SORBIC UPDATE: NOVEMBER 2018

 

Parties: Wang Yanting (Wang): CEO of Linyi Van

            Honourfield Limited (Honourfield): 100% subsidiary of Sorbic   International plc

Exchange rate: RMB to £: 9

 

BACKGROUND

On 18^th July 2016, the agreement dated 25^th February 2016 was approved by the Linyi authorities to sell LVST for a consideration of RMB 38m to Wang. Part of the contract stated that if there was a dispute, then the matter would be referred to the Chinese Arbitration court (CEITAC) for resolution. Additionally, as the share sale was to Wang it was agreed that LVST would guarantee the obligations of Wang;

Due to the delays in obtaining a business licence, Wang paid a goodwill payment of RMB 3m to Honourfield’s bank account in China;

The new business licence was granted on 28 September 2017.

Subsequently Wang pleaded that he was unable to pay RMB 38m and a new amendment was agreed (10^th November 2017) which reduced the total amount he had to pay to RMB 23m, conditional on full payment by 31^st March 2018;

If the revised amount was not paid by 31^st March, the original debt of RMB 38m would be reinstated;

On 23^rd November 2017 Wang paid RMB 5m with the next payment due on 26^th December 2017

In February 2018, LVST’s operation was stopped by local environmental protection authorities for leakage of pollutant. LVST workers were sent back home without payment.

No subsequent payments were received and under legal advice and the provisions of CEITAC, a demand letter dated 1^st March 2018 was served on Wang giving him 60 days to respond and either pay or offer an alternative proposal;

During the 60day period, Sorbic instigated a Control Risks report into Wang’s affairs which showed that he had a number of other companies and that there was a bank borrowing (RMB 16m) secured on the LVST land in Linyi. Additionally, there was evidence that the Inner Mongolian authorities still owed LVST approximately RMB 26m as compensation for the earlier land issue;

Wang did not respond to the demand letter;

The arbitration claim was drafted and submitted to CEITAC in June 2018 which resulted in a notification being sent to Wang;

In July, Wang requested a meeting and stated that if the claim was pursued, LVST would be forced to close;

In August Wang disappeared from LVST and Linyi;

CEITAC attempted to serve the arbitration papers on Wang, however the address per his ID card was out of date, consequently a notarized service of the papers has now taken place at LVST. The Linyi authorities were contacted, and they too were unable to locate Wang. We contacted all other companies that Wang controlled or had an interest in, but these companies either had failed already or denied any knowledge of Wang’s whereabouts;

From the information we currently hold and in discussion with the Linyi authorities, no insolvency proceedings have yet been taken against LVST.

 

NEXT STEPS

The CEITAC arbitration process will take about 6 months to conclude;

Based on the above, we believe that there are 2 potential assets which may produce funds:

• Inner Mongolia
• The land at LVST

However, as Honourfield’s agreement was with Wang, there is no current direct contractual relationship with LVST, accordingly the LVST guarantee will be called, thus creating the contractual link and allow Honourfield to make a claim against LVST’s assets.

In the interim, as the called guarantee may take some time to come into effect, we will be meeting both the IM and Linyi authorities in November to put them on notice and also to obtain an assessment of any potential recovery.

 

John McLean

Chairman

November 2018