Guangzhou Intermediate People'S Court Launched The First Securities Class Action "Ice Breaking" Of Kangmei Pharmaceutical Special Representative Lawsuit

After the first anniversary of the implementation of the new securities law, the first class action of class A shares has begun.

On April 16, Guangzhou intermediate people's Court (hereinafter referred to as Guangzhou intermediate people's court) announced that the ordinary representative litigation of Kangmei pharmaceutical's Securities Misrepresentation dispute was transferred to the special representative litigation, and issued the right registration announcement. On the same day, the SFC answered reporters' questions on the litigation of the special representative of Kangmei pharmaceutical.

In the view of industry insiders, the civil compensation case of Kangmei pharmaceutical's misrepresentation was tried for the first time by the special representative litigation system, which set a precedent in China's securities history, and will become a landmark event in China's capital market, which is of great significance to the protection of securities investors' rights.

"The investor protection agency obtains data information from the securities registration and settlement institutions, which can directly solve the problem of obtaining evidence, providing evidence and cross examination at one time. By using the procedure to calculate the losses of investors, it can quickly calculate the amount of compensation and greatly improve the litigation efficiency. The special representative litigation system adopts the principle of" implied participation and explicit withdrawal ", which is conducive to overcoming the large number of injured investors In addition, the lack of litigation motivation for the small amount of damage per person; the establishment of supporting measures such as not paying the case acceptance fee in advance simplifies the investor's litigation participation procedures, greatly reduces the cost of safeguarding the rights of the injured investors and the threshold of litigation, which is conducive to solving the problems of difficulty in prosecution and expensive rights protection in the case of numerous, scattered and small amount of victims. " Yu Xiaojian, associate professor of the school of economics and finance, South China University of technology.

After the first anniversary of the implementation of the new securities law, the first class action of class A shares has begun. Visual China

The first case of Special Representative Litigation

After four months, the civil compensation case of Kangmei pharmaceutical's misrepresentation was officially launched as the first class action in China.

On May 15, 2020, Kangmei Pharmaceutical Co., Ltd. announced that it had received the decision on administrative punishment and the decision on market entry prohibition issued by the China Securities Regulatory Commission. Due to the premeditated, organized and systematic implementation of financial fraud for three consecutive years from 2016 to 2018, Kangmei pharmaceutical and its relevant responsible persons were punished by the CSRC.

At that time, the new securities law had been formally implemented for more than two months, and the collective action system for civil compensation for securities had also been established. Subsequently, the Supreme People's court, China Securities Regulatory Commission, China Securities small and medium sized Investors Service Center Co., Ltd. and other departments quickly followed up and refined the relevant supporting contents and important operation procedures.

Before being put on file for investigation due to fraud, the market value of St Kangmei (i.e. Kangmei pharmaceutical, which has been implemented with other risk warnings) reached more than 130 billion yuan at the highest time, which was the Baima stock with a market value of 100 billion yuan. However, as of April 15, the market value of St Kangmei was only 10.1 billion yuan.

As of September 30, 2020, the number of shareholders of St Kangmei A shares is still as high as 159100, including Minmetals International Trust, Qianhai Zhongming Wanfang, CICC, Kunpeng capital and other well-known institutions.

On December 31, 2020, Guangzhou intermediate people's court accepted the case of 11 investors jointly suing Kangmei Pharmaceutical Co., Ltd. and 21 then directors, supervisors and senior executives. Subsequently, on March 26, 2021, the investment and service center also issued a statement to start accepting the entrustment of investors to participate in the lawsuit as a representative; on April 16, Guangzhou intermediate people's court announced that the civil compensation case of Kangmei pharmaceutical was subject to the special representative procedure Cases, the system of class action has been formally implemented from paper.

For a long time, false statements, insider trading, market manipulation and other illegal phenomena have occurred from time to time, which seriously disrupted the ecology of A-share market. With the implementation of the registration system, the implementation of the new securities law, and the amendment of the criminal law, it is the general trend to increase the criminal cost of securities violations and safeguard the interests of small and medium-sized investors.

In the view of industry insiders, starting the lawsuit of special representative of Kangmei pharmaceutical will help resolve conflicts and disputes in a package, implement investor protection work, and form a deterrent to the market.

"The special representative's securities litigation system greatly facilitates investors' rights protection, improves the efficiency of rights protection, solves disputes fairly and quickly, and avoids social group incidents," said Luo Jianxin, a lawyer of Guangdong Jinqiao Baixin law firm. "Kangmei pharmaceutical case, as the first securities litigation case in China to be handled by the special representative litigation system, has milestone significance Justice is the first attempt and exploration since the implementation of the new securities law, which has a profound impact on China's securities market and is of great significance to the protection of securities investors' rights. "

Class action does not mean that all can be compensated

It is worth mentioning that although the special representative litigation has lowered the threshold of litigation and simplified the litigation process, the 21st century economic report reporter has learned that not all investors who have suffered losses can get compensation.

According to the provisions of the Supreme People's Court on the trial of civil compensation cases caused by false statements in the securities market, the trial of civil compensation cases for false statements needs to first determine the qualified investors, requiring that there is a causal relationship between the investment losses of investors in the securities market and the false statements of listed companies. In the case, the court will determine the qualified investment according to the situation of the case The scope of the. At the same time, due to the complex inducement of investors' loss, systematic risk factors should be considered when judging the loss of investors.

This means that not all investors are eligible for claims, nor are all investors compensated for their investment losses.

On the other hand, whether or not they can get the compensation ultimately depends on the solvency of the accused.

According to the information disclosed by St Kangmei, the company is facing a serious financial crisis. A large number of debts are overdue and are being entrusted. As of September 30, 2020, the company's total liabilities are as high as 43.201 billion yuan, and the asset liability ratio is as high as 70.24%. In 2020, the company will make a large amount of impairment for goodwill, accounts receivable, fixed assets, construction in progress, inventory, etc. within the scope of consolidated statements. For the possible civil litigation claims of investors, the company will make supplementary provision of RMB 500 million of contingent litigation costs at the end of the period.

"As far as the case is known, the actual amount of compensation for small and medium-sized investors will also be limited by the solvency of the listed company. If the listed company has no ability to pay, the amount of claim supported by the judgment may not be compensated." Zhong Yu, partner of Beijing Kangda (Guangzhou) law firm, said.

However, it is worth looking forward to that in the class action of Kangmei pharmaceutical, the investment and service center also listed the audit institution and relevant responsible persons of the company as co defendants, and assumed joint and several liability for the losses of investors, which increased the actual amount of compensation for investors to a certain extent, and also highlighted the deterrent effect of strict supervision on the directors, supervisors and senior managers of intermediary institutions and listed companies.

In addition, the 21st century economic reporter also learned that this class action will give full play to the role of multiple dispute resolution mechanisms, and form a three-dimensional pattern of investor rights protection.

According to senior legal experts, "in the past civil compensation cases of misrepresentation of listed companies, we can also see the precedent of settlement or mediation between investors and defendants. Reconciliation and mediation can further shorten the litigation cycle, help to settle disputes and end disputes, and achieve a" win-win "between investors and the companies sued

In addition to class action, "model judgment + entrusted mediation" is also an important form of resolving securities group disputes. Its specific mechanism is that the court selects typical and representative cases to make demonstration judgments, and subsequent similar cases can be settled by mediation. Referring to the judgment standards determined by the demonstration judgment, both parties can reach consensus through consultation and resolve through short and easy mediation A lot of disputes. Starting the lawsuit of the special representative of Kangmei pharmaceutical will solve the problems caused by the scattered complaints and multiple rights protection of many injured investors. This will solve civil compensation disputes in a package, greatly shorten the litigation period, and help to protect the interests of investors.