Bike-sharing services

Ofo founder replaced as bike-sharing firm’s representative amid rash of lawsuits

  • Change follows Shanghai Phoenix Bicycles’ lawsuit over US$10 million in unpaid bills
  • Ofo also faces lawsuits filed by Tianjin Flying Pigeon Cycle Manufacturing and two logistics firms
PUBLISHED : Monday, 22 October, 2018, 5:11pm
UPDATED : Monday, 22 October, 2018, 5:11pm

Dai Wei, the founder and chief executive of Chinese bike-sharing services pioneer Ofo, has removed himself as the start-up’s legal representative after the company was slapped with lawsuits over unpaid bills by suppliers, according to its public business registration filing.

Beijing-based Ofo has named Chen Zhengjiang, head of the firm’s hardware supply department and one of its first five employees, as the new legal representative.

That change was made more than a month after Shanghai Phoenix Bicycles sued Ofo over unpaid bills totalling about US$10 million, according to a filing made by parent Shanghai Phoenix Enterprise Group Co to the Shanghai Stock Exchange. Ofo had agreed in May last year to acquire five million bikes from Shanghai Phoenix Bicycles, but bought less than two million bikes during the contract period.

Other public documents showed that Ofo had also been sued by Tianjin Flying Pigeon Cycle Manufacturing as well as by logistics services providers Best and Deppon Logistics over “contract disputes”.

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Ofo said in a statement that the change of legal representative was made “to streamline office operations and improve office efficiency”. Dai remained the company’s controller, it said.

Shanghai Phoenix Enterprise said it had no further comment beyond what was filed to the city’s stock exchange.

Best declined to comment, while Deppon Logistics did not immediately respond to a request for a statement. Tianjin Flying Pigeon could not be reached by telephone for comment after several attempts.

While the position does not need to be filled by a company’s chairman or chief executive, a legal representative has responsibility over its business, cash and capital, according to Chinese law.

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“The legal representative of a company in China can be held personally responsible for any debts which a company may incur in the course of its operations,” wrote IPO Pang Xingpu, a Shanghai-based law firm, in a company blog.

The liabilities of the legal representative also extend to bankruptcy, according to a blog post by Hong Kong-based consultancy Dezan Shira & Associates.

The rash of lawsuits filed by suppliers against Ofo reflects the challenge of slowing demand for bike-sharing services in the world’s second-largest economy.

The once rapid growth in the industry has cooled down, with the number of bike-sharing users in the country forecast to grow 14.6 per cent in 2018, a steep drop from 600 per cent growth last year, according to a report by market research firm iiMedia.

Slower growth has further intensified competition, with dozens of players now whittled down to three main ones – Mobike and Ofo, and Shanghai-based HelloBike – but none have turned a profit yet.

Whether the remaining bike-sharing operators can stay independent is an open question because the industry continues to burn cash, which requires abundant capital.

Last week, Hellobike said its bigger rival Ofo had proposed a merger between the two companies. That deal would make the combined entity the dominant player in the market. It would also be complementary because Ofo focuses on first-tier Chinese cities, while Hellobike is stronger in second and third-tier cities.

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Hellobike did not elaborate on when it received the merger proposal or if talks are ongoing between the two companies. An Ofo spokesman did not immediately comment at the time.

Ofo and Hellobike are both backed by Alibaba Group Holding affiliate Ant Financial Services, the operator of Alipay. Ant Financial owns 36 per cent of Hellobike, while Ofo said in March that it secured US$866 million in a round of funding led by Alibaba.

New York-listed Alibaba is the parent company of the South China Morning Post.