Bankruptcy, legal action – all in a week’s work at ShengdaTech
De-listed Chinese firm ShengdaTech has filed for bankruptcy under Chapter 11 of the US Bankruptcy Code. In announcing this action, the nano-precipitated calcium carbonate manufacturer says the Chapter 11 process will “facilitate the company's financial and operational restructuring, with the objective of restoring the company to financial health.” Under Chapter 11, ShengdaTech is permitted to continue trading and managing its assets as usual. Also announced on 22 August was the appointment of Michael Kang, a managing director at global professional services firm Alvarez & Marsal, as Shengdatech’s chief restructuring officer. In this capacity Kang will “lead the company’s restructuring effort.”
In the Chapter 11 documents filed on August 22, the ShengdaTech board of directors states the company’s reorganisation requires “the continued existence of the Special Committee and the chief restructuring officer, and the preservation of their independent powers.” To secure Kang’s and the committee’s continued presence, ShengdaTech filed for and was granted a temporary restraining order from the US Bankruptcy Court blocking its shareholders and or member of its board of directors from taking any action that interferes with Kang’s activities or those of the company’s so-called Special Committee. The restraining order also prevents the appointment of any new person, and one Mr. Gongbo Wang in particular, to ShengdaTech’s board of directors. This temporary restraining order will remain valid until a hearing on ShengdaTech’s request for a preliminary injunction is concluded; the hearing is scheduled to take place on 2 September, 2011.
On the day it filed for bankruptcy under Chapter 11, ShengdaTech’s board also sued chief executive officer Chen Xiangzhi and some of the company’s directors. The lawsuit seeks to prevent Chen, the company’s largest shareholder, from regaining control of ShengdaTech and obstructing the investigation of its finances.
Additionally, ShengdaTech reports that on 22 August the US Securities and Exchange Commission served it with a subpoena for documents relating to the SEC’s investigation into the company. ShengdaTech says it is “committed to cooperating” with the SEC yet concedes the investigation’s outcome is by no means certain.
ShengdaTech was de-listed from the Nasdaq earlier this year; the Chinese company initially gained listing in the US by way of a so-called reverse merger in 2006. In April 2011 accounting firm KPMG resigned as the company’s auditor after identifying “serious discrepancies and unexplained issues” while examining its consolidated financial statements for the 2010 financial year.