The Rectification Report of Shanghai Worldbest Co.,Ltd. on the problems found during the inspection by China Securities Regulation Committee Shanghai Supervision and Management Bureau
The Rectification Report of Shanghai Worldbest Co.,Ltd. on the problems found during the inspection by China Securities Regulation Committee Shanghai Supervision and Management Bureau
China Securities Regulation Committee Shanghai Supervision and Management Bureau:
In accordance with “The Security Law of the People’s Republic of China” and “Inspection Method of Listed Company”,China Securities Regulation Committee Shanghai Supervision and Management Bureau arranged the inspection team to inspection the company from Spet.16 to sept 23,2004 to the Company, the Company received the “Rectification notice within stipulated perid”No.HuZhengJian GongSi Zi [2004] 77 on Oct.15th,204. The Board of Directors, Board of Supervisor and the management of the Company highly value the problems in the notice, carefully in accordance with the relative securities regulations ,fixed and implemented the rectification applications step by step, to form the rectification report. On Oct.26,2004, the Board of Directors and the Board of Supervisors convened the 7th session of the 3rd Board of Directors and the 4th Session of the 3rd board of Supervisors to review the rectification report. Now the company announced the rectification application report as follows”
1 The regulate the operation introduction company
1) In the 6th Session of the 3rd Board of Directors, there has been the case that the independent director entrusted the non-independent director to attend the meeting and vote on his behalf. In accordance with the regulations ,when vote for the issues which require independent directors to express independent opinions ,the independent directors must entrust other independent directors to express the opinions and vote for the issue.
2) The article no.8 of “The Rules of Procedure” of the Company stipulated that “the covening of the Meeting of Board of Supervisors shall inform 15 days ahead”,which is not consist with “inform 10 days ahead” stipulated in the Articles of Association and how actually the Company operated.Besides, No13 of the “Rules of Procedures” also stipulated “the Chairman of the Board of Supervisors have the right for one more vote in the voting” ,which is not in conformity with the relative stipulations of “The Guide of the Articles of Association of the Listed Company.”
Rectification measure: The 4th session of the 3rd Board of Supervisors on Oct,26,2004 changed the relative articles of The Rules of Procedures of Board of Supervisors into:”The convening of regular meetings ,working meetings or special subject meetings shall inform all the supervisors I written notice 10 days earlier of the meeting”, and eliminate :”When the approvals and disagreements equal to each other, the chairman of the Board of Supervisors has the right to vote one more vote. “
2. The violation of Document No.56
1. Until June 30,2004, the external guarantee accounted for 127% of the net assets of the Company. ,which is not in conformity with the stipulations of the Article 2 Chapter 2 of the Securities Regulatory Committee Document No.56 “The total amount of the external guarantee shall not exceed 50% of the net assets of the latest fiscal year consolidated financial report. “
The explanation of the situation: Before the issue of China Securities Regulatory Committee Document No.56, the Company didn’t understand very well the meaning of “external guarantee” ,it believed the guarantee for the controlled subsidiaries which is included in the scope of the consolidated financial report shall not be included in the external guarantee ,and believed that the total amount of the actual external guarantee was not more than 50% of the net assets of the Company. Until June 30,2004, the external guarantee of the Company were RMB 467.5 million, USD 6.51 million(converted to RMB 53.88 million) ,totally accounting for 33.29% of the net asset of the Company at the end of 2003. Meanwhile, the guarantee for 15 controlled subsidiaries were RMB 777.25 million, USD 83.61 million(converted to RMB 692.01 million), totally accounting for 93.81& of the net asset of the Company at the end of 2003. The aforesaid two categories of guarantee accounted for 127.06% of the net assets of the Company at the end of 2003 .The huge amount of guarantee for the 15 controlled subsidiaries was accumulated in a long period of time, of which many subsidiaries operated with debts especially the import and export trading companies, the debt asset rate were higher and the demand of guarantee was huge. Besides, in order to control the risk the Company didn’t allowed the controlled subsidiaries to conduct the external guarantee while the assets for mortgage was limited , all of which caused the guarantee for the controlled subsidiaries can only be made by the parent company.
Rectification measure : (1) Strictly control the whole banking loan scale of the Company, try to keep the increase of the loan scale lower than the increase of the net asset. ,effectively control the guarantee scale and enable the proportion of the total amount of guarantee accounting for the net assets decrease year after year; (2) enhance the control of guarantee, strictly conduct the measures and application principles of the Company’s guarantee management, strictly conduct the examination and approval procedures of guarantee, monitoring the situation of guarantee, strengthen the guard of risk of guarantee;(3) To counter the historical problem of large amount of guarantee, the Company try to gradually solved the problem through the development. During the application of asset restructuring and the procedure of strategic changing, the company shall attach importance to the adjustment of asset liability structure. To sum up, the Company will conduct in accordance with the spirit of China Securities Regulatory Committee Document No.56, really strengthen the control of guarantee, conduct the long term management ,try to use 3 to 5 years, gradually solve the historically formed problem of large amount of guarantee, and try to minimize the financial risk caused thereof.
2. The Company guaranteed for An Hui Worldbest Biochemical Pharmaceuticals Co.,Ltd.etc five controlled subsidiaries whose debt asset rate exceed 70%, totally RMB 270 million, USD 11.51 million, which is not in conformity with the stipulations that “the Company cannot directly or indirectly provide the liability guarantee for the company whose debt asset rate exceed 70%. “ stated in Article 3 Term. 2 of Document No.56.
The explanation of the situation: Among the five controlled subsidiaries whose debt asset rate exceed 70%, three were import and export trading company. The debt asset rate of trading company generally are high and it is not unusual for the debt asset rate more than 70%.The another two companies were manufacturing companies whose high debt asset rate have been formed before they join the Company.
Rectification measure (1) strictly control the banking liabilities of the above companies, principally not increase the new amount , try best reduce the existed amount, effectively control and reduce the amount of guarantee;(2) Through the internal asset reconstruction of the company, gradually increase the capital and expanding the shares for the high debt asset rate companies,enable its debt asset rate below 70% by increase its net asset.
3. Some of the newly purchased subsidiaries, before they join the company they provide the guarantee without risk control measures such as mutual guarantee for the non-related enterprise totally RMB 4 million, which is not in conformity with he stipulations that”The external guarantee of the listed companies must ask the guaranteed company to provide back guarantee , and the provided shall have the actual ability to undertake the responsibility.”. stated in article 4 term 2 of the Document No.56.
Explanation: Those guarantee were the balance of the guarantee made by the newly merged companies before they join the company , so there have been no back guarantee.
Rectification measure:The company will forbid the subsidiaries to provide mutual guarantee for external enterprises. When the RMB 4 million guarantee expired it will not be continued.
4.In July,2003, the Company transferred its share equity of Suzhou Worldbest Agro-biochemical products Co.,Ltd. and Shanghai Worldbest Life Science Research and Development Co.,Ltd. to Worldbest Group., but the money advanced for the two companies RMB 5.52 million was not returned timely, and continued to provide the guarantee RMB 32.10 million for them, actually formed the fact that the controlling shareholder took the capital of related party and provided the guarantee for the controlling shareholder by the related parties, which was not in conformity with the relative stipulations of article 1 term 2 and term 2 of Document No.56.
The explanation of the situaton: In April 2004, the company has mailed to China worldbest Life Industry Co.,Ltd. and asked to solve the above issues as soon as possible. Up till now, the advanced money RMB 5.52 million has not been paid back yet, the guarantee provide has been relieved and the balance of gurantee was RMB 2.5mlion, as the bank ddn’t agree t change the guaranteer ,so it has not been relieved.
Rectification measure: The Comany has submitted the written report to china worldbest Group co.,Ltd. to ask for the coordination to sovle the problems after the recosntructuring , the advanced money issue shall provide the plan within the end of the year and the balance of the guarantee shall be relieved due expiration.
The Company believed that the the tour of inspection to the company by China Securities Regulatory committee Shanghai Supervision and Management Bureau is a systematic inspection and site guiding of the authenticity, precision and integrity of the information disclosure of the Company, the regulation of the management structure, the independency of the company, the standard of financial management and accounting caculation ;the use of raised money , the safe of capital anagement; the application of China Securities Regulatory Committee document no.56, and its surely will be positive in promoting the standard operation, and management standard ,and the internal control system .
04/02/2005
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