At the beginning of
May, Longlive Bio-technology announced that it cot a notice for
reorganisation due to a debt problem. Even though the provincial Court may not
accept the application, Longlive Bio-technology may still be
reorganized to deal with the debt problem, according to CCM.
On
7 May, Longlive Bio-technology, a leading Chinese functional sugar,
starch, and starch sugar provider, got a notice from the Intermediate
Court of Dezhou City, Shandong Province. Based on the notice, Yucheng Huitong,
a Chinese electrical equipment company, sued Longlive Bio-technology to
the Court for reorganisation because of the company’s insufficient assets for
matured debts settlement and the failure to repay the debts on time. On October
28, 2013, and September 6, 2014, a construction project contract was signed
between the two companies. The total amount of the project was RMB 20.79
million. After signing the contract, Yucheng Huitong completed the construction
of the project and signed a contract with the company. Until now, the
Longlive Bio-technology still owes RMB1.741 million in project funds.
Currently,
Longlive Bio-technology has not yet collected related civil ruling
paper. If the Court handled with this case, Longlive Bio-technology would
enter into a process of judicial restructuring, according to market
intelligence firm CCM.
By
negotiation with lawyers, CCM found that the purpose of a judicial restructuring is to save the debtor
company, reserve debtor’s status as a legal entity, and regain sustained
profitability with the creditor, therefore successfully completing debt
restructuring. Pursuant to the Law of the People’s Republic of China on
Enterprise Bankruptcy, when a court received a request for restructuring, it
would appoint a manager to whom the creditor should submit claims. The manager
or the enterprise should formulate a draft within a specified period and hand
over to the meeting of creditors for a resolution. And the debtor will pay off
debts. Nevertheless, if the court refused to pass a draft of restructuring, the
company would go into
bankruptcy.
About the company
Established
in 2001 and listed on the Shenzhen Stock Exchange in 2011,
Longlive Bio-technology is mainly engaged in the production of
functional sugar, starch, and starch sugar made from corncob and corn.
Moreover, the company manufactures new energy products like second-generation
fuel ethanol and new materials like lignin and graphene by recycling corncob
waste.
In
the middle of December in 2017, Longlive Bio-technology was involved
in financial problems–illegal guarantee and missing capital, which were all
unknown for its investors before. On January 12, 2018, the company was
investigated by the China Securities Regulatory Commission for unlawful
information disclosure. In the next few months, it was exposed to several
amounts of liabilities exceeding USD471.18 million, and some of them were
illegitimate.
On
April 27, Longlive Bio-technology publicised its 2017 financial
report, indicating a considerable loss of USD547.04 million, which directly
resulted in current-period net assets of -USD44.29 million. In addition, its
non-operating expenses increased by USD429.87 million YoY. Supplement of asset
impairment amounted to USD64.55 million, and financial costs rose by USD57.48
million YoY, affected by current capital and debt default. A part of these
non-business expenditures and liabilities were for 2016,
but Longlive Bio-technology has not disclosed them until Q3
2017. According to an accounting firm, in the procedure of auditing,
Longlive Bio-technology did not provide complete financial data,
causing a failure of an audit to acquire sufficient and adequate auditing
evidence. This demonstrates that the company had a financial fraud in its previous
reports, showing a big problem in enterprise management.
How stable is the
company?
However,
Longlive Bio-technology still conducts smooth production and
operation. During Q1 2018, the company has held marketing activities and joined
in industry exhibitions. It serves as the first domestic cellulosic ethanol
manufacturer as well as the unique designated fuel ethanol producer in Shandong
Province, with government backing. In April, the company successfully passed a
review for high-tech enterprises, thereby obtaining a tax preference.
Furthermore, two projects developed by Longlive Bio-technology and
its affiliates are listed as Shandong Province’s major projects transforming
between old and new kinetic energy.
Even
with complicated debts and a huge deficit,
Longlive Bio-technology reverses the risky situation by virtue of the
support of the local government. Generally, a claim discharge through
lawful restructuring is much more successful than that through legal settlement
and will have less impact on the company's operation. For
Longlive Bio-technology, judicial restructuring may be the best way to pay
off all its loans, according to CCM’s researchers.
About the article
The information for this article comes form CCM, China's leading market intelligence provider for the fields of agriculture, chemicals, food and feed.
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