE Detailed Rules for Carrying out Business in Delisting Arrangement Period (Revised in 2015)” and carefully read the relevant announcements issued by *ST Boyuan. Specifically, the investors should especially learn about the special arrangements for trading mechanism, comply with the requirements for investor suitability management, participate in investment rationally and pay attention to the trading risks. Now, the contents in these two aspects are described as follows.
First, the special arrangements for the shares and their trading in the delisting arrangement period. The contents mainly include: (1) The company’s stock abbreviation will be changed from “*ST Boyuan” to “Delisted Boyuan”, with its price limit at 10%; (2) The trading period is 30 trading days, during which the whole-day trading suspension days are not included in the delisting arrangement period, but the trading suspension time shall not be more than 5 trading days accumulatively; (3) The SSE will announce on a daily basis the names of the top 5 members’ securities business departments in terms of the accumulative amounts of purchase and sale in each trading day, and their respective amounts of purchase and sale; (4) *ST Boyuan is not allowed to plan or carry out significant assets reorganization during the delisting arrangement period.
Second, the requirements that the investors shall comply with when participating in the trading during the delisting arrangement period. The main contents include: (1) When buying the shares with delisting arrangement, individual investors shall have more than 2 years of experience in trading of shares and hold the assets of RMB0.5 million or above (excluding securities and capital financed through margin trading and securities lending) in their securities accounts and capital accounts opened in their own names; (2) Individual investors not meeting the above stipulation can only sell their shares with delisting arrangement. (3) Investors buying shares with delisting arrangement for the first time shall sign the “Letter of Risk Disclosure of Shares with Delisting Arrangement”; (4) Relevant business rules of the SSE shall be abided by, and abnormal trading behaviors shall not be performed.
Q6. What are the requirements of information disclosure for *ST Boyuan during the delisting arrangement period?
A: Before the share are delisted, *ST Boyuan is still a company listed on the SSE. During the delisting arrangement period, the Company shall still, according to the provisions of the relevant laws, regulations and business rules and the relevant regulatory requirements, timely and impartially disclose the temporary and periodical announcements, and ensure the authenticity, accuracy and completeness of the disclosed information. The Company has not yet disclosed its annual report of 2015, and the Company’s board of directors shall ensure the fulfillment of the obligation for disclosure in the legal time limit. It should also be noted that the SSE has, according to law, made the decision to terminate the listing of the stocks of *ST Boyuan because of its illegal disclosure of significant information, and this decision has nothing to do with whether the Company has disclosed the annual report.
*ST Boyuan will enter the delisting arrangement period on March 29. The Company shall, in strict accordance with the requirements of the listing rules, fully disclose the arrangements for trading in the delisting arrangement period and the risks of delisting of its shares. The specific requirements include the time for releasing the announcements on the issues for starting trading in the delisting arrangement period, the time and times for issuing the announcements of risk alert, the arrangements for transferring its stocks to the National Equities Exchange and Quotations (NEEQ) and other aspects.
Q7. After being delisted, can the shares of *ST Boyuan be transferred?
A: According to Article 14.3.25 in the Listing Rules, after the end of the 30 trading days for the delisting arrangement period, the SSE will delist the stocks of *ST Boyuan within 5 trading days and the listing of the stocks of the Company will be terminated.
After being delisted, the shares of *ST Boyuan shall be transferred to the NEEQ, and its shareholders can transfer the shares on the NEEQ. In this aspect, Article 17 in the “Opinions” of the CSRC clearly stipulates that the shares of the companies with compulsory delisting shall be listed and transferred on the NEEQ. It should also be noted that termination of listing of the listed companies is a normal market behavior. After the listing of *ST Boyuan is terminated, although its shares will no longer be traded on the SSE market, the assets, liabilities, operation, profits and losses and other factors of the Company will not be changed for this reason. The Company does not go bankrupt nor is dissolved, and it can still operate in a normal way. The shareholders of the Company can still exercise their shareholders' rights according to law.
On the part of *ST Boyuan, the Company shall, according to the requirements of Articles 14.3.27 and 14.3.28 in the “Stock Listing Rules”, engage a securities company qualified to conduct broker business (the “agent”) and sign relevant agreement with it, immediately making relevant preparations for transferring its shares to NEEQ and ensuring that its shares can be listed and transferred within 45 trading days after the delisting day. If *ST Boyuan fails to engage an agent or no agent accepts the engagement, the SSE can designate an agent for it temporarily.
In addition, according to the provisions of the SSE’s “Measures for Re-listing of Delisted Companies (Revised in 2015)”, if *ST Boyuan fails to arrange for transferring its shares to NEEQ for transfer according to the SSE rules, the SSE will not accept the Company’ application for re-listing within 36 months from the day when its shares are transferred on NEEQ.
Q8. After the listing of *ST Boyuan is terminated, can it be re-listed?
A: After termination of the listing, if the requirements for re-listing are met, *ST Boyuan can apply to the SSE for re-listing. Basic provisions can be found in Articles 14.5.1, 14.5.2 and 14.5.3 of the “Stock Listing Rules”, and specific arrangements can also be found in the SSE’s “Measures for Re-listing of Delisted Companies (Revised in 2015)”. The requirements for re-listing mainly include three aspects.
First, the time interval for applying for re-listing. According to the provisions of the “Measures on Re-listing of Delisted Companies”, when applying for re-listing after being delisted, *ST Boyuan shall submit its application for re-listing after a complete fiscal year from the day when its shares are transferred on NEEQ, that is to say, at least after the fiscal year of 2017.
Second, the special conditions for the delisted companies for violating laws and regulations. They mainly include the requirements that the significant violations have been totally corrected; the persons liable for violations in disclosure of important information have been dismissed or replaced; proper arrangements have been made for the relevant civil compensations; there are no circumstances of listing suspension or termination stipulated in the “Stock Listing Rules”; and the intermediaries have conducted the verification and issued the special opinions, etc.
Third, general conditions for delisted companies. They mainly include the requirements for the total share capital, distribution of shareholders, no significant violations, profiting in the recent three fiscal years, the cash flows in the recent three fiscal years, the net asset at the end of the period of the most recent fiscal year, the auditing reports of the recent three fiscal years, the company’s main businesses in the recent three years and other aspects.
Q9. How will the compensations be claimed for the losses to the investors caused by the violations of *ST Boyuan?
A: According to the “Some Provisions of the Supreme People's Court on Trying Cases of Civil Compensation Arising from False Statement in Securities Market”, for the losses caused to the investors by the illegal disclosure of important information of *ST Boyuan, the investors can file the civil compensation lawsuit for *ST Boyuan for the cause of the infringement by false statements.
In addition, the “Opinions” and the “Stock Listing Rules” have also made arrangements for protection of the rights and interests of investors. For the companies with the listing terminated for violations in disclosing important information, considering the interest demands of small and medium-sized investors, the SSE has set “making proper arrangements for bearing civil compensations” as one of the requirements for re-listing, and only after meeting the requirement can a company possibly apply for re-listing.