Indicating a new trend, 15 listed companies completed reorganisations in 2023 while maintaining steady development, with 14 of them undertaking pre-reorganisation procedures. This clearly shows a continued increase in pre-reorganisation, compared with only seven among reorganisation rescues concluded in 2022.
Pre-reorganisation
With widespread application of the pre-reorganisation system, the work has become increasingly diversified.
All 14 pre-reorganised listed companies in 2023 conducted filing and examination of creditors’ rights, as well as public recruitment or negotiated introduction of investors, at commencement of the procedures. Three of the 14 companies voted on their pre-reorganisation plan.
The acceptance of reorganisation of listed companies is subject to prior approval by the China Securities Regulatory Commission (CSRC) and the Supreme People’s Court. The pre-reorganisation procedure effectively buys time, improves efficiency and alleviates the pressure of information disclosure for the reorganisation work.
Investment potential
Senior Partner
Dacheng Law Offices
Tel: +86 10 5813 7019
E-mail:
meili.gao@dentons.cn
Investment in the reorganisation of listed companies is receiving more attention. In 2023, 14 of the 15 listed companies whose reorganisation plans were approved by the court-identified reorganisation investors.
In addition to capital, listed companies also hope that investors will enable the companies in terms of production, technology and market, optimising their industrial structure, effectively integrating industrial resources, enhancing sustainable profitability, and comprehensively optimising their asset-liability structure.
The future reorganisation of listed companies is likely to herald more investment opportunities, and “professionalisation” of the reorganisation investor market will continue to improve, along with more focus on investment risk.
Operation plan
The 15 listed companies that completed reorganisation in 2023 proposed a number of initiatives to achieve a true rebirth from an operational perspective, based on their own situations.
These involved:
- Taking cost reduction and efficiency improvement as the main measures to enhance profitability;
- Enabling the listed companies through injection of quality operations/assets by investors;
- Comprehensively optimising the corporate governance structure; and
- Incorporating employee resettlement programmes into the operation plan.
Implementating plans
As the number of reorganisation cases among listed companies continues to rise, there’s been a noticeable uptick in the efficiency of implementing these plans. Although the approval of a reorganisation plan marks a significant milestone, it is crucial to place greater emphasis on its actual execution.
Synergistic reorganisation
The implementation of reorganisation with subsidiaries as a whole can fundamentally resolve risks. Among the listed company reorganisation cases concluded in 2023, Xining Special Steel, Caissa, and Macrolink all carried out synergistic reorganisation with their subsidiaries.
Listed companies often act as shareholding platforms to form direct or indirect control over subsidiaries and sub-subsidiaries in various business segments. This unified management by the group company makes it easy to form a strong correlation between a listed company and its subsidiaries.
Therefore, to fundamentally resolve the risks of listed companies, it is possible to select overall synergistic reorganisation based on the actual situation.
Risk solution in convertible bonds
On 20 June 2023, the CSRC issued the Guiding Opinions on Deepening the Reform of the Bond Registration System. This provided (in article 10) that a sound mechanism for dealing with the risk of bond defaults should be established, while proposing that defaulted bonds should be effectively discharged by means of bankruptcy reorganisation and other means. In 2023, the issuers of convertible bonds of five companies, namely, Flower King, Zhengbang, Quanzhu, Souyute and Bluedon all explored the risk disposal approaches for convertible bonds.
Flower King, Zhengbang and Quanzhu announced they would retain a certain trading period and bond-to-equity period after the court’s acceptance of reorganisation.
If some of the creditors have conducted bond-to-equity within the period, then part of the listed company’s liabilities may be reduced, which can help promote smooth implementation of the reorganisation.
Looking ahead, the marketisation and legal framework of reorganisation for listed companies will further strengthen, reshaping a new group of listed companies that meet the requirements of high-quality development. This aims to better serve and safeguard the country’s economic growth, harmonising legal, social and economic effects.
Gao Meili is a senior partner at Dacheng Law Offices. She can be contacted by +86 10 5813 7019 or by e-mail at meili.gao@dentons.cn
