Ruixing Coffee “cuts the horse”, why are Chinese listed companies anxious?
Ruixing Coffee’s turmoil caused by the alleged fraud of senior executives is attracting more and more attention. Among them, one of the concerns is how listed companies can prevent management crises caused by executive errors. Many Chinese listed companies have turned their attention to insurance products.
Qian Zhiya, one of the company’s founders and the company’s CEO, and Liu Jian, who was directly involved in the fraud, have been both terminated.
Ruixing Coffee’s “cutting the horse before the battle” is of course the price that must be withstood in the counterfeiting crisis, but the management risks brought by the dereliction of duty of the executives behind it also sounded the alarm for Chinese listed companies.
Management “Big Change”
On the evening of the 12th, Ruixing Coffee issued an announcement that the board of directors had terminated the positions of chief executive officer and chief operating officer of Qian Zhiya and Liu Jian, respectively. In addition to the above-mentioned two, since the internal investigation began, Ruixing Coffee has suspended or suspended 6 other employees who participated in or learned of the fabricated transaction. The board of directors appointed senior vice president Guo Jinyi as acting chief executive officer, and appointed Cao Wenbao and Wu Gang as directors.
That evening, Ruixing Coffee ’s president ’s office issued an internal letter stating that the investigation is still ongoing and the company will continue to cooperate fully with the investigation. Under the leadership of the board of directors, the new management will also reorganize the company’s organizational structure as soon as possible, reshape the company’s value culture, strengthen internal control to ensure legal compliance, and make every effort to maintain operating stability.
At the beginning of April, Ruixing Coffee issued an announcement that exposed financial fraud of 2.2 billion yuan, shaking the US and China capital markets. The initiator of the suspected financial fraud is Liu Jian, who has been suspended.
According to public information, Liu Jian has been the chief operating officer of Ruixing Coffee since May 2018. Like most of Ruixing ’s executives, Liu Jian was also a member of Ruixing Coffee ’s founder Qian Zhiya in the China Automobile team. From 2015 to 2018, Liu Jian served as the head of revenue management of China Automobile Group. From earlier to 2008 to 2015, he served as the deputy director of the China Car Rental Vehicle Management Center and the head of revenue management.
However, some lawyers believe that the executives of listed companies are fraudulent and their board of directors is unaware of the possibility of being less likely. Xu Feng, a partner of Shanghai Chuangyuan Law Firm, said: “The core data, and the amount is so large, how could only the COO know?”
A-share listed company “buy buy” director liability
Ruixing Coffee’s turmoil caused by the alleged fraud of senior executives is attracting more and more attention. Among them, one of the concerns is how listed companies can prevent management crises caused by executive errors. Many Chinese listed companies have turned their attention to insurance products.
According to media statistics, since this year, 72 A-share companies have announced that they will purchase directors’ liability insurance. Among them, in the month of April alone, 58 companies plan to insure, which is higher than last year.
The so-called director’s liability insurance, that is, the liability insurance of directors, supervisors and senior management personnel, refers to when the company’s “director of directors and supervisors” in the process of exercising their powers and duties, due to faults, resulting in third parties suffering economic losses and should bear the risk of economic compensation liability, The use of this insurance product can transfer the risk to the insurance company, and the insurance company shall bear the financial compensation liability according to the contract.
Zhou Yifang, head of the financial insurance department of Anda Insurance China, pointed out that the financial fraud incident of Ruixing Coffee is one of the important reasons for the insurance of directors and insurance. After Ruixing Coffee’s financial fraud, its company received a large number of inquiries from directors and insurance companies every day. This shows that this type of insurance has attracted great attention in A-share listed companies.
According to public information, Ruixing Coffee purchased the director’s liability insurance before going public in the United States. Its total policy insured amounted to 25 million US dollars, involving many insurance companies such as China Ping An.
However, some analysts reminded that Dong Ligong may “can’t save” Ruixing Coffee.
Zhu Junsheng, deputy director of the Insurance Research Office of the Development Research Center of the State Council, said that directors ’liability insurance usually covers investors’ losses caused by false statements and major omissions caused by negligence. , So it also depends on how the event of Ruixing will be qualitative.
Director liability insurance is actually not a new type of insurance. Zhou Yifang said that the insurance has been introduced into the Chinese market for more than 20 years. However, there is still a large gap between domestic coverage and foreign coverage. According to statistics, 97% of U.S. listed companies and 90% of European listed companies have purchased directors’ liability insurance, but the A-share listed companies have less than 10% of insurance coverage. In addition to the impact of the Ruixing incident, the recent emergence of directors ’liability insurance coverage has also been related to the increasingly regulated and strict legal environment in China.
Zhao Xijun, deputy dean of the School of Finance and Economics of Renmin University of China, holds a similar opinion. Zhao Xijun said in an interview with the China News Agency that the country is a through trainer reporter. Recently, it is rare for Chinese listed companies to intensively issue insurance plans for directors ’and liabilities’ insurance. The important reason behind this lies in the implementation of the new securities law and the improvement of other relevant securities systems.
Zhao Xijun further pointed out that China will implement the new securities law from March 1st. The new law not only increases the penalties for violations of information disclosure regulations, but also proposes to explore the establishment of a securities civil litigation system. The expected changes in the legal environment have increased the uncertain risks faced by the “Dong Jian Gao”, and the significance of directors ’liability insurance has also been highlighted accordingly.
For example, the new securities law gives full play to the role of investor protection institutions, allowing them to accept the commission of more than 50 investors as representatives to participate in litigation; in another example, the new securities law has established an “implicit participation” and “explicit withdrawal” litigation mechanism It provides convenient institutional arrangements for investors to use legal weapons to protect their legitimate rights and interests.
Zhao Xijun further pointed out that with the continuous deepening of China ’s capital market reforms, investors will become more rational and professional, which will also put forward higher requirements for the listed company ’s “Director Supervisor”. Listed companies must “practice their internal skills” and eliminate them. For violations, it is also necessary to reasonably use insurance products such as directors’ liability insurance to avoid risks.
