As we all know, Equity Road has been analyzing the Bitmain equity dispute in detail from the perspective of an equity lawyer. This article is the latest, clearest and most detailed one, and Wu Shuo reprints it here. Equity Road believes that: 1: Whoever controls the Hong Kong company can decide the affairs of the Beijing company. The company's litigation representative power belongs exclusively to the company's legal representative. When the legal representative in name is inconsistent with the actual legal representative, the actual legal representative shall be the company's litigation representative. 2: If the meeting in Cayman is overturned, Zhan Ketuan can completely turn the tables. After taking control of the Cayman company, he can turn over the Beijing company, etc. However, as long as the notice was given in the prescribed manner, Zhan Ketuan's absence from the meeting would not affect the result. 3: For the partner, if you are unaware of this, the contract signed between you and Zhan Ketuan on behalf of the Beijing company is valid. But if Wu Jihan sends you all the information and tells you that Zhan Ketuan has no right to sign the contract on behalf of the Beijing company, and you still sign it, the contract may be deemed invalid in this case. A friend forwarded a late article, asking us to analyze the battle for control of Bitmain again, and what is the probability of Zhan Ketuan winning? Another friend urged us several times. Many people have read the later article, right? We won’t repost it. “Qiwudao” is a professional analysis website. Since some friends think our analysis is more reliable, in order to live up to everyone's trust, we spent a week looking up cases, changing different keyword searches, and found the most similar cases among tens of thousands of cases. Friends who have learned from this are welcome to pay tuition. There are two key points in Bitmain’s control: Cayman company and Beijing company. The following analysis will be conducted from these two aspects. 1. Two legal representatives of Beijing Company The Beijing company now has two legal representatives: One is the candidate decided by the shareholders, Wu Jihan. The other is Zhan Ketuan, who has been dismissed by shareholders but is still considered as a candidate for industrial and commercial registration. How do we calculate the two positions if they are held by different people?
We found two cases ruled by the courts, one involving Shandong Shanshui Cement and the other involving a Beijing company, which were very similar to the situation of Beijing Bitmain. In both cases, the legal representative decided by the shareholders' meeting or the board of directors was not the same person as the legal representative registered with the industrial and commercial administration. It turns out that the war at Shanshui Cement is much more intense than that at Vanke, and even more exciting than novels. Zhuzi decided to write a book about equity wars after the wars between Dangdang, Bitmain, etc. are over, and include all these wonderful cases. Everyone is welcome to provide materials, and publishers are also welcome to contact us for cooperation. 1.1 The legal representative determined by shareholders is the real one Shanshui Cement is a Shandong company listed in Hong Kong. Its predecessor is similar to Vanke and was reformed from a state-owned enterprise. But not everyone is so lucky to meet someone like Wang Shi who values fame over money. After Vanke's restructuring, Wang Shi gave up his personal equity and became a small shareholder. Only by comparison can we know that there are very few people who can do what Wang Shi does, right? After the restructuring of Shanshui Cement, Zhang and his son became major shareholders and actual controllers, and a relatively large number of employees also held shares.
The first round of war broke out because Zhang proposed to buy out employee shares at a low price, but the employees disagreed with the purchase at a low price. Therefore, the first round of war was a civil war between the actual controller and the shareholding employees. Because Shanshui Cement is a Hong Kong-listed company, the interests of the shareholding employees were protected after Hong Kong intervened. It is unlikely to give a thumbs up to Hong Kong's actions in mainland China. During the first round of civil war, three new shareholders bought large amounts of stocks. One of them was Henan's Tianrui Group, which became the largest shareholder. The actual controller of this company was Li.
Before the first round of civil war ended, the second round of war broke out. The new shareholder Henan Li and the old shareholder Shandong Zhang competed for control of the company. A fierce conflict broke out between Tianrui Group and Zhang, and both civil and military means were used.
On December 3, 2015, Shandong Shanshui's shareholders' meeting decided to change the company's legal representative from Shandong Zhang to Henan Li, but the legal representative registered with the industrial and commercial bureau is still Shandong Zhang. Zhang then initiated several lawsuits in the name of Shandong Landscape: Zhang said that he was the legal representative registered with the Industrial and Commercial Bureau and that he was the only legal and valid representative of the company. The shareholders of Shandong Shanshui made a shareholder resolution without authorization to change the directors and legal representative, which has no legal effect... Who do you think the court will support? Several cases were heard by the Shandong court where Zhang is from, and the person on the other side is the richest man in Henan.
The Shandong High Court said: According to the shareholders' resolution on December 3, 2015, the legal representative of Shandong Shanshui was changed from Zhang to Li. For Shandong Shanshui, December 3, 2015 was the date when the legal representative of Shandong Shanshui was changed. From that day on, Zhang was no longer the legal representative of Shandong Shanshui and could no longer represent the company. Zhang filed a lawsuit in the name of Shandong Shanshui on December 7, 2015. However, because Zhang was no longer the legal representative and could not sue on behalf of Shandong Shanshui, the court dismissed Zhang's lawsuit. The Shandong court did not favor the local boss. After all, this matter has attracted so much attention, who would dare to do that? The picture below is a screenshot of the judgment. One of the case numbers is (2018) Lu Min Zhong No. 109. Friends who are interested can check it out for themselves. Another case is a Beijing company. The company's articles of association stipulate that the chairman of the board is the legal representative. The board of directors has decided to change the chairman from Li 1 to Li 2, but the industrial and commercial registration has not been changed and Li 1 is still written as the legal representative. Li 1 filed a lawsuit in the name of Beijing Company, and Li 2 also applied to withdraw the lawsuit in the name of Beijing Company. One is the legal representative as decided by the company's articles of association + board of directors, and the other is the legal representative according to the industrial and commercial registration. One wants to sue and the other wants to withdraw the lawsuit. Who do you think the court will support?
The court ruling in this case stated it more clearly: The company's litigation representative power belongs exclusively to the company's legal representative. When the nominal legal representative and the substantive legal representative are inconsistent, the substantive legal representative should be used as the company's litigation representative. Although Li 1 is the legal representative registered with the Industrial and Commercial Bureau, the board of directors of the Beijing company has removed Li 1 from the position of chairman and replaced him with Li 2, who has become the legal representative in accordance with the company's articles of association. Therefore, Li 2 can truly represent the company. Now Li 2 has applied to withdraw the lawsuit, and the court has confirmed the withdrawal of the lawsuit according to Li 2's opinion. Case No.: (2017) Jing0116 Minchu 634 In fact, there are many similar cases. The legal statement is: industrial and commercial registration is only a declarative registration, not a right-granting registration. The decision to establish power is made by shareholder resolution or board of directors. The shareholders' meeting or board of directors is the institution that decides who will be a director or legal representative, not the Industrial and Commercial Bureau. Judges and lawyers should all understand this principle. If they don’t even understand this…
Take marriage as an example. Only by going to the Civil Service Bureau to get a certificate can the marriage relationship be recognized by law, which is like a shareholder resolution or a board resolution; and holding a wedding is to announce to the world that you are married, just like going to the Industrial and Commercial Bureau to go through the registration procedures for public display. Not holding a wedding does not mean not getting married, and holding a wedding is not a condition for whether a marriage relationship is established or not. Going to the Civil Service Bureau to get a certificate is the decisive condition. For a company, the shareholder resolution or the board of directors resolution is the decisive factor, not the industrial and commercial registration. The previous two cases were handled in two different ways:
Shandong Cement's legal representative signed the lawsuit, and the shareholders responded by saying that the legal representative had been removed by the shareholders' resolution, but the change of business registration had not yet been completed, so the legal representative had no right to sue. Therefore, the court dismissed the lawsuit filed by the legal representative because he had no right to represent the company.
In a later case in Beijing, the legal representative registered with the industrial and commercial administration filed a lawsuit, while the legal representative decided by the board of directors withdrew the lawsuit. Because the legal representative registered with the industrial and commercial administration no longer had the authority to represent the company, the court agreed to withdraw the lawsuit according to the opinion of the legal representative decided by the board of directors.
The principle is actually the same for Bitmain. If the Hong Kong company, as a shareholder, decides to appoint Wu Jihan as the executive director and legal representative of the Beijing company, and Zhan Ketuan sues in the name of the Beijing company. If Wu Jihan disagrees with Zhan Ketuan's lawsuit, he can choose one of the two methods mentioned above. He can apply to withdraw the lawsuit, or he can say in the response that Zhan Ketuan has no right to represent the company, and the matter will be over. It is up to them to decide whether to respond to the lawsuit or withdraw it, but withdrawing the lawsuit is probably faster than responding to it. Therefore, if the Hong Kong company is controlled by Wu Jihan, the probability of Zhan Ketuan winning in the Beijing company is very low, but the actual operation depends on the level and strategies of both parties. Although the final result may be the same, the different levels and strategies may result in very different costs and prices.
1.2 Why is reality different from theory? Lawyers and judges should understand the reasons mentioned above, but why, after the Hong Kong company decided to appoint Wu Jihan as the legal representative, why is the legal representative registered with the industrial and commercial administration still Zhan Ketuan? Everyone already knows about the previous administrative review. Because the shareholder resolution provided by Wu Jihan was flawed, the previous changes were revoked. In the battle for control of Bitmain, Wu Jihan's legal representative was revoked, and the reason was finally found However, as the sole shareholder holding 100% of the shares of the Beijing company, the Hong Kong company can make 10 or even 100,000 perfect shareholder resolutions, as many as it wants, and then just make the changes?
The article in Planet Daily said that Wu Jihan's lawsuit for administrative reconsideration was suspended for the fifth time because he had to wait for the results of the civil lawsuit case (2020) Jing 04 Minchu No. 497. No. 497 was a lawsuit filed by Zhan Ketuan to confirm the validity of the resolution, requesting that the shareholder decision signed by Wu Jihan on behalf of Hong Kong Bit on October 28, 2019 be confirmed as invalid. But in Zhuzi's opinion, these are not important at all. Assuming that the shareholders' resolution on October 28, 2019 was really ruled invalid, the administrative lawsuit that was suspended was also won by Zhan Ketuan. But as mentioned before, as the sole shareholder of the Beijing company with 100% shares, the Hong Kong company can make as many shareholder resolutions as it wants. Even if it wants 1 billion, it is no problem. If one is not valid, it can just make another one. This is the right of shareholders, and those lawsuits have nothing to do with the overall situation. If that happens, won't Zhan Ketuan have to fight a lawsuit worth 1 billion? That's a lot of lawyer fees. He'll be rich. However, only shareholders have the right to file a lawsuit to revoke shareholder resolutions, that is, only the Hong Kong company can do so. If Zhan Ketuan cannot control the Hong Kong company, it seems that he will no longer have the right to file a lawsuit to revoke the resolution. So the key is: whoever controls the Hong Kong company can decide what happens in the Beijing company.
Things seem as simple as 1+1=2, but why did Wu Jihan not change the legal representative back for so long? Many people come to ask about Zhuzi. Actually, I don’t know why. Friends who know the inside story are welcome to leave a message. An article said that Zhan Ketuan's lawyer sent a lawyer's letter to the Beijing Municipal Bureau of Market Supervision and the Haidian District Bureau of Market Supervision. But it is completely legal to replace directors or legal representatives according to shareholders' resolutions. This cannot be stopped by a lawyer's letter, right? Shareholders have the full right to decide for themselves who to appoint as the legal representative. This is a right granted to shareholders by law and is not decided by the relevant departments. 2. What should the partners do? When something like this happens, the partners must be confused. Whose words are valid? Who should we trust? The role of the legal representative has been introduced in the previous section. Which one should I choose: major shareholder, actual controller, or legal representative? If you are the founder and have to choose between the official seal and the legal representative, which one would you choose?
After the shareholders resolve to change the legal representative, people outside do not know how the shareholders decided and cannot know who can represent the company. The purpose of going to handle industrial and commercial registration is to tell those outsiders who do not understand the situation that the person registered with the industrial and commercial registration can represent the company. The significance of this representing the company, for outsiders, is mainly that the company will assume responsibility after the legal representative of the industrial and commercial registration signs; while within the company, it is calculated based on the resolutions of shareholders or the board of directors, not based on the vest of the industrial and commercial registration.
Therefore, if the shareholders decide to change the legal representative, but the industrial and commercial registration is still the old legal representative, the company will generally still be responsible for the contracts signed by the old legal representative, because outsiders do not know that the company has a new legal representative. What we are talking about here is the general situation, but there are also special cases, such as the case decided by the Supreme Court (2019) Supreme People's Court Civil Final No. 1465.
Company A has only one shareholder, which is 100% owned by Company B. At that time, the legal representative of Company A was Mr. Wang. In 2017, Company A and Company C signed a guarantee contract. Company A provided a board resolution signed by the legal representative Wang and the director, stating that the board of directors agreed to sign a guarantee contract with Company C. It also sent the company's articles of association, board resolution, etc. to Company C.
The Company Law stipulates that providing guarantees for others must be decided by the board of directors or the shareholders' meeting or the general meeting of shareholders in accordance with the company's articles of association. However, the Articles of Association of Company A stipulate that the decision to provide guarantees for others is made by shareholders, and the board of directors or legal representative has no right to decide to provide guarantees for others. The Contract Law also stipulates that if a company or legal representative signs a contract beyond their authority, the contract is valid if the other party is unaware of the excess. Conversely, if the other party knows that the excess is beyond their authority, the contract is invalid. According to the Articles of Association of Company A, the decision of the legal representative and the board of directors to provide guarantees for others is an unauthorized act. Company A has already sent the Articles of Association and the resolution of the board of directors to Company C. Company C should have known that the legal representative signed the contract in an unauthorized manner. Therefore, all contracts signed by the real legal representative of Company A were declared invalid by the Supreme Court due to exceeding authority, not to mention the fake legal representative. What about companies that cooperate with Bitmain? If you are not aware of this, the contract signed between you and Zhan Ketuan on behalf of the Beijing company is valid. But if Wu Jihan sends you all the information and tells you that Zhan Ketuan has no right to sign the contract on behalf of the Beijing company, and you still want to sign it, the contract may be deemed invalid in this case. III. About Cayman Islands Companies Matters concerning Cayman companies are subject to Cayman law. Zhuzi does not understand Cayman law. The following analysis assumes that Cayman law has the same logic as domestic law, but Zhuzi does not know if this is the case, so you can treat the following content as nonsense. If the Cayman meeting is overturned, Zhan Ketuan can completely turn the tables . After gaining control of the Cayman company, he can turn over the Beijing company and others. Will the Cayman meeting be overturned? The following analysis assumes that what is said in the later article is true.
(1) The later article said that there are many ways to send meeting notices, such as by phone, email or airmail, but Wu Jihan used the slowest sea transportation, with the letter carried by a ship from Beijing to the Cayman Islands in the Caribbean Sea, which took about 2 to 3 months. Question 1: Can I notify you by phone or email? Yes, but the Cayman company's articles of association provide that meeting notices must be in written form. So, if Wu Jihan wanted to trick me, he would have notified me over the phone, right?
Question 2: Can it be shipped by sea? The answer is yes. There is no limit to the method of sending the notice, but the sender must prove that you have really sent the letter to the right place. If Wu Jihan really took 2 or 3 months to send a letter by sea freight, there is a possibility that the letter had not yet arrived at the right place when the meeting was held. In this case, Wu Jihan would be cheating himself instead of Zhan Ketuan. Because the Cayman company's articles of association stipulate that a special general meeting of shareholders must be notified 14 days in advance. (2) A later article said that if you send an ordinary letter instead of a registered letter, you only need to put a 4-yuan stamp on it and put it in a mailbox on the side of the road. Logistics cannot be tracked, lost mail will not be replaced, and no signature is required. Question 3: Can meeting notices be sent by ordinary mail? The answer is yes, but if Wu Jihan really sent the meeting notice by ordinary mail, he would be harming himself instead of Zhan Ketuan. Because there is no record or signature for ordinary mail, Wu Jihan has no way to prove that he sent the meeting notice. Zhan Ketuan can say that Wu Jihan held the meeting without sending the notice, and can safely say that the shareholder resolution does not exist. Zhuzi didn’t know whether Wu Jihan had used those methods to deceive himself. If Wu Jihan really sent out a meeting notice as the later article said, then there is a high probability that Zhan Ketuan could make a complete comeback. (3) A later article said that Zhan Ketuan was absent from the shareholders’ meeting because he did not receive any notice. Question 4: Zhan Ketuan did not receive any notification. Does that count as a notification? The answer is, if the meeting notice has been sent to the address provided by the shareholder, but he/she missed it due to lack of attention, he/she will have to bear the consequences himself/herself.
Zhuzi has a friend whose ID card address was her previous house. Later, the house was sold, but the address on her ID card has never been changed. One day, she found that a large sum of money was withdrawn from her bank card. She only then found out that it was enforced by the court after someone sued her. She herself didn't know about the lawsuit because the notice was sent to the address on her ID card. The court's ruling has come into effect and has been enforced. What else can I do? Basically, there is no other way. The principle behind Cayman’s meeting notice is the same. By the way, I would like to remind friends who are reading this article that if your contact information has changed, you must update it in time, otherwise you will bear the adverse consequences.
Question 5: Is the meeting that Zhan Ketuan did not attend valid? The answer is that as long as the notification is made in the prescribed manner, Zhan Ketuan’s absence from the meeting will not affect the outcome. The same is true for domestic listed companies. If you are notified and you do not attend the meeting, you are giving up your rights. There is a legal saying: the law will not protect those who sleep on their rights. (4) The article later said that Zhan Ketuan holds 36% of the shares and has a total of 59.6% of the voting rights. In theory, even if all other shareholders join forces, they have no chance of kicking him out. Question 6: Is this really the case? This issue has been analyzed in detail in the previous article of "Equity Road" and will not be repeated here. An important turning point in the Bitmain shareholder dispute: 3 strategies for the founder to gain control of the company According to the Cayman Islands' company charter, votes are calculated based on the shareholders who attend the meeting , and shareholders who do not attend the meeting are not counted. Therefore, it is possible for a meeting chaired by Wu Jihan to obtain 100% of the votes. Domestic listed companies also have such regulations. For example, if you buy shares of Vanke, and Vanke notifies you of a shareholders' meeting and you do not attend, your vote will not be counted in the total number of votes.
So, what is the probability that Zhan Ketuan can overturn the Cayman meeting? Zhuzi didn't know how they held the meeting, didn't know the facts, and couldn't make a judgment. If Wu Jihan notifies by means of pitting himself, there is a high probability that Zhan Ketuan can turn the tables. But if Wu Jihan had not been so professional in digging his own grave, there was a high probability that Zhan Ketuan would not have been able to turn the situation around. For example, the two major shareholders of ARM China jointly hold more than 80% of the shares and want to dismiss the professional manager. They have been trying to do so for several months but have not succeeded. Could it be due to their improper meeting management? Arm China is in the midst of a "leadership change scandal". The major shareholder holds 80% of the shares, but is unable to manage a professional manager? In peacetime, you may pass with 60 points; but in wartime, 99 points may = 0 points, and 100 points are required to pass . This is what happened when Wu Jihan’s legal representative status was revoked.
If you want to solve the problem quickly, you have to find the person who can get 100 points first, right? 4. Where will Bitmain go? In the previous stage, the two parties were competing for control of the company, and the interests of customers or other unrelated parties were not involved. In June 2020, Zhan Ketuan got back his business license, re-engraved the official seal, cleared out some employees and replaced management. In June 2020, Wu Jihan said that Zhan Ketuan transferred 17,000 mining machines from Shenzhen Century Cloud Core, resulting in the inability to deliver to customers, involving an amount of over 100 million yuan. It is rumored that the two parties reached a compromise after negotiations. Wu Jihan's side said that they would ship the goods as soon as possible and compensate customers whose shipments were overdue for more than 10 days. But things changed soon after. On July 6, 2020, Zhan Ketuan asked customers to pay to Fujian Zhanhua Intelligent Technology Co., Ltd. On July 24, 2020, Shenzhen Century Cloud Core was blocked by customers demanding delivery, and some customers expressed strong dissatisfaction.
On the other side is the mine in Inner Mongolia. Wu Jihan’s side said that from July 15 to 16, 2020, someone illegally transferred mining machines worth over 100 million yuan from the Zhenglan Banner mine. However, Zhan Ketuan said that it was not an illegal transfer, but just the retrieval of the mining machine belonging to Fujian Zhanhua Intelligent Technology Co., Ltd., and has sued Wu Jihan, Chongqing Silicon Yuan and others for infringement. Affected by the above incident, the well-known cloud mining service provider BitDeer issued a statement on July 19 that due to the inability to ship mining machines normally and the illegal transfer of mining machines in the Zhenglanqi mine, BitDeer was unable to provide services normally, and it will refund and give certain compensation.
So far, the fight between the two founders of Bitmain for control of the company has seriously affected the interests of customers, and the amount involved has exceeded 200 million yuan, but 200 million may just be the beginning, not the end. Moreover, the hidden losses are far more than this figure, right? Wu's article on blockchain said that Zhan Ketuan published an announcement in the newspaper to report the loss of the house purchase contract and was preparing to sell the office building? A later article said that Zhan Ketuan and Wu Jihan were in talks, and Zhan Ketuan was trying to buy out options held by shareholders and employees at a valuation of US$4 billion. Zhuzi wants to say that acquiring equity is not something you can do just because you want to: First, are others willing to sell? If they are unwilling to sell, you cannot force them, unless an exit mechanism is agreed upon in advance, so it is very important to design an early exit mechanism for equity . You can long press the QR code below to view the three equity exit mechanism designs:
Second, is the price appropriate? The valuation was close to 15 billion when the company raised funds, but now it is being acquired at 4 billion. How many people are willing to sell? Third, if Zhan Ketuan wants to acquire more than 50% of the shares, even if the valuation is 4 billion US dollars, it will cost about 4 billion RMB. Is that a lot of money? Therefore, Zhuzi is not optimistic about the acquisition plan because it is too unfeasible.
When they raised funds, they agreed on a bet with investors, requiring them to go public by 2023 at the latest, and there was also a minimum market value requirement. If the conditions cannot be met, the investors can ask the founders to buy back the shares. You two may have to pay more than 5 billion to buy back the investors' shares. Don't you consider the consequences of losing 5 billion? Friends who hope to stop the war are welcome to forward this article to the two big guys. Will those who support the fight pay the 5 billion? I'm afraid some people have already made a lot of money and left. Who will clean up the mess then?
If the battle continues, the two founders, Bitmain, shareholders, and customers will all be hurt. The biggest beneficiaries are the people who participate in the battle? For example, where can lawyers find such good opportunities to fight one lawsuit after another? The methods currently used by both sides are only temporary solutions and not a fundamental solution. Even if they gain control temporarily, they cannot fundamentally solve the problem. Since the contradictions cannot be reconciled, why not consider a split? The split may not be easy. If both sides want the most valuable part, they can just divide it according to the equity ratio. Although separation is not easy, it is the only way to solve the problem fundamentally. If each side can start over, perhaps it will be better than it is now? War is so tiring, both sides suffer. Don't they think it's a waste of life to be entangled in this for a lifetime?
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