Is there any mystery?, The exorbitant breakup of shares by executives of listed companies | Company | Listed Company

Recently, the rumor of "Xu Jiayin's divorce" has spread widely on social media, due to a series of announcements released by Evergrande on the evening of August 14th.

According to the announcement, Ms. Ding Yumei, the wife of Xu Jiayin, the chairman of the board of directors of Evergrande, was referred to as a "third party independent of the company and its affiliates" and was not listed as Xu Jiayin's spouse as before.

As is well known, Evergrande has been having a tough time lately. In July, Evergrande announced that its company's debt exceeded 2.4 trillion yuan, and since then, there has been continuous public opinion turmoil. Some netizens speculate that the "divorce" of Xu Jiayin is suspected to be a "technical divorce", in order to allow Ding Yumei to divide her finances from Xu Jiayin, in order to avoid debt and retain assets.

"Technical divorce" usually refers to a "fake divorce" carried out in order to achieve a specific purpose. This approach may involve considerations of property, taxation, or other legal aspects, but may not necessarily reflect the true state of the marital relationship.

During this process, both spouses will register for divorce, and legally speaking, they are indeed divorced. But both parties did not experience marital or emotional breakdown at the time, and their actual intention and initial purpose were only to obtain legal consequences for divorce.

The exorbitant breakup of listed executives

Divorce can not only isolate debts, but also indirectly reduce holdings and transfer assets.

In April this year, Zhou Hongyi, the founder of 360 Company, announced his divorce, which attracted widespread attention and discussion from the outside world. Shortly before Zhou Hongyi's divorce, the stock price of 360 Company surged due to the ChatGPT concept. According to media statistics, from March 30th to April 4th, the stock price of 360 Company has risen by nearly 22%; As of early April, the stock price has increased by more than twice in 360 years. On the evening of April 4th, 360 announced that the actual controller of the company, Zhou Hongyi, and his wife Hu Huan had gone through divorce procedures. Hu Huan obtained 6.25% of the shares in 360 Company, worth about 9 billion yuan.

Once the announcement of 360 Company was released, it sparked discussions in the market about "exorbitant breakup fees" and "divorce style reduction of holdings". Despite the company's clarification announcement, 360's stock price continued to plummet in the following days.

On the evening of June 20th, Zhuo Shengwei announced that one of the actual controllers of the company, Tang Zhuang, and his ex-wife Yi Gebing had resolved their marriage through friendly negotiations and made relevant arrangements for the division of divorce property.

Tang Zhuang transferred his 32.7575 million shares of the company to Yi Gebing. After this equity change, Tang Zhuang is no longer a shareholder holding more than 5% of the company's shares; And Yi Gebing became the major shareholder of the company holding more than 5% of the shares. Based on the company's closing price of 104.12 yuan per share on the same day, the market value corresponding to Yi Gebing's acquisition of equity is approximately 3.411 billion yuan.

Three years ago, vaccine leader Kangtai Biotechnology also staged a similar scene. During the surge in vaccine stocks in 2020, Kangtai Biotechnology's stock price reached a historic high. In May of that year, Du Weimin, the actual controller of Kangtai Biotechnology, announced his divorce and split 24% of the total share capital to his ex-wife Yuan Liping, with a corresponding market value of approximately 23.5 billion yuan.

Before Du Weimin, Zhou Yahui, the actual controller of Kunlun Wanwei, set the highest "breakup fee" for A-shares at that time.

On the evening of September 12, 2016, Kunlun Wanwei announced that it had received a notice from the actual controller and chairman of the company, Zhou Yahui, that Zhou Yahui and his ex-wife Li Qiong had reached an agreement on a share split. Li Qiong directly and indirectly received 278 million shares of Kunlun Wanwei's stocks. Based on the closing price of 25.33 yuan on September 12, 2016, Kunlun Wanwei's equity is worth over 7 billion yuan.

Some divorces may be for the purpose of preserving property. The divorce case of former private equity tycoon Xu Xiang has attracted much attention. Xu Xiang's wife Ying Ying filed a divorce lawsuit in March 2019. In April 2023, four years later, the court ruled that Ying Ying's divorce lawsuit was not supported. This divorce case involves the division of assets worth billions of yuan under the family's name.

In response to the recent frequent exposure of "exorbitant breakup fees" and "technical divorces", the China Securities Regulatory Commission (CSRC) made a statement at the end of July regarding multiple incidents of shareholders of listed companies splitting their shares due to divorce.

The relevant person in charge of the China Securities Regulatory Commission (CSRC) stated that the CSRC has currently paid attention to the relevant situation. The reduction of shares is a fundamental right enjoyed by shareholders, but as a "key minority", the major shareholders and directors, supervisors, and senior executives of listed companies have special obligations and responsibilities in the company's business development and governance operations. They should effectively safeguard the interests of listed companies and small and medium-sized shareholders, consciously regulate the reduction behavior, and shall not evade the reduction restrictions in any way such as divorce, dissolution, liquidation, or separation.

Taking advantage of the loophole in "technical divorce"

Can debt isolation be achieved?

Zhang Ming, a partner and lawyer at Beijing Jingshi Law Firm, stated in an interview with China News Agency Guoshi Direct that the practice of "technical divorce" is not an effective "silver bullet" and carries some legal risks.

Zhang Ming introduced that enterprises tend to choose bank loans for financing, and banks usually require enterprises to provide collateral when providing loans, and require shareholders or actual controllers of enterprises to assume personal joint and several liability. In addition, banks often require the spouse of the actual controller of the enterprise to sign a loan guarantee agreement together and assume the guarantee responsibility.

Therefore, regardless of whether the business owner is divorced or not, creditors can still demand that both parties assume debt repayment responsibilities based on the relevant agreements previously signed. In addition, if a business owner tries to evade debt by signing relevant agreements, these agreements are often deemed invalid, which is considered a malicious act of debt avoidance.

Article 146 of the Civil Code of the People's Republic of China stipulates that civil legal acts committed by the actor and the counterpart with false intentions are invalid; Meanwhile, Article 154 stipulates that civil legal acts of malicious collusion between the perpetrator and the counterparty, which harm the legitimate rights and interests of others, are invalid.

But on the other hand, Zhang Ming believes that the current "technical divorce" of business owners can be seen as a protective measure against spouses. For newly incurred company debts after divorce, they may not be held responsible. Although this approach is controversial, it is still a reasonable financial strategy to protect the financial interests of the spouse.

The situation of "technical divorce" does not only exist between industry leaders and their spouses. Due to the fact that marriage is not just a interweaving of emotions between two people, but also involves property, social status, and the future of children, many people choose "technical divorce" in order to avoid certain legal obstacles encountered in life or work.

Zhang Ming believes that, especially in cases involving property and improper behavior, "technical divorce" should be cautious of being fabricated.

He suggested that if one impulsively divorces due to immediate interests, under the test of human nature, it may lead to a situation where both personal and financial resources are depleted. Therefore, caution should be taken before engaging in a "fake divorce", and it is recommended to handle the issue in accordance with the law and regulations, rather than taking risks or taking risks. If unavoidable, remember to keep relevant evidence and seek judicial protection if necessary.

For example, evidence can prove that the other party fabricated false reasons to deceive divorce, so that in the future, they can claim that divorce is a false legal act and hold the other party accountable.

Zhang Ming bluntly stated that the most important thing is for both spouses to carefully consider not easily giving up their common property, especially not transferring the property to the other party's name. This property transfer behavior is subject to legal constraints, and once implemented, it has legal effect and may lead to unfavorable legal situations in the future.