Recently, Zhonglun Law Firm (“Zhong Lun") represented a large domestic guarantee company (“Z Guarantee Company") to successfully resolve a credit bond default and the resulting judicial disposal of pledged shares of a listed company, with the amount in dispute over CNY 1 billion. This case covered a series of intricate procedures and various complicated issues such as the disposal of defaulted bonds, priority between preferred creditors and first-lien creditors, enforcement of pledged shares of a listed company, bankruptcy and reorganization of a listed company, the impact of the COVID-19 pandemic and etc., and involved complex bond transactions and prolonged legal proceedings, which made it a classic and successful case combining financial and legal specialties. The team led by Wilson Wei Huo, a partner of Zhong Lun, provided full legal services to the client.

In this case, Z Guarantee Company provided a joint and several guarantee for the principal and interest of the bonds publicly issued by the controlling shareholder of a listed company in the stock exchange while the issuer pledged the shares of the listed company as the counter-guarantee. Since 2018, the issuer defaulted on the principal and interest of the bonds and Z Guarantee Company duly fulfilled its guarantee obligations. Zhong Lun was therefore entrusted by Z Guarantee Company to handle the issuer’s bond default and subsequent recovery against the issuer, with the main enforceable assets being the pledged shares.

Upon engagement, Zhong Lun assisted the client in properly handling and maintaining the relationships with the bondholders, the issuer, the trustee and other concerned parties, making full use of the decision-making mechanism of the bondholders’ meeting to avoid the immediate acceleration of maturity of all bonds, which greatly eased the financial pressure of the client. Faced with disadvantaged situation where the pledged shares had been judicially frozen and the court granting the first freezing order is not the court handling the enforcement proceedings of the present case and is unwilling to transfer the frozen assets’ disposal right to the present court, Zhong Lun rose to the challenges and won the disposal right of the pledged shares through the objection and review proceedings, and established at the level of the provincial high court the referable adjudication that “the refusal to the transferal request of the disposal right is subject to the review of enforcement objection proceedings". Subsequently, Zhong Lun successively overcame the adverse impact of the COVID-19 pandemic, the hardship to determine the fair price of the pledged shares due to the long-term trading suspension and consecutive disclaimer opinions in the annual reports of the listed company, urged the enforcement court to start the auction procedure through the judicial supervision and other mechanisms, timely seized the short window of the delisting period, successfully persuaded the enforcement court to set the starting price of the pledged shares by reference to the stock price during the delisting period, and assisted the client to eventually acquire all the pledged shares as a bidder in the auction. 

In the meantime, this case is one of the few cases of public auction of stocks during the delisting period, which may provide significant guidance and reference in similar cases in the future.

Under the situation that the financial regulation is continuously strengthened, the financial disputes become more frequent and complex and the financial judicial practice becomes increasingly professionalized, Zhong Lun will endeavor to utilize its expertise and experience to provide clients with high-quality, professional and efficient legal services in financial and investment dispute resolution.