In August, "Daily Economic News" exclusively reported the news that Li Xinghao, a well-known entrepreneur and founder of Chigo Air Conditioning, was controlled by the public security organs on suspicion of misappropriating funds ("Exclusive: Li Xinghao, a well-known Guangdong entrepreneur, was controlled as the founder of Chigo Air Conditioning"). Recently, reporters learned from key insiders that the first trial of the criminal case involving Li Xinghao was held in late July, but there has been no verdict yet.
The reporter learned that the reason why Li Xinghao was prosecuted was that from 2018 to 2019, when he was the chairman of Shenzhen Construction Group Co., Ltd. (hereinafter referred to as Shenzhen Construction Group), he borrowed or misappropriated about 400 million yuan of funds from the Shenzhen Construction Group. Since then, he has not repaid it overdue. Finally, a deputy president of Shenzhen Construction Group at the time reported the case to the public security organ.
At least two former senior executives of Shenzhen Decoration Group have told reporters that all the funds owed by Li Xinghao to Shenzhen Decoration Group have been repaid through debt swaps. However, some sources told reporters that as of now, Li Xinghao has not repaid the loan.
The reporter also learned that Li Xinghao submitted the "Proposal on Removing Chairman Zheng Limin of Shenzhen Construction Group" to all shareholders and directors of Shenzhen Construction Group on September 7, saying that Zheng Limin violated the company's articles of association many times during his tenure as chairman, was suspected of job embezzlement, and was no longer qualified to serve as chairman.
Picture source: Photo by Wang Jing, reporter
Things start with Li Xinghao taking over Shenzhen Decoration Group.
Li Xinghao, born in 1954, worked as a farmer at the age of 18 and started his own business at the age of 19. At the age of 40 (1994), Li Xinghao served as the director of Nanhai Chigo Factory (the predecessor of Chigo Air Conditioning). Since then, he has been in charge of Chigo Air Conditioning for more than 20 years and reached the peak of his personal career.
From 2009 to 2019, Li Xinghao ushered in the peak period of his career. In 2009, he successfully pushed Chigo Holdings to be listed on the Hong Kong Stock Exchange and served as the chairman of the board of directors and chief executive officer of Chigo Holdings. On the first day of listing, the value of Li Xinghao's stock holdings was as high as HK$850 million. In 2010, Chigo Air Conditioning once defeated Haier and took the third place in the air conditioning industry. At the end of that year, Li Xinghao stated that the company would strive to become a 100-billion-dollar enterprise in the next five to ten years through mergers and acquisitions, own development and other channels.
In Chigo Holdings' first regular report (2009 interim report), Li Xinghao served as its chairman of the board and chief executive officer.
Image source: Chigo Holdings announcement
Li Xinghao has always had a blueprint in mind. An insider told reporters that Li Xinghao invested in Shenzhen Decoration Group from 2009 to 2010. The reason why he invested was to cultivate a "second main business." "Because at that time, everyone had realized that the market might be saturated in the future for air conditioners, so they wanted to have a 'second main business'."
On the other side, Zheng Limin, the former actual controller and current chairman of Shenzhen General Assembly, met Li Xinghao after being introduced by a friend. According to the statement provided by relevant people to reporters, Li Xinghao took the initiative to ask Zheng Limin to be responsible for bringing Shenzhen Construction Group to the market, and Zheng Limin did not have to take care of anything. When Li Xinghao was introduced, Zheng and Li signed a gambling agreement. Li Xinghao promised to help Shenzhen Installation Group go public within 3-4 years. If this failed, Li Xinghao would return 10% of the shares of Shenzhen Installation Group to Zheng Limin. Zheng Limin would still be the single major shareholder.
The public transfer instructions updated by Shenzhen Equipment Group in January 2016 show that in May 2010, Shenzhen Zhonggen Investment Co., Ltd. (hereinafter referred to as Zhonggen Investment) transferred its 20.5 million investment in Shenzhen Equipment Group (accounting for 41% of the registered capital) to Li Xinghao for RMB 60.2941 million, with a transfer price of 2.94 yuan per share. Since then, Li Xinghao has become the largest shareholder of Shenzhen Decoration Group. As of the signing date of the public transfer instructions, Li Xinghao held a total of 173 million shares of Shenzhen Zhuangzhuang, accounting for 28.57% of the total share capital. Zhonggen Investment is the second largest shareholder of Shenzhen Equipment Corporation, holding 74.875 million shares of the company, and the actual controller is Zheng Limin.
Image source: Shenzhen Decoration Corporation’s 2016 public transfer instructions
The above-mentioned insider told reporters that the reason why Shenzhen Decoration Group introduced Li Xinghao's investment at that time also included that the operating conditions of Shenzhen Decoration Group at that time were indeed difficult. "Shenzhen Decoration Group is always an old brand, and its development is relatively slow. Other peer companies have surpassed it, and some have already been listed." In this context, some people suggested that Zheng Limin introduce new major shareholders. "For Shenzhen Installation Group, (Li Xinghao's acquisition) really saved it. In the following years, Shenzhen Installation Group's business developed rapidly."
In July 2021, a civil judgment ((2020) Guangdong 03 Min Zhong No. 9533) disclosed by the Shenzhen Intermediate People's Court of Guangdong Province indeed showed that in 2010, Zhonggen Investment transferred 41% of its shares to Li Xinghao's "Equity Transfer Agreement" It states, “Every reasonable effort shall be made to urge the target company to submit the listing application documents for the domestic issuance of RMB ordinary shares to the China Securities Regulatory Commission within 3 years from the date when Party A (Li Xinghao, etc.) becomes the legal shareholder of the target company in accordance with this agreement.”
The "Equity Transfer Agreement" between Zhonggen Investment and Li Xinghao clearly stipulated that it would promote the general listing of Shenzhen Equipment. Image source: Judgment Documents Network
Since 2010, Li Xinghao has joined the Shenzhen Zhuang General Board of Directors as a director of the company. In July 2021, a civil judgment disclosed by the Intermediate People's Court of Shenzhen City, Guangdong Province revealed that Shenzhen Decoration Group was struggling to find a way to go public. From 2013 to 2014, Shenzhen Decoration Group once planned to be listed in Hong Kong, China, but was unable to submit formal documents due to lack of information and conditions; subsequently, in 2015, Shenzhen Decoration Group was planning to list on the New Third Board.
At the beginning of 2016, Shenzhen Construction Engineering Group Co., Ltd. successfully listed on the New Third Board, which made the whole company very excited. On February 18 of that year, a "2015 Annual Conference and Shenzhen Decoration General Co., Ltd. Listing Appreciation Reception" with more than 800 people was held grandly in the Shenzhen Decoration General Building.
Image source: Shenzhen Decoration General Official WeChat Account
However, the New OTC Market is not yet the “destination” of Shenzhen Equipment Corporation, it is just paving the way for future preparations for A-share listings. In the second month after being listed on the New OTC Market, Shenzhen Zhuang General Administration announced that it planned to apply for an initial public offering of RMB ordinary shares (A shares) and be listed domestically. On May 6, 2016, the company submitted IPO stock counseling filing and registration materials to the Shenzhen Supervision Bureau of the China Securities Regulatory Commission to receive listing counseling.
At the same time, Shenzhen Zhuangzhuang Group is planning to go public through backdoor transactions.
In June 2016, an announcement by Yunwei Shares (SH600725, stock price 2.91 yuan, market value 3.586 billion yuan) attracted market attention. The listed company announced that it plans to purchase a total of 98.27% of the shares held by Shenzhen Zhuangzhuang Group from 59 natural persons including Li Xinghao and 36 institutions including Zhonggen Investment through a non-public issuance of shares. After the transaction is completed, Li Xinghao will become the controlling shareholder and actual controller of the listed company. However, this plan was ultimately shelved.
Immediately afterwards, the 2016 annual financial report of Shenzhen Construction Engineering Corporation was delayed again and again, unable to be disclosed on time. This directly led to the company's stock being forced to be delisted, and its listing on the New Third Board was terminated in July 2017, ending its "short time" on the New Third Board.
Seven years after taking the helm of Shenzhen Decoration Group, Li Xinghao failed to fulfill his promise to lead the company to be listed. However, the conflicts and differences among the shareholders of Shenzhen Decoration Group became increasingly fierce.
Judging from public clues, at least before 2015, the overall shareholder relationship of Shenzhen Decoration Group was relatively harmonious. In June 2015, in order to facilitate the specific exercise of shareholders' rights and obligations, Zhonggen Investment signed an "Entrusted Shareholding Agreement" with Li Xinghao, entrusting Li Xinghao to hold 5.07% of the equity (later diluted to 4.19%). At the same time, other shareholders of Shenzhen Equipment Group Zheng Chaomei, Rao Airong, Zheng Fengmei and Zhang Zhihuang, and Foshan Nanhai Weicheng Investment Co., Ltd. (hereinafter referred to as Weicheng Company) also entrusted Li Xinghao to hold the shares of Shenzhen Equipment Group on their behalf, totaling 7.14% (later diluted to 5.91%).
In September 2015, Shenzhen Decoration Corporation carried out joint-stock reform. A turning point is that in May 2016, Li Xinghao pledged all 28.57% of his shares in Shenzhen Zhuangzhuang Group (including the entrusted part) to Minsheng Bank Guangzhou Branch to provide a pledge guarantee for Foshan Haozhuang Decoration Design Engineering Co., Ltd. The maximum amount of the guarantee is 1.4 billion yuan, and the period is from April 22, 2016 to April 21, 2021. In January 2018, Li Xinghao signed the "Maximum Guarantee Contract" with Minsheng Bank Guangzhou Branch, extending the pledge guarantee period to January 8, 2024.
It was the above-mentioned equity entrustment and equity pledge that caused Li Xinghao to get into many lawsuits later.
According to the China Judgment Document Network, in 2020, five shareholders, Zhonggen Investment, Zheng Chaomei, Rao Airong, Zheng Fengmei, and Zhang Zhihuang, took Li Xinghao to court, claiming that after Shenzhen Equipment Corporation terminated its listing on the New OTC Market, they repeatedly asked Li Xinghao to return the equity of the target company he held on behalf of him and transfer it to the names of the above five shareholders. However, Li Xinghao refused to return it, resulting in the five shareholders being unable to exercise corresponding shareholder rights and voting rights. Li Xinghao denied this statement to the court and argued that the other party had never proposed to him to terminate the entrustment and holding relationship.
Several shareholders of Shenzhen Equipment Corporation claimed that Li Xinghao refused to return the shares held on his behalf. Image source: Judgment Documents Network
However, this is only one of the multiple lawsuits Li Xinghao has been involved in due to equity holdings. There are also more complex debt disputes hidden in it.
"Daily Economic News" reporters exclusively obtained documents of Shenzhen Decoration Group's shareholders' meetings from September 2015 to 2021. It seems that since the joint-stock reform in 2015, there have been differences of opinion among the shareholders of Shenzhen Decoration Group.
On September 2, 2015, at the joint-stock company and the first general meeting of shareholders held by Shenzhen Decoration Corporation, shareholders voted against and abstained from the election motions for eight independent directors and non-independent directors, including Hu Zhengfu, Li Xinghao, and Zheng Limin. The number of opposing shares and the number of abstaining shares for each director election motion were 12.5 million shares respectively. Judging from the voting results of previous shareholders' meetings, the differences between Shenzhen Equipment Group's shareholders will be more prominent from 2020 to 2021. According to the reporter’s knowledge, so far, the number of shareholders of Shenzhen Zhuang Construction Group exceeds 100.
The above-mentioned core insider told reporters that the shareholder dispute of Shenzhen Construction Group is actually a dispute between the first and second largest shareholders. The dispute between them was caused by borrowing money.
A key lawsuit that must be mentioned here is that in 2020, Li Xinghao filed a lawsuit against Zhonggen Investment, Zheng Limin and Cai Yuqun on the grounds of a private lending dispute, requesting the court to order Zhonggen Investment to repay the loan principal of 4693 to Li Xinghao. 520,000 yuan and interest of 27.911 million yuan (tentatively calculated until June 23, 2020); at the same time, Zhonggen Investment was ordered to pay Li Xinghao a liquidated damages of 10 million yuan, and Zheng Limin and Cai Yuqun were ordered to bear joint and several liability for the above compensation.
According to the facts found by the court, in June 2015, Li Xinghao and Zhonggen Investment signed the "Summary of Actual Distribution of Equity Transfer of Shenzhen Construction Group in June 2015", which determined that Zhonggen Investment should pay Li Xinghao RMB 127 million for the equity transfer. After Zhonggen Investment transferred 37.45 million yuan to the bank account designated by Li Xinghao, it still owed Li Xinghao 90 million yuan for the equity transfer. In January 2016, Zhonggen Investment signed a "Loan Contract" with Li Xinghao, confirming that Zhonggen Investment borrowed 90 million yuan from Li Xinghao on June 27, 2015. Li Xinghao also signed a "Guarantee Contract" with Zheng Limin, and Zheng Limin voluntarily provided a joint liability guarantee to Zhonggen Investment. Li Xinghao claimed that the 90 million yuan loan was the equity transfer payment payable by Zhonggen Investment, and the court accepted this statement.
Obviously, Zheng Limin does not agree with this statement. Both the first and second instance judgments of the case showed that Zhonggen Investment argued that it had never received the 90 million yuan loan claimed by Li Xinghao in the lawsuit. According to the "Daily Economic News" reporter, Zheng Limin has so far not acknowledged the existence of this 90 million yuan loan.
However, judging from the verdict, Li Xinghao won both the first and second instances.
"Their dispute started because of this loan. They borrowed so much money, but Zheng Limin never paid it back. In the end, Li Xinghao had no choice but to ask the court to enforce it. After two sets of properties were auctioned, their conflicts further deepened." said an insider.
According to reliable information, Zheng Li Minzheng appealed to the Supreme People's Court regarding the verdict of the case.
In June this year, the latest enforcement ruling published by the Nanhai District People's Court of Foshan City, Guangdong Province stated that Zhonggen Investment should repay Li Xinghao a loan of 46.9352 million yuan, pay interest of 30.5423 million yuan and subsequent interest, and Zheng Limin and Cai Yuqun were jointly and severally liable for the repayment. The judgment was executed for 927,000 yuan and 374,000 yuan respectively. The court seized some of Zheng Limin's assets in accordance with the law, but failed to dispose of them due to various reasons.
A company news on the official website of Shenzhen Decoration General Administration on June 30, 2020 showed that former chairman Li Xinghao voluntarily resigned as chairman of the company based on the company's development. However, the documents of the 11th meeting of the second board of directors of Shenzhen Construction Group obtained by the reporter of "Daily Economic News" show that on June 29, 2020, Shenzhen Construction Group held a board meeting to consider and approve Li Xinghao's resignation as chairman of the company and the election of Zheng Limin as chairman of the company. Li Xinghao did not attend this board meeting, and Zheng Limin signed on his behalf.
Image source: Shenzhen Decoration General Official Website
According to what reporters learned from core insiders, the criminal case involving Li Xinghao did not just happen now, but was prosecuted several years ago.
According to his story, from 2018 to 2019, when Li Xinghao served as the chairman of Shenzhen Installation Group, Chigo Air Conditioning was in operating difficulties. In order to save Chigo Air Conditioning, he successively borrowed or misappropriated about 400 million yuan of funds from Shenzhen Installation Group to Chigo and its affiliated companies (the largest shareholders of Chigo and Shenzhen Installation Group are both Li Xinghao). At that time, a small shareholder of Shenzhen Decoration Group (who was also the company's vice president at the time) reported Li Xinghao to the Economic Crime Investigation Detachment of the Shenzhen Municipal Public Security Bureau for allegedly misappropriating funds.
Regarding Li Xinghao’s alleged misappropriation of company funds, a relevant person told reporters that Li Xinghao specifically registered several companies, and then transferred the money from Shenzhen Construction General to these companies, and then to companies within the Chigo system and Li Xinghao’s related companies. However, the reporter was unable to further verify this statement.
The aforementioned insider told reporters that Li Xinghao had actually repaid nearly 400 million yuan in loans in 2022. "When the shareholders reported it, Li Xinghao had not yet repaid the loan. There is a time limit for the crime of misappropriation of funds. After a certain time, even if it is repaid, it is still misappropriation of funds."
Regarding Li Xinghao's statement that he has repaid the loan, the reporter also obtained confirmation from a former senior executive of Shenzhen Construction Equipment Corporation. The former executive revealed to reporters that Li Xinghao had paid off the loan to Shenzhen Equipment Corporation in full through debt swap. "Li Xinghao owes money to Shenzhen Installation Group, Shenzhen Installation Group owes money to Shanghai Pudong Development Bank, and Shanghai Pudong Development Bank owes Li Xinghao money. Li Xinghao repaid the money to Shanghai Pudong Development Bank on behalf of Shenzhen Installation Group. Doesn't this count as repayment? Besides, there is a shareholders' meeting resolution."
According to the former executive, "Zheng Limin and Li Xinghao lost the lawsuit and were about to be executed for a large amount, so they began to personally tear up the resolutions of the shareholders' meeting." However, this statement has not been confirmed by relevant parties.
According to him, Shenzhen Zhuangzhong's loan from Shanghai Pudong Development Bank expired in 2021 and there was no money to repay it, so shareholders could only pool money to repay it. "(Li Xinghao and Zheng Limin) both have (Shenzhen Construction General Loans), and they have both been replaced."
The reporter obtained the resolution document of the third extraordinary general meeting of shareholders of Shenzhen Construction Industry Corporation in 2021. The meeting reviewed and approved the "Proposal on the Exchange of Creditor's Rights between the Company and Mr. Li Xinghao" and the "Proposal on the Exchange of Creditor's Rights between the Company and Shenzhen Zhonggen Investment Co., Ltd.". Both proposals mentioned that as of November 2021, the loan balance of Shenzhen Zhuangzhuang Group in Shanghai Pudong Development Bank was 291 million yuan. This loan will expire in February 2022 and is not expected to be returned in time. Li Xinghao personally and his controlled related parties, as well as Zhonggen Investment, all have cash deposit certificates at Shanghai Pudong Development Bank, and some of the certificates of deposit have provided full pledge guarantee for the loan of Shenzhen Construction Equipment Corporation.
At the same time, Shenzhen Zhuangzhuang provided loans to five companies including Guangzhou Weldang Trading Co., Ltd. (hereinafter referred to as Weldang) in 2019. As of October 2021, the remaining loan principal was 102.7 million yuan; as of the end of October 2021, Shenzhen Former Zhonghui Investment Co., Ltd. (hereinafter referred to as the original Zhonghui) still owed Shenzhen Zhuangzhuang the loan principal of 34 million yuan. Based on this, Shenzhen Zhuang General Group, Li Xinghao and Zhonggen Investment agreed at the same time that if the bank deposit certificates of Li Xinghao and Zhonggen Investment were withheld by the bank, Shenzhen Zhuang General Group would transfer the claims of Verdant and other five borrowers to Li Xinghao; the company's claims on the original Zhonghui would be transferred to Zhonggen Investment. In May 2022, Shenzhen Zhuangzhong and Li Xinghao unanimously signed an agreement and confirmed that on April 27, 2022, the savings deposit certificates of Li Xinghao and its controlled related party Shanghai Pudong Development Bank had repaid about 140 million yuan in loans from Shanghai Pudong Development Bank on behalf of Shenzhen Zhuangzhuang, and all the claims of five companies including Verdant were transferred to Li Xinghao for exercise.
The aforementioned former senior executive of Shenzhen Decoration Corporation gave a simple explanation to reporters: "Li and Zheng first used bank deposit certificates to help Shenzhen Decoration Corporation repay the money to Shanghai Pudong Development Bank. Then the shareholders' meeting resolved to agree to the creditor's rights swap, and Li and Zheng signed a creditor's rights swap agreement with Shenzhen Decoration Corporation."
However, during the reporter's interview, someone also clearly denied to the reporter that Li Xinghao had repaid the Shenzhen Construction General Loan. "Once the repayment is over, there won't be (the situation) like today."
Reporters learned from at least two channels that the first instance of Li Xinghao’s case has been heard, but there has been no verdict. An insider told reporters, "The court is still conducting further proceedings, and both parties are preparing various supplementary materials. Whether it ultimately constitutes a crime depends on the court's decision."
Lawyer Zhu Yicong, senior partner of Beijing Yingke (Shenzhen) Law Firm, said in an interview with reporters that according to relevant criminal law provisions, misappropriation of funds for more than three months can constitute the crime of misappropriation of funds. Of course, even if it does not exceed three months, this crime can still be committed under certain circumstances. Even if the funds have been repaid at a later stage, it is only a case of lighter punishment and does not affect the composition of the crime.
It is reported that the criminal case involving Li Xinghao has actually been filed for acceptance in 2020. An insider told reporters, "(This case) has been going on for several years. On the one hand, it is more complicated to investigate; on the other hand, it is more inconvenient to investigate due to the epidemic. The case was filed (accepted) in 2020." He also revealed that Li Xinghao was controlled in May this year. The direct reason for his being controlled was that in March this year, when the court was preparing to hear the case for the first time, Li Xinghao had promised everyone that he would be in court. However, when the court was ready, Li Xinghao did not show up. The court controlled it in order to facilitate the trial. Until now, Li Xinghao is still under control.
In fact, amid the multiple quagmire of unsuccessful listing, conflicts between major shareholders, and the real estate environment, Shenzhen Zhuangzhuang Group's operating conditions gradually declined, and the company fell into a "precarious" situation.
In this process, Li Xinghao and Zheng Limin actually "both suffered losses." Zheng Limin and many of his companies are involved in litigation. The national enterprise credit information publicity system shows that Shenzhen Zhuangzhuang Group Co., Ltd. has been included in the list of serious violations of law and dishonesty.
According to the announcement of the Futian District People's Court of Shenzhen City, Guangdong Province on July 28, the court accepted the financial loan contract dispute case between China Everbright Bank Co., Ltd. Shenzhen Branch (hereinafter referred to as Everbright Bank Shenzhen Branch) and seven defendants including Zheng Limin, Cai Yuqun, Zheng Hecun, and Shenzhen Zhuang General. Everbright Bank Shenzhen Branch requested the court to order Zheng Limin to immediately repay the loan principal of 78.81 million yuan under the "Working Capital Loan Contract". Including interest, penalty interest and compound interest, Zheng Limin was required to repay a total of 81.8526 million yuan; the plaintiff also requested a ruling to order the remaining five defendants except Shenzhen Zhonghui New Material Technology Co., Ltd. to bear joint and several liability for the above debts. The case was held in court on September 19.
The latest news is that during the period of being controlled, Li Xinghao proposed to the general shareholders and directors of Shenzhen Zhuangzhuang Group to remove Zheng Limin from his position as chairman. The reasons are: Zheng Limin privately used the total assets of Shenzhen Zhuangzhuang Group to pledge personal business loans without approval of the board of directors. The loan was overdue, and he has been suspected of job embezzlement; secondly, Zheng Limin's personal debts with a large amount have not been paid off when due, and he has been subject to a height limit; the whereabouts of the property rentals held by Shenzhen Zhuangzhuang Group are unknown, etc. "Zheng Limin's current actions are harming the interests of shareholders and directors, and he is no longer qualified to serve as the general chairman of Shenzhen Zhuang Construction Group Co., Ltd.," Li Xinghao stated in the motion.
The reporter learned that the bill is still in the review process, and it is not yet clear whether it will pass the review. Industrial and commercial information shows that Li Xinghao is still the largest shareholder of Shenzhen Decoration Group. But perhaps in Zheng Limin's heart, Li Xinghao is no longer the single major shareholder of Shenzhen Decoration Group.
Li Xinghao's case is still progressing, and the conflicts between Shenzhen Decoration Group's shareholders have not subsided. Perhaps, everything is just like a former senior executive of Shenzhen Decoration General Administration sighed to reporters, "It is a shame that a good situation has turned into this."