Fundamentally, companies like China Ocean Resources are neither governed by the Korean commercial law nor subject to the act on external audit of stock companies, preventing authorities from properly inspecting their accounts. (image: KobizMedia/ Korea Bizwire)
SEOUL, Aug. 2 (Korea Bizwire) – Last April, Hong Kong-based China Ocean Resources Co. announced that it was sued by another Hong Kong firm for failing to pay back loans and interest, and that 30 percent of its subsidiary shares were sequestrated. The disclosure has since proven to be inaccurate. Since then, the company has received 30 penalty points and 200 million won ($180,000) in fines for false disclosure, and was suspended from the KOSPI on April 25.
Trading for China Ocean Resources resumed on July 29 as administrative issue, but the company’s minority shareholders are demanding that authorities take stricter measures that would prevent similar losses from occurring for those investing in overseas companies.
According to shareholders of the Hong Kong company, the biggest problem with foreign companies listed on the Korean stock market is a lack of information, and in order to resolve the issue, such companies should be obliged to establish offices in Korea, which current laws do not require.
This was the case for China Ocean Resources, which only disclosed information on its homepage and via public announcements.
“Companies that are listed in our market should have Korean offices, and provide management information while communicating with investors,” said an unnamed shareholder.
Shareholders also said that they’re not guaranteed of the right to call for an extraordinary general meeting, which can be used to restrain and keep the board of directors in check.
For example, in 2014, Korean minority shareholders of China Ocean Resources had to engage themselves in court battles after the company rejected their demand for an extraordinary general meeting over the CEO’s sudden disposal of company shares.
But when the shareholders filed a lawsuit in Korean court over the matter, the court replied that it was “not aware of the case’s jurisdiction because the company is located overseas,” and instead asked shareholders to provide evidence as to the applicable law for the suit, and explain which company holds jurisdiction over the matter.
Fundamentally, companies like China Ocean Resources are neither governed by the Korean commercial law nor subject to the act on external audit of stock companies, preventing authorities from properly inspecting their accounts.
Korean prosecutors are in the middle of their investigation, and the Korea Exchange is considering reporting the false disclosure and potential stock manipulation efforts carried out by the CEO and the board members of China Ocean Resources to Chinese authorities. Minority shareholders are also planning to visit China to determine the authenticity of the company’s other disclosures that have not yet been substantiated.
China Ocean Resources revealed on July 29 that a recent labor strike resulted in its failure to pay back shipbuilding loans to a shipyard, which obliges the company to pay back 20 percent interest on 240 billion won in credit. It also added that the interest rate will rise to 30 percent if it fails to pay back interest by the end of October.
By Kevin Lee (kevinlee@koreabizwire.com)
