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Since the beginning of this year, some listed companies' controlling shareholders and de facto controllers experienced difficulties in capital turnover and gradually exposed credit risks due to factors such as market financing environment changes and high-proportion share pledge. As a result, some of them illegally occupied funds of the companies and caused bad market influence. In response to various types of illegal occupations, SZSE has insisted on "handling every violation found", adopted timely supervision measures such as issuing letters of concern and inquiries, filing for investigation, and taking disciplinary procedures, so as to severely crack down on such behaviors and urge listed companies to develop legally according to regulations.
Since 2018, SZSE has discovered and dealt with 20 such violations involving controlling shareholders, de facto controllers and their related parties. At present, it has implemented public censure against ST Zhundong Petroleum, Chinasun Pharmaceutical Machinery, and Haoyuan Natural Gas; and circulated notices of criticism against Linzhou Heavy Machinery, Tond Chemical, Hemei Group, and Hainan Haiyao. Besides, it has issued a supervision letter to Yin Xing Energy; initiated disciplinary procedures such as public censure and notice of criticism against 8 companies including Gosun Holding and Kerong Environmental Resources; and started investigation process against the remaining 4 companies of violation. The disciplinary objects included not only the controlling shareholders, de facto controllers and their related parties who illegally occupied funds, but also the listed companies that cooperated with the shareholders' fund occupation or failed to implement their internal control systems, and the directors, supervisors and senior executives who were responsible for illegal occupations. In addition, SZSE also implemented special treatment (ST) against the share trading of ST Guanfu Holdings and ST Zhongnan Red Culture which conducted serious fund occupations, having effectively deterring such violations and purifying the market environment.
In terms of the facts of violations, in addition to traditional ways such as transferring funds through banks, requiring the companies to pay their expenses, lend funds to the companies and repay debts for them, controlling shareholders and de facto controllers asked the companies to make false bills for pledge financing, pay for fictitious transaction payments, and bridge funds by using unrelated third parties. What's worse, they even used indirect means, such as embezzlement or fake borrowings in the name of the companies, to achieve the purpose of occupying listed companies' funds. In general, the ways in which controlling shareholders and de facto controllers occupied the funds of listed companies were diversified, complicated, more disguised and harder to discover. In some worse cases, the illegal fund occupation involved not only relatively large amount of funds, but also companies' illegal guarantee and information disclosure violations, which seriously damaged these companies' independence and infringed the legitimate rights and interests of minority investors.
Next, SZSE will continue to deepen the standard operation supervision of listed companies and their controlling shareholders and de facto controllers. We will take multiple measures to crack down on fund occupation violations. First, to maintain high-level supervision sensitivity. Based on the principle of initiative and efficiency, we will employ supervision portfolios to discover in time and comprehensively investigate fund occupation violations, and seriously treat such violations. Second, to resolutely use powerful measures to crack down on vicious fund occupation behaviors. For violations involving a large sum of funds and with bad market influence, we will speed up the disciplinary procedure and initiate disciplinary measures such as public censure and public identification of the ones being unsuitable to be directors, supervisors and senior executives in listed companies, so as to enhance supervision deterrence. Third, to urge the companies to further improve corporate governance structure, earnestly implement the newly enacted Code of Corporate Governance for Listed Companies, and standardize the operation of General Shareholders' Meeting, Board Meeting, and Supervisory Committee Meeting. The companies should let their independent directors and Supervisory Boards effectively exercise the supervisory responsibilities, improve various internal control systems and strengthen the implementation to safeguard the companies' independence from the two levels of system construction and system implementation. Hence, smaller probability of fund occupation from the root cause. Fourth, to strengthen supervision and urge intermediaries to fulfill their responsibilities so as to effectively improve their operation quality, give full play to their due role and form effective external supervision over violations such as fund occupation. Fifth, to actively contact relevant local government departments and strengthen cooperation to form a joint force, so as to urge listed companies to recover the occupied funds as soon as possible, eliminate the bad influence of illegal occupations in a timely manner, and reduce investors' losses.
Listed companies are the cornerstone of the capital market. Only with a solid and strong foundation can the market develop in a stable and long-term manner. Under CSRC's leadership, SZSE will effectively perform its front-line supervision duties and supervise such market entities as listed companies and their directors, supervisors, senior executives, and major shareholders in accordance with the law. We will make good use self-regulatory measures such as disciplinary actions, and actively, efficiently and seriously deal with all kinds of violations and punish responsible persons, so as to promote the compliant development of listed companies, maintain normal market order, and protect the legitimate rights and interests of investors.
