China Business and Intellectual Property Lawyers & Attorneys : King & Wood Law Firm : China Law Insight : IP, Arbitration, Litigation, Securities, Foreign Investment

Stellar Megaunion Corporation ("SMC") was in serious debt, as it could barely repay its liabilities. New World China Land ("NWCL"), which was seeking an opportunity to go public, proposed to acquire SMC as a shell company which has no assets, but is publicly listed. To achieve this goal, NWCL conducted several rounds of negotiations with SMC's creditors to settle SMC's debts and clear the roadblocks for the acquisition. However, the parties were unable to make much progress in the negotiations due to the large number of SMC's creditors involved. As SMC needed to solve its debt crisis as soon as possible and its negotiations with NWCL were deadlocked, the company decided to reorganize to completely release itself from the heavy debt burdens in a short period time.

SMC's Reorganization
A. Reorganization initiated by SMC's creditors
As SMC failed to repay it debts due, a third party creditor petitioned the proper Intermediate People's Court (the "Court") to reorganize SMC. The Court accepted the petition on March 11, 2008 ([2008] Yusanzhongbozi No.1).

B. Confirmation of Creditors' Rights
According to the proposed reorganization plan the administrator of SMC (the "Administrator") submitted to the Court and the first SMC creditors' meeting, 70 creditors filed claims and the total value of confirmed claims was nearly RMB 2.5 billion. [continue reading to find out the outcome]
 

Liu Yanling, Partner and head of King & Wood's Restructuring & Insolvency group.

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Last month, Mr. Martin Lipton, of Wachtell, Lipton, Rosen & Katz, honored King & Wood with a speech on the implications of the “poison pill” in legal practice.  Mr. Lipton is noted for his innovative "rights plan", a series of defensive measures taken by the board of a target company in a hostile takeover.  The “rights plan” is meant to ward off hostile offers that substantially underestimate the value of the target's shares.  The rights plan was later referred to as the "poison pill" by Wall Street bankers whose attempts at hostile takeover below fair value were frequently frustrated by the "rights plan."


Mr. Lipton's speech inspired me to ponder the question of how defensive measures work in China's corporate governance.  I then googled the word "poison pill" and "company" in Chinese, but found no instances of companies utilizing the poison pill within China.  So why is there no poison pill in China?

By   Li Wenbo   King & Wood’s International Trade Group

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