Shenzhen Dama wins the lawsuit! The parent company faces huge compensation

In the cross-border circle, the "love-hate drama" between big sellers and listed companies seems to be always going on.

Xinghui shares lost the lawsuit! Compensation to Zebao exceeded 20 million yuan

Recently, Xinghui Shares, the parent company of Shenzhen-based Zebao, issued an announcement stating that the dispute between Zebao’s founder and major shareholders and Xinghui Shares over the restricted sale of shares has officially come to an end.

The result of the judgment was that the restriction on the sale of all shares held by Xinghui Shares in the defendant company was lifted, and the corresponding information disclosure obligations were fulfilled. Xinghui Shares was also required to compensate the founders and major shareholders of Zebao for the losses caused by the failure to lift the restriction on the sale of shares in a timely manner, totaling RMB 20.4823 million.

This equity dispute began in 2018.

That year, Xinghui Shares negotiated with the founder team of Zebao to acquire Zebao, whose market value exceeded that of Xinghui Shares at the time, and set a merger transaction price of 1.53 billion yuan. As an additional condition, the two parties signed a three-year performance betting agreement, requiring Zebao to achieve net profits of no less than 108 million yuan, 145 million yuan and 190 million yuan in 2018, 2019 and 2020 respectively.

Zebao did not disappoint everyone and completed the gambling agreement for three consecutive years, doubling its performance. Its net profits in the three years from 2018 to 2020 were 109 million yuan, 154 million yuan and 247 million yuan respectively.

After Zebao completed the bet agreement, everyone should have been happy. According to the previous commitment to lock up the equity, the bet was theoretically completed, and in 2021, the locked equity could be released from the restriction on sale and could be circulated.

However , the account blocking wave of Amazon in 2021 dealt a heavy blow to Zebao's operating performance. Zebao's six major brands, RAV Power, Taotronics, VAVA, Anjou, Sable, and Hootoo, were affected, with a total of 367 accounts blocked. Among them, the revenue from the blocked sites accounted for about 72.52% of Zebao's operating income on the Amazon platform in 2021.

Undoubtedly, the Amazon account suspension incident dealt a heavy blow to Zebao. After the management of Xinghui Co., Ltd. took over Zebao, the management level encountered difficulties in adapting to the local environment and suffered a serious loss of talent. An industry insider pointed out: "The major changes in the management and the Amazon crisis have planted huge hidden dangers for Zebao's future development."

Xinghui shares did not give any relevant response to the issue of responsibility for the severe performance damage of Zebao, but directly restricted the sale of company shares issued to multiple shareholders of Zebao, directly locking the shares and making it impossible to cash out.

Therefore, in September 2021, the original founder of Zebao and several other shareholders sued Xinghui Shares, demanding compensation for the losses caused to Zebao due to failure to lift the share restriction. Calculated based on the standard of 4 times the LPR, the amount involved in the lawsuit was 14,834,192.95 yuan.

In the end, Xinghui shares lost the case and were ordered to lift the sale restrictions on all of its shares in Zebao. At the same time, it was also required to compensate Zebao’s founders and major shareholders for the losses caused by the failure to lift the sale restrictions in a timely manner, totaling RMB 20.4823 million.

Xinghui shares' loss in this case may have a certain impact on the company's financial situation and equity structure. Because the amount of compensation required by Xinghui shares in this judgment exceeds 20 million yuan, it will put pressure on the company's finances. At the same time, after the share restriction measures are lifted, these shares can be traded freely, and the company's equity structure will also change.

In response to the verdict of this case, Xinghui shares said that it would evaluate and take corresponding measures to deal with it. Xinghui shares may appeal or negotiate with Zebao to reduce the adverse impact on the company, but the specific response measures have not yet been determined.

Zebao and Xinghui Shares are in constant dispute, and both revenue and profits are declining!

There have been constant disputes between Xinghui Shares and Yuanzebao's founding shareholders. In addition to disputes over share rights, there are also disputes over share transfers, with the amount involved exceeding 1 billion yuan.

In June last year, Xinghui Co., Ltd. sued Zebao’s original founders Sun Caijin, Zhu Jiajia and other stakeholders, demanding that the acquisition price of Zebao be reduced from 1.53 billion yuan to 430 million yuan, and the defendant Sun Caijin and others must return Xinghui Co., Ltd.’s 1.04 billion yuan acquisition price.

Regarding the reasons for the lawsuit, Xinghui Co., Ltd. stated that during the performance commitment period, the defendant Zebao’s founder and his interest team manipulated Zebao to violate Amazon’s regulations in order to achieve performance commitments, resulting in Amazon’s account blocking incident, causing the company to suffer huge losses and causing Zebao to be unable to continue to maintain its original business model.

This is not the first time that Xinghui Co., Ltd. has sued the founder of Zebao. In early 2022, Xinghui Co., Ltd. sued Zebao founder Sun Caijin and his persons acting in concert. The reason is that in the past few years, Zebao's overseas subsidiaries have been pursued for taxes by the US, German, and French tax authorities, and the unpaid and overdue taxes have accumulated to RMB 50 million. Sun Caijin and his persons acting in concert and other parties to the restructuring performance bet are required to fulfill the relevant compensation obligations in accordance with the Agreement on Issuing Shares and Paying Cash to Purchase Assets.

In recent years, Xinghui shares have been involved in numerous lawsuits. In addition to the case with Yuanzebao's founding shareholder, many subsidiaries of Xinghui shares were sued by many companies for compensation for suppliers, liquidated damages and other expenses. The case lasted for a long time and ended with Xinghui losing the case and being ordered to pay suppliers more than 50 million yuan.

Recently, Zebao's parent company Xinghui Co., Ltd. disclosed an announcement. In addition to the litigation matters that have been disclosed, the total amount of litigation and arbitration matters that the company and its subsidiaries have incurred for 12 consecutive months is approximately RMB 17.2292 million, accounting for 11.22% of the company's latest audited net assets.

It is understood that the more than 10 million yuan involved in the case mainly involves two lawsuits, both of which are sales contract disputes. Both are currently under trial, but the amounts involved are different. One is a sales contract dispute with Jiangsu Daowei Outdoor Products Co., Ltd. on June 25, 2023, involving an amount of 15.1396 million yuan; the other is a sales contract dispute with Guangzhou Huachujian Biotechnology Co., Ltd. on June 28, 2023, involving an amount of 1.9441 million yuan.

In fact, the problems faced by Xinghui Co., Ltd. are not just lawsuits, but also a decline in both revenue and profits.

According to the financial report data released by Xinghui Co., Ltd., Xinghui Co., Ltd.'s operating income in 2022 was 2.351 billion yuan, a year-on-year decrease of 35.77%; the net profit attributable to shareholders of the listed company was -260 million yuan, compared with a loss of 1.524 billion yuan in the same period last year; the net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was -233 million yuan, compared with a loss of 1.580 billion yuan in the same period last year.

In the first quarter of 2023, Xinghui Co., Ltd.'s operating income was 467 million yuan, down 20.68% from the same period last year; the net profit attributable to shareholders of the listed company was 4.8591 million yuan, turning from loss to profit compared with the same period last year.

Regarding the reasons for the company's revenue decline, Xinghui Co., Ltd. stated that under the influence of multiple factors such as intensified inflation and declining overseas consumption, the processing of backlog inventory in the first half of 2022 was lower than expected, processing costs increased, sales scale declined, and sales gross profit was low.

In short, the repeated incidents of Xinghui Shares and Zebao have undoubtedly taught the industry a very profound capital lesson. Long-term litigation is always detrimental to its development.

Zebao

Xinghui Shares