Connections still the best asset in shutting out the liquidator
Stonewalling by Fujian officials, judges and bankers ensures HK efforts to recoup money from Yeung Chung-lung will be mission impossible
More than 30 mainland companies have filed for liquidation or stayed in prolonged share suspension due to fraud or financial irregularities in the past five years. Not much has happened to their owners.
A look at Fujian will tell you why. From this southern province come eight of these companies in limbo. Here, a complicated web among businessmen, government officials, bankers and judges turns the regulatory regime into a joke.
The liquidation of First Natural Foods (FNF), a frozen food processor, is a classic. Back in 2008, the company was the darling of fund managers. It is a private enterprise - and has a decade-long track record. Its major shareholder Yeung Chung-lung has official recognition, being a member of the Chinese People's Political Consultative Conference Fuqing Committee.
Three international funds spent tens of million dollars buying a stake. Banks loaned it 200 million yuan (HK$251.6 million). A Hong Kong broker lent Yeung HK$60 million and took his stake as collateral.
On December 17, 2008, Yeung disappeared from the company's radar. So did his son and executive director Yang Le.
A provisional liquidator was appointed to recoup its prime asset - the frozen food processing factory in Fujian and 792 million yuan cash in banks. Yet, all doors were slammed on him.
First, Yeung. Though taking a much lower profile, the 58-year-old remains active in his hometown, Fuqing city. He kept his political appointment until March. He is among six private entrepreneurs building a 600 million yuan office tower with the local government.
Every attempt by the company to meet him has, however, failed. FNF's liquidator has managed to meet and strike a deal with a businessman in a tightly secured Shanghai jail in another liquidation case. Yet, the situation was hopeless with Yeung.
Second, the banks. The Bank of China's Fuqing branch - where most of FNF's money was supposed to be - refused to provide any information. It insisted that the money belongs not to the company but its mainland subsidiary of which Yeung is the director. "We will tell only if you get Yeung to sign an authorisation," the bank said.
There was stonewalling at the Fujian-based Xiamen International Bank as well, though an HK$84.8 million deposit there comes under FNF. The bank said Yeung, the sole authorised signatory, had asked it not to say anything.
Any local banker will have asked himself some questions before helping an outsider. What about our bank's loan to the guy? What about my reputation in the local business community? What about my son working in his firm?
The bank subsequently opened its books to the China Securities Regulatory Commission at the request of its Hong Kong counterpart in the fraud investigation against Yeung. There was only 20 million yuan in the account and HK$84.4 million has been withdrawn by Yeung the day after his disappearance.
Following a court order is not a must in China, as in this case. To local officials, a liquidator is an unknown
How about the bank statements that said 792 million yuan in cash was in the accounts? It's a fake with a falsified bank chop, BOC's Fuqing branch said. Third, the courts. In order to gain access to any bank asset and its operating business in Fujian, the liquidator had to convince a local court to make it the legal representative of FNF's Fujian subsidiary instead of Yeung.
The Fuzhou court approved the change. However, it refused to order Yeung to hand over the chop, business licence and all the books of the subsidiary to the provisional liquidator, which would have made immediate access to the asset possible.
Why? The provisional liquidator was not yet a legal representative of the subsidiary, the court said.
Find this chicken and egg argument hard to understand? Never mind, because following a court order is not a must in China, as in this case.
That brings us to the fourth party - local government officials. The Foreign Trade and Economic Co-operation Bureau in Fuqing ignored the enforcement notices by the Fuzhou court.
The liquidator wrote to the Ministry of Commerce, the Hong Kong government's trade office in Guangdong and Fujian's Department of Foreign Trade and Economic Co-operation Bureau. The saga would be very damaging to investor confidence in the country, said the letter.
The Fuqing officials did not move. Local officials are more concerned with their personal favours, loans by its banks, jobs and social stability than the name of the courts. To them, a liquidator is an unknown. The frustrated provisional liquidator sued the Fuqing bureau. Guess what? The local court refused to accept or handle the claim.
So almost five years have passed, the company has got nothing. Now think about the chances of bringing the boss here to face the courts as our regulator has been trying to do recently? It will be mission impossible.
