The registered entities of two official WeChat accounts of Bitmain have been transferred and part of the equity of Fujian Zhanhua has been frozen to protect the rights and interests of Zhan Ketuan?

Reporter of China Business Network: Liu Yongsheng Editor of China Business Network: Chen Xing

Recently, with the sharp rise and fall of Bitcoin prices, the infighting within mining machine giant Bitmain has continued to escalate.

A reporter from the Daily Economic News noticed that on January 7, Bitmain's WeChat public account, formerly known as "Ant Pre-sales Service," issued a statement to migrate accounts due to "operational needs."

On January 9, the WeChat public account of Bitmain, originally certified as “Antminer ANTMINER”, also underwent an account migration.

The reporter of the Economic Daily noted that the parties involved in the two account migrations, Fujian Zhanhua Intelligent Technology Co., Ltd. and Tianjin Shunhua Technology Co., Ltd., are both wholly-owned subsidiaries of Bitmain. The legal representative of the old account entity, Fujian Zhanhua Intelligent Technology Co., Ltd., is the co-founder and largest shareholder of Bitmain, Zhan Ketuan, who was previously involved in internal strife and was "dismissed from all positions" by Bitmain co-founder Wu Jihan.

Since October 29, 2019, when the former chairman of Bitmain, Micree Zhan, was suddenly dismissed from all positions, a series of events have occurred in Bitmain, with Micree Zhan resigning from the legal representative positions of related subsidiaries. In response, Micree Zhan also issued an open letter stating that he would return to the company as soon as possible through legal means to end this extraordinary period and restore the company's normal order. "If someone insists on war, we will give them war."

Zhan Ketuan was relieved of all duties while on a business trip

Everything happened very suddenly.

On October 29, 2019, Bitmain co-founder Jihan Wu sent an email to company employees saying that he would remove Zhan Ketuan from all his positions at Bitmain, effective immediately. "No Bitmain employee shall execute Zhan Ketuan's instructions or attend meetings convened by Zhan Ketuan. If there is any violation, the company will consider terminating the labor contract depending on the severity of the circumstances; if the company's economic interests are damaged, the company will pursue civil or criminal liability in accordance with the law."

Just the day before, the National Enterprise Credit Information Publicity System showed that Bitmain had undergone a senior management change. The former Bitmain chairman, Micree Zhan, withdrew from the legal representative and manager and was replaced by Jihan Wu.

In response to this, on November 7, 2019, Zhan Ketuan wrote an open letter saying, "It's embarrassing. As the founder and largest shareholder of Bitmain, I never knew that the legal representative registered with the government department would be suddenly changed when I was on a business trip and had no idea. When the big change came, I realized that the scene that has happened countless times in movies and TV dramas, where you are stabbed in the back by your most trusted partner and 'brother' who you once worked with, really happens."

Regarding this replacement, Bitmain responded to the media that the change of legal representative of Bitmain was legal and compliant and supported by all employees. At present, the company's operations are in order, the core team remains stable, and it continues to maintain the main business direction of blockchain and steadily promote the horizontal expansion of artificial intelligence. The shareholder dispute will be resolved through normal legal channels in the future.

Did Zhan Ketuan's replacement violate the law or what are the legal risks? The reporter of "Daily Economic News" interviewed Qi Aimin, a well-known legal expert in my country. Qi Aimin said: "The legal representative is an important matter recorded in the company's articles of association. To replace the legal representative, it is necessary to convene a shareholders' meeting to amend the company's articles of association, and then take the shareholders' meeting resolution and the draft of the articles of association to the industrial and commercial registration authority for change registration. If the shareholders' meeting is not held and the company's articles of association are amended, then this change is invalid. On the premise of complying with relevant procedures, the key to whether the legal representative is replaced lies in who the controlling shareholder supports. In addition, it depends on how the company's articles of association stipulate the legal representative. Whoever the controlling shareholder supports will win. The procedural entanglement is only a temporary win or loss."

What is the significance of the legal representative to the company? What impact does the change of the legal representative and executive director of the company have on the company's operations? Qi Aimin believes that, generally speaking, the legal representative has the company's internal management rights and external contract signing rights. Article 13 of my country's "Company Law" stipulates that the legal representative of a company shall be the chairman, executive director or manager in accordance with the provisions of the company's articles of association and shall be registered in accordance with the law. If the legal representative of a company changes, the change registration shall be handled. Therefore, for a company, changing the legal representative generally also means that the above positions are replaced, and the person who holds the internal management power is replaced. Since only the legal representative has the right to sign for external transactions, and other people can only sign as agents if they are authorized by the legal representative, the replacement of the legal representative has a significant impact on the company's operations.

Zhan Ketuan resigned one after another

Zhan Ketuan was "forced" to step down as the legal representative and executive director of Beijing Bitmain Technology Co., Ltd., but this is not the end. According to Qixinbao data, on November 5, 2019, the position that Zhan Ketuan stepped down was taken over by Bitmain co-founder Jihan Wu.

On November 15, Zhan Ketuan resigned as the legal representative and executive director of Bitmain's wholly-owned subsidiary, Suanfeng Technology (Beijing) Co., Ltd., and was replaced by Xu Weiliang. Wu Jihan also resigned as a supervisor, and was replaced by Li Yanchi. On November 26, Zhan Ketuan again resigned from the position of manager of Suanfeng Technology, and was also replaced by Xu Weiliang.

On November 25, Zhan Ketuan resigned as director and legal representative of Bitmain's wholly-owned subsidiary Tianjin Diwei Digital Technology Co., Ltd., and was replaced by Xu Weiliang. Wu Jihan resigned as director and was replaced by Li Yanchi.

Bitmain’s major subsidiary’s equity is frozen

On December 16, 2019, public information showed that the Changle Municipal People's Court of Fujian Province froze Beijing Bitmain Technology Co., Ltd.'s RMB 3.6 million equity and other investment rights in its wholly-owned subsidiary Fujian Zhanhua Intelligent Technology Co., Ltd. The freezing period is from December 16, 2019 to December 16, 2021.

Fujian Zhanhua Intelligent Technology Co., Ltd. has a registered capital of 10 million yuan. Zhan Ketuan is still the legal representative and executive director of the company. Zhan Ketuan holds 36% of Bitmain's shares, and the amount frozen this time is also 3.6 million. Some people believe that this is Zhan Ketuan's counterattack to prevent his related rights and interests in Bitmain's subsidiaries from being affected.

Can the equity freeze protect the rights and interests of major shareholder Zhan Ketuan? Qi Aimin said that the equity freeze can effectively restrict the transfer of equity and prevent other major shareholders of Bitmain from influencing the business activities of Bitmain's related holding subsidiaries through board resolutions. Therefore, this behavior has a good protective effect on the rights and interests of Zhan Ketuan.

What kind of impact will the equity freeze have on Fujian Zhanhua? Will it affect the normal operation of the company? Qi Aimin said: "Generally speaking, equity freeze is a compulsory measure taken by the People's Court to restrict equity owners from withdrawing or transferring their equity. According to industrial and commercial registration information, Fujian Zhanhua Intelligent Technology Co., Ltd. is wholly owned by Beijing Bitmain Technology Co., Ltd. The court's equity freeze will restrict Bitmain's free transfer of Fujian Zhanhua's equity and prevent improper loss of equity income. In terms of consequences, the equity freeze does not deny Bitmain's shareholder status, so Fujian Zhanhua can still carry out normal business activities."

Zhang Zhisheng, founding partner of Beijing Xiu Zhong Law Firm, analyzed to the reporter of "Daily Economic News": "First of all, it needs to be explained that the only shareholder of Beijing Bitmain Technology Co., Ltd. is Bitmain Technologies Limited, and Zhan Ketuan is a shareholder of Bitmain Technologies Limited. The equity freeze can restrict Bitmain from disposing of its equity and achieve the purpose of property preservation, so the equity freeze can protect the rights and interests of the major shareholder Zhan Ketuan." As for the impact of the equity freeze, Zhang Zhisheng believes that the equity freeze will make this part of Fujian Zhanhua's equity undisposable, but will not have a substantial impact on the company's operations.

According to foreign media reports, Zhan Ketuan filed a subpoena in December 2019, asking the Cayman Islands Court to revoke a shareholder's decision in November 2019, which caused him to lose voting control of Bitmain.

On January 6, Zhan Ketuan once again published an open letter, stating that he had entrusted legal matters to lawyers and would continue to pay attention to the company's situation.

According to reports, Bitmain plans to lay off a large number of employees, claiming that half of the people will be laid off. R&D is the focus of the layoffs, and two-thirds of the AI ​​business will be cut (the team that Zhan Ketuan originally worked for).

Regarding Bitmain’s official statement that the layoffs were to cope with the pressure of Bitcoin halving five months later, Zhan Ketuan obviously disagreed - January 2019 was the most difficult time for Bitmain, and the operating indicators improved month by month afterwards. "Although I haven’t seen the financial report in the past two months, I believe that the operating indicators will not be too bad. The current situation is much better than at the beginning of 2019."

Bitmain co-founder and current chairman Jihan Wu wrote in a WeChat Moments post: “Don’t let others use you as a tool. Leaving a bad reputation behind will make it difficult for you to go anywhere.”

A former employee of Bitmain told the media that the continued layoffs and war of words have caused serious damage to Bitmain.

Not only did Zhan Ketuan resign, on January 2, Qichacha showed that Bitmain had another important industrial and commercial change. Wu Jihan resigned as the legal representative of Bitmain, and Bitmain CFO Liu Luyao took over.

Bitmain has submitted a prospectus to the Hong Kong Stock Exchange. The prospectus shows that based on 2017 revenue, Bitmain is the world's largest ASIC-based cryptocurrency mining machine company, with a market share of 74.5%. The prospectus disclosed that Zhan Ketuan holds 36% of Bitmain's shares and is the largest shareholder; followed by Wu Jihan, who holds 25.25% of the shares, but neither of them has absolute control.

Previously, there were reports of internal discord within Bitmain. Zhan Ketuan and Wu Jihan had major disagreements on whether to develop the AI ​​chip business.

Daily Economic News