Protecting small and medium shareholders in backdoor listings

This column will begin its tale by looking at Shanghai Feilo’s achievement of a back door listing through China Security & Fire Technology (China Security). On 15 July 2013, Shanghai Feilo issued a preliminary restructuring plan. The preliminary restructuring plan consisted of three parts:

1. An asset sale. Feilo would sell all of its assets and liabilities (other than cash funds and specified liabilities) to the major shareholder, INESA Electronic Group, and its affiliate, INESA Asset Group, or a non-affiliated third party.
2. A share offering to purchase assets. Shanghai Feilo would offer shares to Shenzhen Zhongheng Huizhi Investment (ZHHZ) and purchase 100% of the equity of China Security held by it. China Security undertook that its net profit, minus non-recurring gains and losses, for the years 2014-2016 would not be less than RMB210 million, RMB282 million and RMB376 million, respectively.
3. Raising of ancillary funds. Feilo would offer shares to Tu Guoshen, the controlling shareholder of ZHHZ, for ancillary financing, to raise not more than RMB1.125 billion.

Qu Kai is a partner at Grandway Law Offices