On December 25, 2020, the Intermediate People’s Court of Wuxi Municipality, Jiangsu Province (“Wuxi Intermediate People’s Court”) approved the restructuring plan of Zhongnan Red Culture Group Equity Co., Ltd. (*ST Zhongnan, 002445,“Zhongnan Red Culture”) and terminated its bankruptcy and restructuring procedures. In the bankruptcy restructuring, Zhongnan Red Culture selected to become a debtor in possession. JunHe, as legal counsel for Zhongnan Red Culture, assisted the company in performing responsibilities regarding management of bankruptcy estate, including working out a draft restructuring plan.
Zhongnan Red Culture incurred a debt crisis because the company bonds of RMB 600 million were difficult to be repaid upon due. This capital chain rupture caused the complete stagnation of the company's production and operations. Due to the negative net profits in 2018 and 2019, the Shenzhen Stock Exchange issued a delisting risk warning of the stocks of the company. On May 25, 2020, Zhongnan Red Culture initiated the pre-restructuring proceedings under the guidance of the Wuxi Intermediate People’s Court. On September 10 and 11, pre-restructuring creditors meetings and investors meetings were held respectively, and the restructuring plan was passed with a vast majority vote. On November 24, Wuxi Intermediate People’s Court accepted the application for the restructuring of Zhongnan Red Culture. 31 days later, Zhongnan Red Culture's restructuring plan was adopted with a large majority vote, and was approved by the Wuxi Intermediate People’s Court. “The bankruptcy restructuring case of Zhongnan Red Culture” gained recognition as a case that has taken the shortest amount of time nationwide among cases relating to the restructuring of listed companies. In addition, Jiangyin Zhongnan Heavy Industries Co., Ltd., the wholly-owned subsidiary of Zhongnan Red Culture, also implemented bankruptcy restructuring. Its restructuring plan was passed by a creditors meeting on November 18 and was approved by the court on December 25.
Zhongnan Red Culture's bankruptcy restructuring case is an example of a successful application of bankruptcy restructuring mechanism for listed companies. This case actively explored and innovated such aspects as defusing the delisting risk, solving the issues of illegal guarantee and occupation of funds by the listed company, and the overall restructuring and pre-restructuring of the parent company and its subsidiary. This case provides valuable precedent in terms of the practical way of bailout and rehabilitation for other listed companies facing a similar situation.
The leading partner of this project was YANG, Li.