TORONTO, ONTARIO--(Marketwired - Jan. 16, 2014) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Corporation") reported today on its current situation during its management transition.
Governance, Management and Operations
As previously disclosed, the former CEO, Xinduo Yu, was removed on January 7, 2014, by the Board of Directors of the Corporation as an officer of the Corporation, and as an officer, director or legal representative of any subsidiary of the Corporation. All other directors of the Corporation's subsidiaries were removed on January 10, 2014. Despite these board authorized changes, subsequent to his dismissal, the former CEO has made public representations that he does not intend to respect the decision of the Board of Directors, and said in part that, "he and his current management team will continue to lead the Hanfeng effort" and that it is "business as usual at Hanfeng".
The Corporation is now taking all necessary steps to notify the applicable regulatory authorities and third parties in China, and elsewhere, of these changes and to make the applicable registrations and regulatory filings in connection with these changes. The government filings that are required in China to change the legal representative and to replace directors are in process. The Corporation has retained Chinese legal counsel to assist in these steps and generally to provide legal advice concerning compliance with Chinese laws, and as previously announced, has retained FTI Consulting as interim manager in China. The Corporation has been advised that the process of fully transitioning governance and management, particularly in China, can require as long as six weeks, or possibly longer, particularly in circumstances such as these where the former CEO continues to represent to personnel and third parties, directly or indirectly, that he is still an officer of the parent Corporation or an officer, director or legal representative of the subsidiaries.
As the Corporation's news release stated on January 8, 2014, this management transition is a complex process occurring within a global enterprise operating under multiple corporate legal systems. Accordingly, such changes are not fully accomplished instantly.
Since the removal of the CEO, and the removal of all other directors of the subsidiaries, the management of the subsidiaries has been advised of these changes and, at this point in time, it is uncertain whether or not the management in China or in the other subsidiaries will accept or respect these changes on a timely basis without further action being taken. Neither the Corporation nor FTI Consulting is in a position to confirm whether the new legal representatives and directors appointed to each of the Corporation's two subsidiaries in China, or the new directors of the other subsidiaries, are able to perform their roles and responsibilities in cooperation with its staff. The Corporation's appointed legal representatives are not in possession of the official company seals, referred to as "chops" for the two subsidiaries in China.
Subsequent to the termination of the CEO, the electronic communications for the Corporation's e-mail (@hanfengevergreen.com) and web site (www.hanfengevergreen.com ) were transferred to a new service provider in China without the approval of the Board of Directors or the management team in Canada. Electronic communications for certain Chinese subsidiaries at www.hanfeng-group.com are directly or indirectly under the control of the former CEO and control has not yet been transitioned to the Corporation. Accordingly, the Corporation is in the process of attempting to regain complete control of these communication platforms and in the meantime advises all parties sending or receiving e-mails or communicating by way of any e-mail associated with the domains hanfengevergreen.com or hanfeng-group.com, or any representation concerning the Corporation or its subsidiaries on those web sites and e-mail servers, that until further notice, those communication platforms are not fully under the control or direction of the Corporation and may not be relied upon.
In order to provide funding for Corporation's operations in Canada, the Board of Directors has previously authorized the direction and payment of funds from two Chinese subsidiaries to the Canadian parent corporation. As previously disclosed, the repatriation of funds from China to Canada is not without risk and uncertainty. In this regard, the Corporation's Annual Information Form dated September 30, 2013 previously filed on www.sedar.com states in part,
"Repatriation of Profit and Currency Conversion … any foreign exchange transaction on the capital account is subject to prior approval from the State Administration of Industry and Commerce ("SAIC"), and the State Administration for Foreign Exchange ("SAFE") of the PRC. … The Corporation's wholly-owned subsidiaries in China may pay dividends to the Corporation or pay outstanding current account obligations in foreign exchange but must present the proper documentation to a designated foreign exchange bank in order to do so. There can be no assurance that the availability of foreign currency will be sufficient for the Corporation's subsidiaries to pay dividends to the Corporation or to satisfy their other foreign currency obligations, or that the SAFE or SAIC will approve said transfer. …. Furthermore, the time it takes to repatriate funds is unpredictable, and the exact process for repatriation is unclear."
In the current circumstances, it has come to the Corporation's attention that in connection with prior directed transfers of funds on capital account from China to Canada during 2013 by one of the Corporation's Chinese subsidiaries, Hanfeng Slow-Release Fertilizer (Jiangsu) Co., Ltd ("Jiangsu Subsidiary"), one or more representatives of the Jiangsu Subsidiary is alleged to have made one or more false declarations to SAFE, which, if it occurred, would have been directly contrary to the explicit, written funding instructions that any such wire transfer was only approved subject to all relevant law and customs of the People's Republic of China. As a result, the Corporation has been informed by the management of both of its subsidiaries in China that any further fund transfer by these subsidiaries from China is held up pending the outcome of an investigation by SAFE. The Corporation, in conjunction with its legal counsel in China, is in the process of undertaking an investigation of the situation and intends to cooperate with the SAFE authorities.
These restrictions on inter-company transfers have impacted the ability of the Corporation to secure the necessary funds for the sustained operations of the Canadian public company, and have had an adverse impact on liquidity. In the absence of being able to promptly return capital from China to Canada, the Corporation is exploring various financing and related alternatives, which may include seeking to source private lending, debt and/or equity capital.
Given the overall situation with management reporting and operations, and internal controls and procedures, particularly in its Chinese operations, the Corporation believes there is significant risk that its financial reporting, in particular the financial statements for the quarter ended December 31, 2013, may be delayed.
Trading on TSX
On January 15, 2014, the Toronto Stock Exchange suspended trading in the Corporation's common shares pending clarification of the Corporation's affairs. As at the date of this release, the Corporation's common shares remain halted.
This news release contains forward-looking statements based on current expectations, including but not limited to the Corporation's plans, objectives and expectations and the exploration by the Corporation of strategic alternatives. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about the Corporation's business are more fully discussed in the Corporation's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada. Additional important factors that could cause actual results to differ materially include, but are not limited to: the ability of the Corporation to preserve or monetize its working capital; the effective ability of the Corporation to appoint directors and representatives of its subsidiaries in China and elsewhere; delays in financial reporting; and the implementation of any alternative or financing transaction on acceptable terms. Forward-looking statements are not guarantees of future performance. In light of the significant uncertainties inherent in the forward-looking statements included herein, any such forward-looking statements should not be regarded as representations by the Corporation that its respective objectives or plans will be achieved. Investors are cautioned not to place undue reliance on any forward-looking statements contained herein. Forward-looking statements are provided for the purpose of providing information about the Corporation's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, these forward-looking statements relate to the date on which they are made. The Corporation expressly disclaims any intention or obligation to update or revise any forward-looking statements or the foregoing list of factors, whether as a result of new information, future events or otherwise, except to the extent required by law.
About Hanfeng Evergreen Inc.
Hanfeng is a leading producer and supplier of value-added fertilizer solutions in emerging markets. It is the largest producer of slow and controlled release fertilizer in two of world's most significant agricultural markets: the People's Republic of China and the Republic of Indonesia. Hanfeng is headquartered in Toronto, Ontario and its shares are listed on the Toronto Stock Exchange under the symbol HF.