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Businessman escapes debts through malicious bankruptcy

发表时间:2022-06-01 15:41

Businessman escapes debts throughmalicious bankruptcy

April 12 2009 at 3o 'clock, in one Shanghai Minhang industrial park, Stender's (Shanghai) Co., LTD is one of the companies insidethe park. Suddenly there were two employees climbe to nearly five stories highworkshop roof, claimed to commit suicide. Company managers held a dialogue withthem, hoping they could keep a stable mood, didn't conduct an emotional extremeroute; if they had a problem, they could talk with our leaders, company union, orlocal labor department. The two guys still refused to come downstairs, and madeready to jump off the building.

At 6:30 of the evening,firemen found, the two employees on the roof were disppeared, when they were alittle bit frighted , the plant manager who was responsible for the productiontold them that two employees claimed that they were hungry, and needed to go tothe cafeteria and after the dinner they would return and continue to goupstairs. After hearing this news, the firemen immediately packed the equipmentand withdrew themselves from the factory. The plant manager questioned andrequested firemen not to leave, they answered that one man who still consideredto have a dinner would never commit suicide. Afterall the two guys did not goupstair again.

Why did the showoccur in Stender's (Shanghai)Ltd.? The things need to be traced to four years ago, when the company wasestablished in Shanghai.

Develop the market and set up a WOFE in Shanghai

Stender's (Shanghai) Co., Ltd is awholly foreign owned enterprise, by a Belgian businessman Leo as independentshareholder, who invested to set up the company. Leo was the company's legalrepresentative and managing director, he carried out overall management of thecompany's business. The company was founded in January 2005, main products werebank queuing system. The bank queuing system was invented in Europe,main queuing system manufacturer was a Swedish firm called Q – MATIC. Thesystem were widly used in banks, hospitals, post office, railway ticket station,etc. Europe's very keen to offer humanization service, replacing people withmachines to queue, people can freely read newspaper, have a coffee, they do nothave to wait in a queue and avoid this kind of boring moment. People who go tothe bank, just click the computer screen, obtain a queue number, then sit asideto do their own job, until the machine calls their number.

Hardwareof this bank queuing system is very simple, the key is the system software andafter sales support. This product was first introduced into China in2000 by Q - MATIC. Due to huge market demand, other imported products and localproducts emerged.

The Belgian guyLeo was initially doing the business as a distributor of bank equipment, heorganized European high-end brands to be imported to Chinaand sold to the Chinese clients, the product were as such as Britan’s DeLaRue, Germany’sG&D, Sweden's Q - MATIC,Japan'sGLORY, American NCR etc.

After the year of 2000,China'smajor state-owned commercial banks have to upgrade their own service byrequiring high-end banking products. Taking it as an opportunity, Leo succeededin bringing the above products to China and sold to the four majorstate-owned banks and other Chinese commercial banks.   Within these products, the bank queuing systemobtained a highest profits, for instance the cost of the system might be two orthree thousand RMB, while selling price could be 300 to 400 thousand RMB. The bankshad enough money and budget, to utilizing advanced high-end products complied withthe overall strategy, because they were not too price sensitive. Since themarket demand has been rising year in and year out, Leo was full of hope forthe prospect of the market. Finally, one day, he decided to give up agencybusiness in Chinaand set up his own manufacturing site to produce the bank queuing system. Thestrategy was of local production, local sales, and to provide efficientafter-sales service, which could defintely bring more money to him.

In January 2005,Leo set up a company in one Shanghai Minhang industrial park, specializing inthe production of Stender's own bank queuing system.

Profit transfer to oversea companies

Leo set up a WOFEin Shanghai, the purpose was to acquire higherprofits, but how can these profits from Shanghai'senterprise be transferred to his oversea accounts? The problem became his mind’sillness. Therefore at the moment of establishment of Stender's (Shanghai), Leo hired a Belgium management consulting firmto draft a plan. Foreign consulting company usually in this case played asignificant role. They designed for Leo two measures to transfer the profitsfrom Shanghaito oversea.

                                                        Leo












                                                                                            

                                         

                                    Payvarious fees2

                                                                                                         Moneytransfer1


Stender’s (Shanghai) LTD

HSLC    (Hongkong)

                                                 Sellthe products1


                                                                      

                                                    Payment(1)

              Sales2                                                                         Sales1

                                                       


Method 1:Inter-group dealing

First of all, inBelgium Leo establishes a shell parent company: HSLC (Belgium), Then he sets up another company inHong Kong China, called HSLC(Hongkong), of which the main shareholder is HSLC (Belgium);HSLC (Hong Kong) is the subsidiary company of HSLC (Belgium).

Subsequently, Stender's(Shanghai) sells the products to HSLC (Hongkong)at a price   lower than production cost, HSLC(Hong Kong) sells the products to customers in China at the market price. By thisway, Stender's (Shanghai) sustains losses, HSLC(Hong Kong) upholds high profit.

Finally, HSLC (HongKong) pays in various forms, directly or indirectly, money to the parentcompany, namely HSLC (Belgium).

Method 2: Signcontracts to pay various fees

Stender's(Shanghai) and HSLC (Belgium) are independent legal person, both parties sign anumber of contracts, HSLC (Belgium) regularly sends to Stender's (Shanghai)   all kinds of technical experts, managementconsultants; meanwhile HSLC (Belgium)   transfers technology, trademark,and IP to Stender's(Shanghai) allowing it to use relevant trademark and patent; Stender's(Shanghai) will pay to HSLC (Belgium) the above mentioned fees according tocontracts to HSLC (Belgium), i.e. consultation fee, technology transfer fee,trademark, patent fee etc. By this way, sales profits of Stender's (Shanghai) were largely transferred to HSLC (Belgium).

Leo was actually implementingprofit shift step by step in accordance with the above plan. From 2005 since Stender's(Shanghai) wasestablished, the company had been in loss in profit and loss sheet; on balancesheet shareholders' equity had been decreasing year by year. Because HSLC (HongKong) paid to Stender's (Shanghai) the money which was far below the totalmanufacturing costs; and meantime, Stender's (Shanghai) had to pay differentfees to HSLC (Belgium), cash flow of Sender’s (Shanghai) was always inshortage. The company’s bank account was empty with money, and it oftendefaulted to pay staff’s salaries.

The biggestproblem came from suppliers. The suppliers were from many different region, theywere mainly providers of aluminium alloy materials, electronic touch screen,plastic mould, carton packaging. Due to cash flow problem, Sender’s (Shanghai) had agreed withthose suppliers that after 120, 180 or even 240 days of reception of goods, iteffected the payment. Although the contracts were signed, Sender’s (Shanghai) still could notpay the supplier on due days, its cash shortage as snow ball, was rollingbigger and bigger. By the end of 2008, the company's accounts payables hit arecord high of more than 8 million yuan. Suppliers visited the company almosteveryday, demanding payment. But Leo shuffled with all sorts of reason.Suppliers, in considering long-term cooperation relations, and Stender's (Shanghai) WOFE status, hopedLeo to perform the principle of good faith and gradually effectuate thepayment. Most vendors could not tear down the face, to send an ultimatum to Stender's(Shanghai) andLeo. However company products had huge market demand, and selling price in themarket was very high also, sales of the company was in a good condition. So, wherewas the money? Supplier never took this issue into consideration.

Chinese creditors pursue Leo at home and abroad

InMarch of 2009, one day, Stender's (Shanghai) bossLeo suddenly was evaporated, his cell phone went unanswered, his apartment ofShimao Binjiang was deserted, no one of the company could reach him. At thatday the account payable totaled more than 9,7 million RMB, including accountspayable to suppliers nearly 9 million RMB, and employee wages around 700,000RMB. More than 40 representatives from suppliers gathered in the lobby of ShimaoBinjiang and held temporary meeting and discussed of a plan of action. First,they reported to Bureau of Shanghai Commerce: foreign natural individual Leo wasmissing, his wholly owned enterprise was in   default of payment, and the company was actuallyin an insolvency condition. Then, they reported to the Public Security Bureauand applied for a crime investigation on Leo’s conduct to justify whether hecommitted a crime. Finally, part of the radical suppliers detained a couple of Stender's(Shanghai)senior management staff, partly restricting their personal freedom. And part ofthe suppliers run into Stender's workshops and offices, moved out all valuable machineryand equipment, stocks, desktop computers, even the fridge and air conditioning.

In addition, the employees’salary of March 2009 had not yet been paid, some employees were watching thiskind of circumstance, feeling hopeless to get the salary, and finally chose toleave; Some employees temporarily couldn't find a job, and didn't know how todo, then chose to stay at the company and be quiet;   some employees mostly from production line,who were mainly from remote areas of the migrant peasants, suddenly found they losta stable job overnight, and lost one month salary; they became agitated and emotional.In order to draw an attention of the relevant local authority, three peasantworkers climbed to the roof of factory workshop claiming to commit a suicide.

In May 2009, morethan 30 supplier representatives gathered in a famous law firm to discuss howto recover your debts. According to the analysis of all people, Leo, the legalrepresentative of Stender's (Shanghai) escapedout of China already, theguy held dual nationality of Belgiumand Canada, having twonational passports; escaping from China was of without hindrance. Consequentlythe problem was that after his escaping from China how Chinese creditors exercisedtheir legal rights? Stender's (Shanghai)was in factual bankruptcy, the bank accounts of the company had no single penny.Even if suppliers brought an action and won the suit, there would be no anyassets available to be enforced. Finally, the suppliers desided to entrustattorney, who would proceed a series of practical operation for remedy program.First, sueing Stender's (Shanghai) to get court’s holding; Secondly, based onthe court’s holding, sueing Leo personally under the doctrine of "piecingthe corporate veil" in order that Leo personally be liable for Stender's(Shanghai) debts. Finally, given the bilateral or international treatiespetitioning a judicial assistance in other countries to get his personnalproperty enforced.

Until December2010, Chinese creditors are still not giving up, they are tracing Leo and hisproperty worldwide.

How to prevent WOFE’s malicious bankruptcy

1Well controll the AR and control collection cycle period

The market isnormally a buyer's market in the modern society. In order to occupy the marketand develop sales revenue, seller will often accept harsh terms of paymentimposed by buyer, for instance, 3 months or 6 months after receipt of the goods,buyer will pay; by this way, buyer increases his cash flow through seller’scredit. But there is huge potential risk for seller, he will have a largeaccounts receivable, ending up with bad debt, the firm is therefore more at vergeof bankruptcy. Therefore strict control on AR and collection cycle period isextremely important.

2Take action immediately and apply for charges

If you find that debtis due, the debtor still refuses to pay with all sorts of reasons, you must bevery cautious and draw high vigilance. When necessary, you need to take an immediateaction against debt company at the court in time; In order to prevent debtorfrom transferring property and assets to other parties, you must simultaneouslyapply to the court for a charge, so if after winning the case, the payment ofdebts can be realized.

3 Implement a Customs House injunction for WOFE’s legalrepresentative, main shareholders, and high management executives

In this case, thelegal representative of Stender’s (Shanghai) is Leo, who is a singleshareholder of the company as well. Leo has dual nationality, many foreigneindividuals have multiple or even triple identities. Apply a Customs Houseinjunction becomes very necessary to avoid huge loss of creditors.

Due to thecommercial secrets, names of all parties mentioned in this article isanonymous.


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