Chinese AIM Companies – Sorbic et al

A good letter in the Financial Times today (29/5/2015) from Sorbic investor John Gunn about how AIM rules have failed to protect shareholders. He said it is “a terrible state of affairs” and suggested the AIM regulations had failed completely to protect shareholders.

Sorbic International (SORB) is an AIM listed Chinese company which has encountered major governance and legal problems and its shares have been suspended. To quote from the latest RNS, after the board fired Mr Wang Yan Ting, the CEO:

Since being replaced as the Company’s Legal Representative for LVST [the operating subsidiary] in China and from the LVST board, Mr. Wang has declined to hand-over the Company’s corporate seals (chops) and business licences, which he removed from the premises before he was dismissed.  The local police were contacted, but deemed Mr. Wang’s non-cooperation as a commercial matter and were therefore unwilling to assist.

As a result of Mr. Wang’s non-cooperation, the bank accounts and the day-to-day operations of the Company still remain under the control of Mr. Wang.  Furthermore, Mr. Wang has confirmed that he has transferred funds belonging to the Company which remain under his control and, to date, he has refused to return them“.

There is more bad news after that if you read the full announcement. John Gunn says that the AIM arm of the LSE has allowed “flaky” Chinese companies to list and complains of complete lack of protection for shareholders under AIM rules.

Investors in Naibu, which is a similar case, have the same complaints  and ShareSoc has commented on both Naibu and Camkids in the past. The investigation of the affairs of some of these Chinese companies by the Nomads before listing surely warrants some examination, and there is unfortunately little incentive for Nomads, who often also act as the company’s Broker, to undertake sound due diligence. The penalties for failings from the LSE are often trivial as it is with any “self-regulated” system.

Yes AIM needs reform to stop these scandals happening, but investors can do a lot to help themselves. Read the AIM prospectus or check a company out using the ShareSoc AIM Scorecard available from our web site. Obviously studying the accounts also helps but they cannot always be relied on – as with any business, being sure you understand the business and can trust the management are even more important. But that is often difficult at such remote distances where legal systems and business culture might be different.

Roger Lawson

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