Rule of law+marketization Lifan bankruptcy reorganization quenching new life
On April 24th, the production workshop and production line of Lifan Technology Company were in operation. Reporter Xie Zhiqiang photo/visual Chongqing
Core tips
Lifan Industrial (Group) Co., Ltd. (referred to as "Lifan Shares") is a representative enterprise of China automobile and motorcycle industry, and the first private passenger car enterprise listed on A-share. After the debt crisis of Lifan in 2019, the Chongqing Municipal Government took Liangjiang New Area as the main body, adhered to the principle of "rule of law and marketization", and promoted the judicial reorganization of Lifan and its ten wholly-owned subsidiaries through the judicial path of bankruptcy reorganization.
After the reorganization, Lifan Technology (Group) Co., Ltd. (referred to as "Lifan Technology") came into being and quickly flourished. According to the latest report of the first quarter of this year, the company’s main income, net profit returned to the mother and other indicators have achieved substantial growth year-on-year.
From the risk of bankruptcy liquidation and delisting, Lifan has realized "quenching new life" by unloading huge debts and developing positively. This case was rated as "Special Case of Optimizing Business Environment in Chongqing" and major reform case, and "Typical Case of Promoting High-quality Development of Private Economy" by the Supreme People’s Court, which was written into the Work Report of the Supreme People’s Court of the Fourth Session of the 13th National People’s Congress.
On May 19th, the machine roared at Ruilan Automobile Assembly Plant in Liangjiang New Area. Ruilan Automobile was incorporated in January this year, and was jointly funded by a subsidiary designated by Geely Automobile Holdings Co., Ltd. and Lifan Technology. Not long ago, more than 20 new models were tried out here.
"Every month, car sales are increasing, workers’ wages are rising, and everyone’s work enthusiasm is very high!" Zhao Xingze, a 47-year-old assembly plant employee, told the Chongqing Daily reporter.
The enthusiasm of the workers comes from the quarterly report of Lifan Technology-the company’s main income is 1.249 billion yuan, up 48.74% year-on-year; The net profit of returning to the mother was 50.849 million yuan, up 220.54% year-on-year; Deducted non-net profit was 42,624,800 yuan, up 187.83% year-on-year.
What twists and turns and difficulties has Lifan experienced from bankruptcy reorganization to turning losses into profits? What vital roles did the principles of rule of law and marketization play in promoting the nirvana and rebirth of this enterprise? What thinking and value did it bring?
With these questions, the reporter visited the Chongqing Bankruptcy Court, Liangjiang New District, the heads of Lifan technology enterprises and some employees, and reviewed the whole process of Lifan’s judicial reorganization.
Desperate for change
Judicial reorganization and introduction of strategic investors
Lifan, founded in 1997 and listed on the Shanghai Stock Exchange in 2010, is the first private passenger car enterprise in China to be listed on the A-share market.
Lifan and its ten wholly-owned subsidiaries have formed a multinational enterprise group that mainly produces and sells automobiles, motorcycles and engines. It has been selected as one of the top 500 Chinese enterprises for ten times, and its export volume has ranked first in Chongqing for many years.
However, due to the deep transformation of the automobile and motorcycle industries, as well as the comprehensive factors such as strategic investment losses and poor internal management, since 2017, enterprises have gradually fallen into a business and debt crisis, with huge financial debts defaulting, major assets being mortgaged and pledged, and the main business is basically at a standstill. Lifan shares and ten wholly-owned subsidiaries are insolvent.
"Use lifelessness to describe the situation at that time." Referring to the situation of Lifan in the first two years, Zhong Xian, director of Lifan Technology, said with a sigh that at that time, Lifan shares were facing huge debts. With the stagnation of the main automobile industry, the motorcycle machine plate was "unable to support itself", which led to the tight cash flow of Lifan shares and gradually fell into a vicious circle of "financing at high interest rates and quenching thirst by drinking poison".
"Not only that, the internal management of Lifan shares is chaotic, the management personnel are jumbled, the rights and responsibilities are unclear, the approval process is lengthy and the implementation is slow." Zhong Xian said frankly that Lifan is facing a very serious problem, involving the employment of more than 6,000 people, more than 1,200 judicial cases accumulated by more than 1,000 enterprises in the upstream and downstream of the industrial chain.
"In the past few years, the company has been in a semi-discontinued state. Our main job every day is training and cleaning." Zhao Xingze has been rooted in Lifan for more than 12 years. He recalled that when he heard the news that Lifan was going bankrupt and looked at the semi-discontinued workshop, many young people chose to find another way out. The original assembly plant of 500 to 600 people left less than 100 people.
"This is not only related to the employment of more than 6,000 employees, but also may lead to secondary risks of supply chain enterprises in the industrial chain and spillover financial risks of financial institutions." Zhu Jun, the person in charge of the "Manjianghong" project in Liangjiang New Area and the general manager of Liangjiang Industry Group, said that in order to promote Lifan on the verge of bankruptcy, the municipal party committee and the municipal government immediately set up a "special class for restructuring Lifan Holding Company" with the city leaders as the team leader and deputy team leader. Liangjiang New Area transferred 20 backbones from investment, law, finance and taxation, industry and other fields to set up a "Manjianghong" project special class to tackle the problem full-time at the urban level.
"Lifan has a huge enterprise system, involving listing, finance, overseas and other subjects. How to reorganize it has become the primary issue." Zhu Jun recalled that the working class found the "cause" through a comprehensive analysis of Lifan’s assets and liabilities-the main automobile industry was stagnant, and external blood transfusion and simple debt restructuring were useless.
After repeated argumentation and comparing the feasibility of agreement reorganization and judicial reorganization, finally, the reorganization class decided to realize industrial transformation and upgrading through judicial reorganization and introducing strategic investors in accordance with the principle of "rule of law and marketization" to completely solve the problem of Lifan shares.
Industrial restructuring
The tortuous road of "inducing war"
After investigation, Liangjiang New Area and intermediary agencies found that it was more difficult for Lifan to introduce strategic investors than expected.
The special work class of "Manjianghong" project in Liangjiang New Area has intensively docked more than ten large domestic automobile enterprises. However, at that time, the domestic automobile industry was at a low point in the industry, and many institutions made it clear that they had no intention or ability to participate in the Lifan project.
Lifan’s road to "leading the war" is deadlocked.
Through in-depth research, the Chongqing Municipal Party Committee and the Municipal Government clearly focused on introducing Geely, a self-owned brand car company that grew against the trend that year.
"In late September 2019, we held repeated consultations with Geely Group for six times: on the one hand, we invited senior management of Geely Group to visit Chongqing, communicated face to face with city leaders, real controllers of Lifan and creditors’ representatives, and conducted field research on Lifan to understand the real situation of the enterprise; City leaders have repeatedly visited Hangzhou to sincerely’ lead the war’, fully expressing Chongqing’s confidence and determination to support Lifan’s transformation and restructuring. " Zhu Jun introduced that in the end, the two sides reached a feasible bankruptcy reorganization and "war-inducing" scheme. On December 27th of that year, Liangjiang New Area and strategic investor Geely Technology successfully signed a "war-inducing" agreement.
Break the predicament
102 days to complete judicial reorganization
The participation of strategic investors enhanced the confidence of creditors, and Lifan began to enter the stage of judicial reorganization.
In fact, Lifan’s corporate restructuring process is tortuous and complicated, and it has encountered a lot of unprecedented problems, creating a number of "firsts" in innovative cracking, such as the first comprehensive use of all existing bankruptcy restructuring models in judicial practice.
"Lifan Co., Ltd. and its ten wholly-owned subsidiaries involve many debtor enterprises, and there are many difficulties in the trial of the reorganization case." Wu Hong, President of Chongqing Bankruptcy Court, introduced.
However, it only took 102 days from entering the judicial reorganization to the final crisis relief, which was more than 60% shorter than that of similar cases.
"We coordinated and promoted, and creatively proposed to make overall use of the share certificates transferred by the investors of listed companies to introduce strategic investors and pay off the debts of listed companies and ten subsidiaries as a whole, and comprehensively resolve the risks of enterprise groups." Wu Hong said.
He introduced that in order to give full play to the decisive role of the market in resource allocation, Chongqing innovation adopted the "financial investor+industrial investor" model.
Liangjiang Fund Company, a state-owned strategic investment platform in Liangjiang New Area, and Geely Group, a leading private automobile enterprise in China, participated in the reorganization in the form of a consortium. Financial investors introduced funds, and industrial investors introduced new businesses and technologies to jointly build an electric vehicle industry with new energy for electricity exchange, realize industrial transformation and upgrading, and form a dual "driving force" to promote enterprise rebirth.
"State-owned platform companies and private enterprises jointly take the lead in setting up investment funds to introduce social capital to participate in enterprise restructuring, give financial support for enterprise development, and make full use of market-oriented means to save enterprises." Wu Hong said, in addition, make full use of the linkage mechanism of "government and hospital" in enterprise bankruptcy disposal, establish a cross-line, cross-departmental and cross-regional coordination system, coordinate and reorganize all matters, effectively promote the integration of reorganization work, and help the effective market and the promising government to better integrate through judicial reorganization.
Nirvana rebirth
Bankruptcy and delisting crisis finally lifted.
After the draft reorganization plan is released, what remains is how to get most creditors to agree to this plan.
"What is particularly memorable is that before voting on the draft reorganization plan, in order to ensure that as many as 22 independent voting procedures were all passed, we decided to start with two key dimensions: the amount of creditor’s rights and the number of creditors." Deng Ling, director of the Judicial Bureau of Liangjiang New Area, said that on the one hand, 87 key creditors with a total amount of over 80% were screened out, and one-on-one communication plans were drawn up in different categories and levels, and they went to all parts of the country to visit or video communicate one by one; On the other hand, for the remaining 2,600 small or operating creditors, carpet communication and explanation were carried out at the pace of more than 600 creditors per day, and finally the creditors voted with high votes, which not only avoided the approval of judicial compulsory ruling, but also created favorable conditions for subsequent creditors to cooperate with the implementation of the reorganization plan.
In the end, Lifan has 12 reorganization plans in the listed and unlisted sectors, and a total of 22 voting procedures have been passed by high votes, with an average passing rate of 92.14%, of which the voting rate of the investor group is 100%.
It is worth mentioning that in August 2020, the Chongqing Bankruptcy Court officially ruled that Lifan was reorganized. Lifan shares must decide to approve the reorganization plan and basically implement it before the end of 2020, so as to avoid the risk of delisting, which requires high reorganization time.
"Therefore, during the trial of the case, the Chongqing Bankruptcy Court made specific arrangements for important time nodes by combining the legal time limit with the time to complete the task, and all the work was promoted efficiently and orderly." Wu Hong said.
On November 30, 2020, Chongqing Bankruptcy Court ruled to approve the reorganization plans of Lifan and its ten wholly-owned subsidiaries respectively. Immediately, Lifan enterprises carried out a package of legalization and market-oriented judicial reorganization.
On February 8, 2021, Chongqing Bankruptcy Court ruled that the reorganization plan was completed and the reorganization procedure was terminated, which was 110 days earlier than the six-month execution period stipulated in the reorganization plan, thus avoiding the risk of delisting of listed companies.
On April 26 of the same year, Lifan shares "picked the stars and removed the hats" and changed its name to Lifan Technology.
At this point, the bankruptcy and delisting crisis of Lifan enterprises has finally been lifted.
Li Shufu, chairman of Geely Holding Group, also recognized the judicial reorganization of Lifan. He said: "Chongqing has a good business environment and a good investment environment. Lifan itself is a well-known and influential enterprise in the industry, so no matter from its brand value or the foundation it has formed over the years, we think Lifan is worth reorganizing. "
Revive one’s vitality
Safeguard the interests of all parties and achieve win-win situation.
Dismantling the "bomb" attracts the "golden egg". After judicial reorganization, Lifan’s fundamentals have been completely changed, and its governance system has been completely reconstructed-Chongqing Manjianghong Equity Investment Fund Partnership (Limited Partnership) holds 29.99% of the company’s equity and becomes the largest shareholder; Geely Technology Group Co., Ltd. holds 20% equity of the company through Chongqing Jianghehui Enterprise Management Co., Ltd. and becomes the second largest shareholder.
"We have reorganized from Lifan to form a comprehensive strategic cooperation with Geely, and through joint efforts, Geely has made Chongqing an important fulcrum for the strategic layout of the western region." Zhu Jun introduced.
First, promote the polar star high-end new energy base to settle in Liangjiang New District. The total investment of this project is 7 billion yuan, and the price of bicycles produced is expected to reach more than 600,000 yuan, which will be the passenger car with the highest price of bicycles produced in Chongqing.
The second is to introduce the headquarters of Geely Industrial Internet-Wide Area Mingdao. The company has been selected as a national-level dual-span industrial Internet platform enterprise and a national-level characteristic professional industrial Internet platform pilot demonstration project;
The third is to introduce the Danish Shengbao Financial Technology Headquarters, a financial technology company acquired by Geely Holding in Denmark, and introduce saxo’s advanced algorithms, models, infrastructure and other core technologies into China.
"In the next step, we will also plan to promote the landing of projects such as’ Happy Millions’ and form a new ecological cluster of Geely Holding Group." Zhu Jun said.
"Geely, as a new industrial investor, not only injects funds into Lifan Technology, but also injects other major development factors." Zhong Xian introduced that the reorganization of Lifan Technology produced a new board of directors, with Xu Zhihao, CEO of Geely Technology Group, as the chairman, and the daily operation was led by Geely Technology, and quickly introduced the first new battery replacement model of Geely-Maple Leaf 80V. According to statistics, as of April this year, this model has produced more than 5,400 units.
At the same time, 15 technologies of the vehicle production line have been upgraded, and the advanced quality control system and product development process of Geely Science and Technology Group have been introduced, which has restored the vehicle production capacity and revived the enterprise.
In terms of operation and management, Lifan Technology has re-divided its business into automobile sector and Motong sector, and all industrial sectors have coordinated management as a whole, with matching capital resources in place. Moreover, the organizational structure of the enterprise has been adjusted and optimized, and the flat management has been realized by setting posts and staffing, optimizing the allocation of personnel and posts, and stabilizing the workforce.
"The most important thing is that based on these changes, the overall atmosphere of Lifan Technology is no longer lifeless, but vibrant and positive." Zhong Xian said.
The data shows that after the judicial reorganization, Lifan’s debts have been solved, all employees’ creditor’s rights have been paid off, and creditors’ rights and interests have been guaranteed; Resolved the secondary risks of more than a thousand industrial chain and supply chain enterprises and the spillover risks of more than 70 financial institutions; It has stabilized the employment of more than 5,700 on-the-job employees, safeguarded the interests of all parties, and achieved a win-win situation.
In the eyes of front-line employee Zhao Xingze and his colleagues, there is work every day, wages are rising gradually, and subsidies are increasing, which means that the enterprise is alive and hopeful!
"A few years ago, we worked in the assembly line for no more than 10 days a month." Zhao Xingze said that everyone has been working overtime recently, just to get the new models that have been tried out into mass production as soon as possible.
"As an old employee, I have witnessed the glory and trough of Lifan, and I hope to witness Lifan’s further glory in the future!" Zhao Xingze said.
Expert opinion > > >
Xu Yangguang, Professor and Doctoral Supervisor of Law School of Renmin University of China:
Achieve a high degree of unity of political, legal and social effects.
At present, in the face of the new situation of increasing downward pressure on the economy, how to prevent financial risks, support the development of enterprises, promote bankruptcy and reorganization, and create a good legal environment has been a problem that local governments and judicial departments have been thinking about.
Lifan’s judicial reorganization case is the first judicial reorganization case of a listed company in the automobile and motorcycle industry in China. Its successful reorganization is precisely a set of "methodology" for the transformation of large enterprises from difficulties formed in Chongqing.
On the one hand, in order to prevent the occurrence of regional financial risks, the financial debt crisis of Lifan enterprises was comprehensively resolved by disposing and reorganizing non-essential assets, paying off debts by installments, and transferring shares to pay off debts, which effectively realized the "soft landing" of regional financial risks. At the same time, according to the target requirements of "six stabilities" and "six guarantees", the reorganization procedure effectively resettled the employees of the original enterprises, maintained the production and operation of more than 1,000 enterprises in the upstream and downstream industrial chains, and avoided a series of social risks, thus maximizing the interests of creditors, debtors, investors and other parties, achieving a high degree of unity of political, legal and social effects, and providing a sample for the orderly development of China’s capital market.
On the other hand, the automobile manufacturing industry is one of the pillar industries in Chongqing, and it is now in a critical period of transformation and upgrading. Through judicial reorganization, the management and debt crisis of Lifan and its ten wholly-owned subsidiaries were completely resolved, and the turnaround was fully realized. At the same time, through judicial reorganization, industrial investors with leading position in the industry are introduced to build a new ecology of intelligent new energy automobile industry, which provides a powerful judicial service and guarantee for helping Chongqing automobile manufacturing industry to transform and upgrade and promote high-quality economic development.
Our reporter Huang Qiao