Original title: in the face of share liquidation, Lu Zhengyao cleans the board of directors
Text: Yu Le, Ma Lin, Liu Yiqin
Introduction: after two meetings of the board of directors and a general meeting of shareholders, three “opponents” of Lu Zhengyao were removed from the board of directors, while all supporters were retained. At least two additional independent directors were nominated by Lu Zhengyao. The background of Lu Zhengyao’s eagerness to clean up the board of directors is that creditors have applied to the court for liquidation of all Ruixing shares held by Lu Zhengyao and Qian Zhiya.
On July 13, lucky coffee finally announced the results of the resolution of the extraordinary general meeting of shareholders on July 5: Lu Zhengyao himself and Li Hui, Liu Erhai and Shao Xiaoheng, who opposed Lu Zhengyao, were all out of the meeting. Zeng Ying and Yang Jie, two independent directors nominated by Lu Zhengyao, were either appointed. In addition, the announcement also announced that the board of directors held a meeting on July 12, appointing Guo Jinyi, the current CEO of the company, as the new chairman, and adding two independent directors, Liu Feng and Zha Yang.
At this point, Ruixing delisted after the board of directors of the dispute came to an end. The number of new board of directors is still eight, but the number of independent directors has increased to five. Although Lu Zhengyao himself withdrew, most of the members of the new board of directors were nominated by him. Guo Jinyi, chairman of the board, once served as Lu Zhengyao’s assistant by renting a car in Shenzhou.
Several sources close to the shareholders’ meeting told Caijing that at the shareholders’ meeting on July 5, some shareholders and Lu Zhengyao had differences on the voting rights of some stocks, voting and counting process, and questioned the legality of the voting results after the meeting. As a result, the results of the meeting were not released to the public. However, the announcement on July 13 showed that Lu Zhengyao had the last laugh in this round.
Strange shareholders’ meeting
With lucky coffee delisting on the NASDAQ Exchange, the focus of the company’s “series” is shifting to internal power struggles. According to sources, after Ernst & young, the audit firm, discovered that Ruixing had made financial fraud, Li Hui and Liu Erhai supported the disclosure of Ruixing’s fraud and had been actively promoting Ruixing to conduct internal self-examination on financial fraud. Shao Xiaoheng, the chairman of the independent committee, presided over the investigation.
On July 2, Lu Zhengyao’s “opposition” once convened a board meeting to propose to remove Lu Zhengyao from the post of chairman of the board of directors. However, the proposal failed to pass due to the lack of a majority vote.
On the afternoon of July 5, Ruixing coffee held an interim general meeting of shareholders to discuss the proposal for the removal of the Board Chairman Lu Zhengyao, the main investors Li Hui and Liu Erhai, and the independent director Shao Xiaoheng, as well as the proposal to increase Zeng Ying and Yang Jie as independent directors. These proposals were all put forward by Haode investments Inc., a shareholder of lucky controlled by Lu Zhengyao.
The location of the shareholders’ meeting is located in the headquarters of Shenzhou Youche group, Zhongguancun East Road, Beijing. “Finance and economics” reporter at the scene to see that there are a number of security guards at the entrance of the building, reporters are not allowed to enter, two individual investors holding lucky shares were also refused to enter the venue. A lawyer who accompanied shareholders to attend the meeting said that there were a lot of requests for the meeting, and he was also rejected as a shareholder lawyer, which was unusual.
A man who claimed to be a shareholder showed a list of shareholders to Caijing. The reporter estimated that there were about 30 institutional shareholders on the list. Four of them were not present, the shareholder said.
Informed people who attended the shareholders’ meeting told Caijing that Lu Zhengyao personally participated in and presided over the meeting. Li Hui and Liu Erhai did not attend, but both of them sent agents to attend the meeting. Qian, who had been dismissed as CEO and director but still had some voting rights, was not present.
The meeting didn’t end until about 7 p.m. A few hours later, there were media reports that all the proposals were passed at the meeting. However, it is strange that neither the official website of lucky nor the announcement system of the securities and Exchange Commission (SEC) has released the results of the meeting.
According to the person familiar with the matter, the result of the meeting was not released because some shareholders had differences with Lu Zhengyao and questioned the legitimacy of the meeting result.
First of all, some shareholders believe that Lu Zhengyao is a stakeholder and should not preside over the meeting. However, Lu Zhengyao claims that he has the right to preside over the meeting as chairman of the board.
After that, Lu Zhengyao and some shareholders had a dispute over the voting rights of some of the shares which had been settled by Lu Zhengyao.
After Ruixing was listed, Lu Zhengyao pledged a large number of shares to Credit Suisse and other banks through Primus Investments Fund LP registered in the Cayman Islands and Haode investments Inc. in the British Virgin Islands. After Ruixing disclosed its fraud, Credit Suisse and other borrowers recovered part of the loan by selling the Pledged Shares. However, due to the sharp drop in the stock price of lucky, the income could not make up for the loss of the borrower. The borrowers, such as Credit Suisse, filed lawsuits in the British Virgin Islands and the Cayman Islands respectively, demanding the liquidation of the institutions controlled by Lu Zhengyao’s family.
On June 16, the Grand Court of the Cayman Islands ruled that several banks led by Credit Suisse were allowed to liquidate the shares of Ruixing held by Primus controlled by Lu Zhengyao, and transfer the shares to KPMG, the clearing house, within two working days.
Primus previously held 187 million class B shares, of which Mr Lu pledged 56 million, according to SEC data. The decision of the court in the Cayman Islands means that Primus will hand over 131 million class B shares that have not been pledged for liquidation. The voting rights of class B shares are 10 times that of class A shares, but their ownership will be automatically transferred to class A shares once their ownership is sold. Foreign media reported that the 131 million shares accounted for about 25% of all Lu Zhengyao’s voting rights.
At the shareholders’ meeting on July 5, Lu Zhengyao and other shareholders had a dispute over the voting rights of these shares. Lu Zhengyao’s side believes that after the shares were transferred to KPMG, they were automatically converted into class A shares and lost the “super voting right” of class B shares. Other shareholders believe that these shares have not yet fulfilled the procedures of converting class B shares into class A shares, so they still have “super voting rights”. The opinions of these shareholders were not adopted by Lu Zhengyao.
In the voting on the appointment and removal of directors, disputes arise again. The voting method is that each person sends out a form, which contains all the motions of the shareholders’ meeting, and the shareholders tick them one-time instead of voting item by item. Moreover, in the process of counting votes, there was no lawyer present to supervise.
After the vote count, Lu Zhengyao announced that all the proposals were passed. However, due to the above-mentioned disputes during the meeting, some shareholders questioned the legality of the voting results after the meeting. But the announcement on July 13th showed that the results had been confirmed.
Lu Zhengyao’s temporary control
With the final confirmation of the voting results of the shareholders’ meeting on July 5, Lu Zhengyao has won two consecutive games in the board of directors and this shareholders’ meeting on July 2. Let the personnel composition of the new board of directors completely achieve their own ideas.
Fortunately, there are eight former shareholders of Rui. Among them, Guo Jinyi, Cao Wenbao and Wu Gang are all current executives of the company. Guo Jingyi once rented a car in Shenzhou as an assistant to Lu Zhengyao, the chairman of the board. The reporter of Caijing learned that at the board meeting on July 2, the three people all opposed to the recall of Lu Zhengyao, that is to say, they were on the side of Lu Zhengyao.
Two investors, Li Hui and Liu Erhai, have been pushing the special committee to investigate Ruixing’s fraud and Lu Zhengyao’s role in the fraud process. Shao Xiaoheng and Zhuang Weiyuan, two independent directors, are members of the special committee. All four voted for the removal of Lu Zhengyao at the board meeting on July 2.
Among the newly added independent directors, Zeng Ying is a partner in the Beijing Office of Aorui law firm, while Yang Jie is the vice president of the Business School of China University of political science and law. According to the public data, neither of them had any contact with Ruixing before, but they were all nominated by Haode controlled by Lu Zhengyao, so they are also Lu Zhengyao’s favorite candidates.
Two independent directors were added to the board of directors on July 12. Among them, Zha Yang is a lawyer and is now a partner of many venture capital institutions; Liu Feng is an accounting professor at Xiamen University. Xiamen is the headquarters of Lucheng, Shenzhou and other companies under Lu Zhengyao. In addition, Liu Feng replaced Shao Xiaoheng as the chairman of the audit committee of the board of directors. It is not clear who nominated the two directors.
After the reorganization of these meetings, four of the eight members of the board of directors were replaced. Li Hui, Liu Erhai and Shao Xiaoheng were expelled from the board of directors. Three senior executives who supported Lu Zhengyao were all retained. At least two new independent directors were nominated by Lu Zhengyao. Although Lu Zhengyao himself was removed, his control over the board of directors has been greatly enhanced.
Hao Junbo, a U.S. stock rights lawyer and Ruixing coffee investor’s lawyer, told Caijing that Li, Liu and Shao hope to find out the responsibility for fraud, and remove all of them, which means that the self-examination of financial fraud may not continue, “changing the whole thing may help to confuse the responsibility.”
On July 1, Ruixing announced that its internal self-examination had been basically completed, and the results of the self-examination still pointed to Qian Zhiya, the former CEO, and Liu Jian, the former coo, and did not directly mention Lu Zhengyao’s involvement in the fraud. However, the announcement said that the reason for the board’s request for Lu Zhengyao’s resignation was based on “the documents and other evidence found by the special committee in the internal investigation, as well as the evaluation of Lu Zhengyao’s cooperation in the internal investigation”.
Foreign media reported on July 5, quoting sources familiar with the matter, said evidence found in the internal investigation showed that Lu Zhengyao “knew or should know” the fact that he had inflated the transaction, and said Lu Zhengyao did not fully cooperate with the investigation. Lu Zhengyao himself responded to foreign media that this statement was “a rumor, not true.”.
At present, lucky coffee has suspended trading in Nasdaq and is going on delisting record. The company said not long ago that more than 4000 stores were operating normally and that nearly 30000 employees were still providing services to users. A lucky store barista told Caijing that the store was still in normal operation, and he didn’t know much about the management and operation of the company. “Because we belong to the store operation, so we are holding the mentality of doing our job well.”
Another sentence awaits Mr Lu. On July 6, the Commercial Court of the British Virgin Islands held a hearing to hear the case of Credit Suisse demanding the liquidation of Haode investments Inc. and summer fame limited. Both institutions hold shares in lucky. Haode is controlled by the Lu Zhengyao family and summer fame is controlled by the Qian Zhiya family. As of the time of publication, the court’s official website has not yet published the verdict.
Prior to this, Lu Zhengyao’s control of lucky company had been weakened by the liquidation of another part of his shares by the court of the Cayman Islands. At present, Lu Zhengyao and Qian Zhiya still hold about 45% of the voting rights of lucky company, but if the judgment of British Virgin Islands is unfavorable to them, their voting rights will be lost.