Xingdesheng Technology (Suzhou) Co., Ltd., which is in the process of IPO, is an enterprise mainly engaged in the research and development, production and sales of micro and special motors and related products in Suzhou. Further study of the prospectus by the Economic Information Daily found that during the IPO reporting period (referring to the first half of 2020, 2021, 2022 and 2023, the same below), Xingdesheng and its subsidiaries were repeatedly subject to more than 10 administrative penalties from multiple departments including environmental protection, fire protection, safety, market supervision, foreign exchange, etc., with a total fine of more than 2 million yuan. For some of the administrative penalties, the prospectus does not disclose the determination materials of the penalty implementation authority on whether the punishment constitutes a major violation of laws and regulations. People in the legal profession pointed out that to determine whether there is a major violation of the law and punishment, it is generally necessary for the administrative punishment implementation organ to issue a certificate that it is not a major illegal act, and cannot be determined by the enterprise, sponsor, lawyer and other departments.
Last year, he was fined for failing to use pollution prevention facilities in accordance with regulations
The company strictly implements national and local laws and regulations on environmental protection, and actively takes effective governance and preventive measures in the daily production and operation process, and passed the ISO14001 environmental management system certification on January 4, 2019.
However, what is intriguing is that in 2023, Xingdesheng will be administratively punished for failing to use the prevention and control facilities for volatile organic compounds and waste gas pollution prevention and control in accordance with the regulations. On January 18, 2023, the Taizhou Municipal Bureau of Ecology and Environment issued the "Taihuan Penalty Zi [2023] No. 2-21" "Administrative Penalty Decision of the Taizhou Ecological Environment Bureau" to Taixing Xingdesheng Electric, a wholly-owned subsidiary of Xingdesheng, and Xingdesheng Electric was fined 40,000 yuan by the Taizhou Ecological Environment Bureau for failing to use the prevention and control of volatile organic compounds waste gas pollution prevention and control facilities in accordance with the regulations. As of the signing date of the prospectus, Xingdesheng Electric has paid the fine on time and has completed the rectification.
Xingdesheng explained in the prospectus that according to the provisions of Article 108, Paragraph 1 of the "Law of the People's Republic of China on the Prevention and Control of Air Pollution", "if any of the following acts are committed in violation of the provisions of this law, the competent department of ecology and environment of the people's government at or above the county level shall order corrections and impose a fine of not less than 20,000 yuan but not more than 200,000 yuan; If corrections are refused, it shall be ordered to suspend production for rectification: (1) Production and service activities that produce waste gas containing volatile organic compounds are not carried out in confined spaces or equipment, pollution prevention and control facilities are not installed or used in accordance with regulations, or measures to reduce waste gas emissions are not taken. According to the prospectus, Xingdesheng Electric's failure to use relevant pollution prevention and control facilities in accordance with the regulations was not its subjective intention, and Xingdesheng Electric actively corrected it after the case, which was in line with the situation of lenient administrative punishment. In addition, the amount of punishment suffered by Xingdesheng Electric is relatively small, which belongs to the lower range of the statutory fine, and it has paid the fine and has completed the rectification, and the above punishment is a lighter punishment. Therefore, the acts involved in the above-mentioned administrative penalties of Xingdesheng Electric do not constitute major violations of laws and regulations, and the above-mentioned administrative penalties do not belong to major violations of laws and regulations, and do not constitute legal obstacles to the company's issuance.
In addition, Xingdesheng said in the disclosure of "environmental protection investment and related expenses" that during the reporting period, the company's investment in environmental protection facilities was only 52310,000 yuan, 27630,000 yuan, 83560,000 yuan and 30,000 yuan. However, according to the old version of the prospectus, in 2019, Xingdesheng's investment in environmental protection facilities was zero yuan. Xingdesheng explained that the company and its subsidiary Suzhou Yuezheng Electromechanical have completed the purchase of all environmental protection equipment before 2019, and the production and construction of the remaining major subsidiaries mainly began after 2020, so the company has no investment in environmental protection facilities in 2019.
Xingdesheng emphasized that the company does not belong to the heavily polluting industry, and the pollutants generated in the production process are relatively small. The company's environmental protection investment and environmental protection costs are centered on the prevention and control of pollutants generated by its production and operation, and the environmental protection investment and environmental protection related costs and expenses during the reporting period are matched with the pollution generated by the treatment of production and operation.
Frequent fire penalties During the reporting period, relevant subsidiaries were cancelled
In terms of fire protection and safety production, Xingdesheng also has certain hidden dangers and problems.
In the old version of the prospectus disclosed for the first time in early 2023, the reporting period included 2019, and its holding subsidiary Suzhou Xingdewei Motor *** referred to as "Xingdewei") had a fire. Strangely, on March 16, 2021, the company was deregistered. In this regard, the prospectus revealed that Xingdewei is mainly engaged in the processing services of micro and special motor products, and in order to meet the needs of strategic planning and adjustment, the company will transfer part of its production functions to Taixing. The reporter found through Tianyan that Xingdesheng has set up 2 wholly-owned subsidiaries in Taixing, of which Taixing Xingdesheng Motor *** referred to as "Taixing Xingdesheng") was established on September 6, 2019, which should be a new company for the transfer of production capacity after Xingdewei was cancelled.
According to the prospectus, Xingdewei leased the factory and dormitory located in Puzhuang Liandong Road, Linhu Town, Wuzhong District to Suzhou Xingwei Home Textiles *** (hereinafter referred to as "Suzhou Xingwei"). Due to the loss caused by the fire in the leased factory area on August 8, 2019, Suzhou Xingwei filed a lawsuit with the People's Court of Wuzhong District, Suzhou City, for which the company made a corresponding estimated liability of 56140,000 yuan. On July 6, 2020, the Wuzhong District People's Court of Suzhou City issued the (2019) Su 0506 Min Chu No. 9946 Civil Judgment, in which Xingdewei paid 6790,000 yuan. At the end of 2020, Xingdewei transferred the estimated liabilities accrued to non-operating income.
According to the prospectus, the cause of the fire was caused by the high-temperature slag generated by the unlicensed welders of the Weitang Zhengtai Steel Structure Installation Service Department of Xiangcheng District, the contractor entrusted by Xingdewei, when welding the steel frame, igniting the combustibles below. The above-mentioned fire caused some damage to some of the company's machinery and equipment, and the actual loss was 7700,000 yuan. Xingdewei moved out of the above-mentioned leased plant in advance and terminated the lease contract after the above-mentioned fire, and assumed liquidated damages of 7960,000 yuan. Xingdesheng believes that after the fire, Xingdewei gradually transferred the relevant business to Xingdesheng and Taixing Xingdesheng, and Xingdewei has been cancelled. The loss caused by the fire to the company was small and did not have a significant adverse impact on the company's production and operation.
In fact, shortly after the fire, Xingdewei received 5 administrative penalty tickets from the fire department, with a total fine of 50,000 yuan.
According to the prospectus, on August 21, 2019, Xingdewei made 5 administrative penalties to Xingdewei due to the behaviors of "the U-shaped spacing in the middle of the building is occupied for production", "the fire door on the northwest side of the first floor is removed", "the external construction of the safety exit on the north side of the factory is used as a warehouse to affect the evacuation, and the fire truck passage is occupied", "the fire hydrant in the northeast of the factory is waterless", "the construction area is greater than 3,000 square meters, and no automatic fire extinguishing and alarm facilities are set", etc., the Wuzhong District Brigade of the Suzhou Public Security Fire Detachment made 5 administrative penalties to Xingdewei. A fine of 10,000 yuan was imposed each, accumulating 50,000 yuan. According to the prospectus, Xingdewei has paid the fine on time and in full on August 23, 2019, and has moved out of the above-mentioned plant in August 2019, no longer conducts production and operation in the above-mentioned leased plant, and has completed rectification.
Xingdesheng prospectus believes that the above-mentioned fire violations were fined 10,000 yuan, and the amount of fines imposed is a punishment according to the lighter punishment order. Therefore, the above-mentioned administrative penalties are not penalties for major violations of laws and regulations, and do not constitute legal obstacles to the issuance.
However, what is intriguing is that the prospectus does not disclose the materials for determining whether the administrative punishment authority's conduct of the above-mentioned five administrative punishments constitutes a major violation of laws and regulations. On the contrary, Xingdesheng was punished with a penalty of 2,000 yuan, but provided proof materials from the administrative punishment authority.
According to the prospectus, on December 4, 2019, the Suzhou Industrial Park Fire and Rescue Brigade (formerly known as: Suzhou Public Security Fire Detachment Industrial Park Brigade) issued the "Su Yuan (Elimination) Line Penalty Decision (2019) No. 0636" to Xingdesheng, and the company was fined 2,000 yuan for failing to obtain the corresponding qualifications according to the regulations, and the company has paid the above fine. In view of the small amount of the above-mentioned penalty imposed by the company, and the "Explanation" issued by the Suzhou Industrial Park Fire and Rescue Brigade on December 31, 2021, the company paid the fine in a timely manner, actively rectified, and completed the rectification work, the administrative penalty is not a major violation of laws and regulations, and does not constitute a legal obstacle to the issuance.
Foreign exchange penalties of more than 2 million yuan have used uninspected special equipment
On March 29, 2021, the "Su Su Hui Jian Zhi [2021] No. 1" "Administrative Penalty Decision" issued by the Suzhou Central Branch of the State Administration of Foreign Exchange to Xingdesheng shows that on April 30, 2019, Xingdesheng handled a cross-border loan at the Gusu Branch of Bank of Ningbo and received a euro loan of 4.98 million yuan, which was repaid on April 22, 2020. Xingdesheng was fined 2.26 million yuan by the Suzhou Central Branch of the State Administration of Foreign Exchange in accordance with Article 41 of the Regulations of the People's Republic of China on Foreign Exchange Administration for the inflow of funds without truthfully disclosing the information of the actual controller. The issuer has paid the aforesaid fine.
Xingdesheng explained in the prospectus that according to Article 41 of the Regulations of the People's Republic of China on Foreign Exchange Administration, "if foreign exchange is remitted into China in violation of regulations, the foreign exchange administration authority shall order it to make corrections and impose a fine of less than 30% of the illegal amount; where the circumstances are serious, a fine of between 30% and the equivalent of the illegal amount is to be imposed. "Based on the conversion of the mid-exchange rate on the date of the above-mentioned issuer's illegal remittance of the loan, the amount of the fine imposed on the company accounts for about 6 percent of the illegal amount03%, far less than 30% of the illegal amount, does not belong to the "serious circumstances" stipulated in Article 41 of the Regulations of the People's Republic of China on Foreign Exchange Administration, and it is necessary to impose a fine of more than 30% of the illegal amount and less than the equivalent value.
Xingdesheng further stated that according to the on-site visit of the sponsor institution and the company's lawyer to the Suzhou branch of the foreign administration, the acts involved in the above-mentioned punishment are not serious circumstances, and the rectification has been completed, and the Suzhou branch of the foreign exchange has closed the case. The sponsor believes that the above acts of the company do not constitute a material illegal act and do not constitute a substantial legal obstacle to the company's issuance.
In addition, on December 9, 2020, the Suzhou Industrial Park Market Supervision and Administration Bureau issued the "Administrative Penalty Decision" of "Suyuan City Supervision Office Zi (2020) No. 07025" to Xingdesheng, and Xingdesheng was fined 30,000 yuan for using uninspected special equipment and violating the provisions of Article 84, Paragraph 1 of the Special Equipment Safety Law of the People's Republic of China. Xingdesheng said that the company has paid the above-mentioned fines, handled the inspection procedures for the relevant special equipment involved, and scrapped the unqualified special equipment.
Xingdesheng further explained in the prospectus that according to the provisions of Article 84, Paragraph 1 of the Special Equipment Safety Law of the People's Republic of China, "the use of special equipment that has not been produced with a license, has not been inspected or failed to pass the inspection, or the special equipment that has been eliminated or scrapped by the state, shall be ordered to stop using the relevant special equipment and shall be fined not less than 30,000 yuan but not more than 300,000 yuan." In view of the fact that the amount of fines imposed by the market supervision authorities for the above-mentioned acts is relatively small, and the penalties applicable to the Company are at the lower limit of the penalty range, the above-mentioned administrative penalties are not penalties for major violations of laws and regulations, and do not constitute a legal obstacle to the issuance.
Dr. Yu Shengyun, executive director of Jiangsu Yicheng Law Firm, pointed out that in principle, administrative penalties of "fines" or more are suspected of constituting major violations, so in IPO practice, to determine whether the relevant administrative penalties suffered by IPO enterprises are in major violations of the law, it is generally necessary for the administrative punishment implementation authority to issue a certificate that it is not a major illegal act, and cannot be determined by the enterprise or sponsors, lawyers and other departments, especially those with fines of 10,000 yuan or more. The reporter of the "Economic Information Daily" noticed that Xingdesheng did not provide relevant supporting materials issued by the competent departments for some administrative penalties in the prospectus, and the reporter sent a letter to Xingdesheng, but there was no reply as of press time.
Interestingly, some of the administrative penalties suffered by Xingdesheng were relatively small, but they provided proof materials from the competent departments. For example, on June 24, 2019, the Suzhou Municipal Transportation Management Office issued the "F [2019] No. 05011112499" "Administrative (On-the-spot) Penalty Decision" to Xingdesheng, and the company was fined 1,000 yuan for failing to participate in the annual inspection in accordance with the regulations. Xingdesheng believes that in view of the small amount of the above-mentioned penalty imposed by the company, and the "Certificate of Situation" issued by the Suzhou Transportation Comprehensive Administrative Law Enforcement Detachment on February 22, 2022, the above-mentioned penalty decision does not belong to the serious dishonesty of road and waterway transport operators in Jiangsu Province, and the above-mentioned administrative punishment is not a major violation of laws and regulations, and does not constitute a legal obstacle to this issuance.
*: Economic Reference Network.