Companies listed on China’s National Equities Exchange and Quotations (NEEQ), otherwise known as the “New Third Board”, are considered unlisted public companies. So the question arises: What provisions or regulatory requirements should insolvency administrators be concerned about when they enter bankruptcy, or its ancillary proceedings, due to financial difficulties?
Unlike listed companies on the Beijing, Shanghai and Shenzhen stock exchanges, NEEQ-listed companies do not have the status of a statutory listed company, which means that review procedures under the Minutes of the Symposium on the Trial of Cases concerning Bankruptcy Reorganisation of Listed Companies do not apply.
But the bankruptcy reorganisation of an unlisted public company still concerns the interest of investors, creditors and many other parties. So if an asset transaction in bankruptcy reorganisation meets the criteria for a major asset restructuring, the administrator should strengthen its communication and collaboration with securities regulators and stock exchanges to prevent quoted companies from abusing the procedure.
NEEQ-listed companies in the midst of reorganisation, settlement or liquidation should apply to the NEEQ to suspend transfer of the company’s stock. If major asset restructuring is involved, the company should also apply to the NEEQ for a suspension of transfer lasting no more than one month.
Additionally, if a restructuring plan or reorganisation report cannot be disclosed within the suspension period, the company may apply to delay the resumption of transfer, as long as the suspension period – accounting for both phases of the suspension – does not add up to more than two months.
NEEQ-listed companies may issue preference shares in private, according to article 8 of the State Council’s Guiding Opinions on the Launch of the Preference Share Pilot.
In bankruptcy proceedings, holders of preference shares enjoy different property distribution rights and voting rights from creditors and holders of ordinary shares. They are entitled to be inferior to ordinary creditors’ rights, but still have priority in the distribution of company properties over ordinary shareholders.
Neither the Enterprise Bankruptcy Law nor the above-mentioned guiding opinions clarify voting rights of preference shareholders in bankruptcy proceedings. However, considering that insolvency is a significant corporate matter, the author believes – in juxtaposition to mergers, spinoffs, dissolutions or changes of corporate forms – that preference shareholders should be granted voting rights consistent with the group of contributors in proceedings, and that their shareholding should be calculated among that of the contributors.
Under NEEQ information disclosure rules for quoted companies, insolvency administrators and their members are considered disclosure obligors, in addition to the companies themselves. Therefore, they are duty-bound to disclose, in a timely and fair manner, key information that may materially affect the price of quoted securities or investors’ decisions, ensuring the disclosed information is true, accurate and complete.
Disclosure of key information in the media may not precede disclosure on the designated information disclosure platform under the Securities Law. An information disclosure document should first be prepared and delivered to the chief agency broker for uploading to the information disclosure platform.
The administrator should actively co-operate with the quoted company, chief agency broker and securities service providers in the disclosure of information. In case of any significant changes to insolvency administration matters, the administrator should promptly notify the chief agency broker and disclose as required.
Information disclosure is contained in periodic and ad hoc reports. In periodic reports, annual reports should be prepared and disclosed within four months after a financial year ends, and interim reports within two months of the financial year midpoint.
Where necessary, quarterly reports should be prepared and disclosed within one month after the third and ninth month of the financial year. The first quarterly report should not be issued before the annual report for the previous year.
Ad hoc reports, on the other hand, mainly cover major updates and events. The administrator should promptly disclose relevant plans and progress: when the board of directors or supervisors files a resolution; when a letter of intent or agreement is signed; or when the directors, supervisors or senior management become aware, or should be aware, of any impending major event.
For events yet to take place, the disclosure should focus on objective and existing facts, with timely updates of future progress.
If the quoted company enters liquidation proceedings, a risk warning announcement should be made at least every five transfer days. This is different from the “once per month” requirement for companies listed on the Shanghai and Shenzhen exchanges.
Significant development of a subsidiary has equal weight to that of the holding company during bankruptcy proceedings. When a subsidiary experiences a major development that may materially affect the security price or investment decision, the administrator should duly disclose information related to both the holding company and subsidiary.
In addition, resolutions made at creditors’ meetings, once ratified by a court ruling, should be disclosed in the same manner as shareholders’ meeting resolutions. Quoted companies should set up their own information disclosure management system, following which the administrator should appoint a head of information disclosure in charge of related matters.
The NEEQ disclosure rules do not clearly state whether a quoted company should disclose any pre-reorganisation proceeding.
However, with pre-reorganisation being a critical transitional link between out of court restructuring and in-court reorganisation – with its success or failure having a significant impact on the following reorganisation process – the author believes that “other risks that may lead to a loss of the ability to continue as a going concern” under information disclosure should be considered. Therefore, the quoted company should promptly make a disclosure upon entering pre-reorganisation.
Wang Zhenxiang is a partner at Jingtian & Gongcheng
Room 3001, Area A, China Resources Tower
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