Longlive Bio-technology may face judicial restructuring due to debt problem 05-22-2018

At the beginning of May, Longlive Bio-technology announced that it cot a notice for reorganisation due to a debt problem. Even though the provincial Court may not accept the application, Longlive Bio-technology may still be reorganized to deal with the debt problem, according to CCM.


On 7 May, Longlive Bio-technology, a leading Chinese functional sugar, starch, and starch sugar provider, got a notice from the Intermediate Court of Dezhou City, Shandong Province. Based on the notice, Yucheng Huitong, a Chinese electrical equipment company, sued Longlive Bio-technology to the Court for reorganisation because of the company’s insufficient assets for matured debts settlement and the failure to repay the debts on time. On October 28, 2013, and September 6, 2014, a construction project contract was signed between the two companies. The total amount of the project was RMB 20.79 million. After signing the contract, Yucheng Huitong completed the construction of the project and signed a contract with the company. Until now, the Longlive Bio-technology still owes RMB1.741 million in project funds.


Currently, Longlive Bio-technology has not yet collected related civil ruling paper. If the Court handled with this case, Longlive Bio-technology would enter into a process of judicial restructuring, according to market intelligence firm CCM.


By negotiation with lawyers, CCM found that the purpose of a judicial restructuring is to save the debtor company, reserve debtor’s status as a legal entity, and regain sustained profitability with the creditor, therefore successfully completing debt restructuring. Pursuant to the Law of the People’s Republic of China on Enterprise Bankruptcy, when a court received a request for restructuring, it would appoint a manager to whom the creditor should submit claims. The manager or the enterprise should formulate a draft within a specified period and hand over to the meeting of creditors for a resolution. And the debtor will pay off debts. Nevertheless, if the court refused to pass a draft of restructuring, the company would go into bankruptcy.             


About the company

Established in 2001 and listed on the Shenzhen Stock Exchange in 2011, Longlive Bio-technology is mainly engaged in the production of functional sugar, starch, and starch sugar made from corncob and corn. Moreover, the company manufactures new energy products like second-generation fuel ethanol and new materials like lignin and graphene by recycling corncob waste.


In the middle of December in 2017, Longlive Bio-technology was involved in financial problems–illegal guarantee and missing capital, which were all unknown for its investors before. On January 12, 2018, the company was investigated by the China Securities Regulatory Commission for unlawful information disclosure. In the next few months, it was exposed to several amounts of liabilities exceeding USD471.18 million, and some of them were illegitimate.


On April 27, Longlive Bio-technology publicised its 2017 financial report, indicating a considerable loss of USD547.04 million, which directly resulted in current-period net assets of -USD44.29 million. In addition, its non-operating expenses increased by USD429.87 million YoY. Supplement of asset impairment amounted to USD64.55 million, and financial costs rose by USD57.48 million YoY, affected by current capital and debt default. A part of these non-business expenditures and liabilities were for 2016, but Longlive Bio-technology has not disclosed them until Q3 2017. According to an accounting firm, in the procedure of auditing, Longlive Bio-technology did not provide complete financial data, causing a failure of an audit to acquire sufficient and adequate auditing evidence. This demonstrates that the company had a financial fraud in its previous reports, showing a big problem in enterprise management.


How stable is the company?

However, Longlive Bio-technology still conducts smooth production and operation. During Q1 2018, the company has held marketing activities and joined in industry exhibitions. It serves as the first domestic cellulosic ethanol manufacturer as well as the unique designated fuel ethanol producer in Shandong Province, with government backing. In April, the company successfully passed a review for high-tech enterprises, thereby obtaining a tax preference. Furthermore, two projects developed by Longlive Bio-technology and its affiliates are listed as Shandong Province’s major projects transforming between old and new kinetic energy.        


Even with complicated debts and a huge deficit, Longlive Bio-technology reverses the risky situation by virtue of the support of the local government. Generally, a claim discharge through lawful restructuring is much more successful than that through legal settlement and will have less impact on the company's operation. For Longlive Bio-technology, judicial restructuring may be the best way to pay off all its loans, according to CCM’s researchers.


About the article

The information for this article comes form CCM, China's leading market intelligence provider for the fields of agriculture, chemicals, food and feed.

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