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Chinese securities firm enters bankruptcy
By Zhang Ran (China Daily)
Updated: 2006-01-26 06:58
Dapeng Securities, once one of China's leading private securities firms, has
become the first broker to announce its bankruptcy. Huge losses and the
embezzlement of clients' money caused the firm to go under.
Unable to cover 2.7 billion yuan (US$333 million) in debts, the firm was
finally declared bankrupt by Shenzhen Intermediate People's Court Wednesday.
The bankruptcy announcement comes a year after the securities authorities
barred the firm from doing business.
After completing liquidation, the firm had paid its employees their unpaid
salaries and had returned deposits to individual clients.
Under Chinese rules, corporate clients are the last group to get their money
back.
"Because Dapeng Securities already had a huge debt, and is basically a
private firm, it was very hard to reach an agreement with creditors to
restructure," according to a source at a law firm dealing with securities
issues.
A number of securities firms have been closed or taken over by other
companies due to heavy losses or because of illegal operations.
But this does not necessarily end in bankruptcy if an agreement with
creditors can be reached over restructuring.
The government's support has saved a few firms from bankruptcy. The Ministry
of Finance wrote off the debts of South Securities, a State-owned firm that
closed in 2004.
Currently, China has no specific provisions that detail how a securities firm
should apply for bankruptcy.
The Dapeng case, experts point out, will be a guide for other firms that are
ready to apply for bankruptcy.
Sources at the Supreme People's Court said that securities firms that apply
for bankruptcy, after they have been liquidated and paid back all individual
debts, should submit applications to the China Securities Regulatory Committee
(CSRC).
The court will then decide whether a firm should be allowed to go bankrupt,
be taken over or be restructured.
China will probably write the above procedure into a draft of China's new
bankruptcy law, according to Li Shuguang, a member of the draft committee.
The CSRC withdrew Dapeng's trading licence at the beginning of 2005 because
it had suffered a 4.4 billion yuan's (US$540 million) loss and had embezzled 90
per cent of clients' money. The embezzled amounted to more than 800 million yuan
(US$98.77 million).
Changjiang Securities, a good-performing securities firm in South China, had
taken over the management of Dapeng Securities.
It bought the firm's 24 branches and took over its entire staff.
Twenty-one securities firms recently reported a combined 1.2 billion yuan
(US$148 million) loss in their 2005 pre-audited financial reports, with losses
mainly in traditional brokerage and proprietary business.
Experts suggest poor-performing stock markets, a lack of diversified profit
models, narrow funding channels, irregularities, legal loopholes and fierce
competition all contribute to problems faced by securities firms.
China has about 130 securities firms. More than 20 have
reportedly been listed by the CSRC for "high-risk monitoring," meaning the firms
are under close supervision.
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