Due diligence | 2023-08-20
As we have always advocated, an additional step of background search can help us identify negative records that have a significant impact.
Recently, while assisting a client with a name search, we discovered that the related company has significant issues that might affect its delivery capability, including shareholder disputes and integrity problems.
The initial keyword was "LS (Shanghai) International." Soon, our analysts found the company corresponding to this English company name is LS (Shanghai) International Trading Co., Ltd. (龙汕（上海）国际贸易有限公司)("LS Shanghai").
LS Shanghai appears to be the corresponding trading company for a steel product manufacturer named "山东汇金 (Shandong Huijin)." Although there is no equity connection, LS Shanghai's email domain in its company profile is "sdhjsteel.com." A reverse search of this domain reveals that it is connected to a company named Shandong Huijin Color Steel Co., Ltd. (山东汇金彩钢有限公司) ("Shandong Huijin").
Our analysts conducted a background check on Shandong Huijin and analyzed the information, finding the following records that might significantly impact its product delivery capability:
In 2019, an individual with the surname Gao ("Person A") filed a lawsuit in court, claiming that since 2003, he has continuously been a legitimate shareholder of Shandong Huijin and has been a member of the company's shareholders' meeting and board of directors, participating in and voting on the company's major business matters. Starting from early 2016, disputes and conflicts in operations arose between Shandong Huijin and Person A. As a result, Shandong Huijin did not notify Person A to attend the shareholders' meeting or the board of directors meeting. Person A lost the right to be informed about the company's decisions and operations. Therefore, Person A requested Huijin Color Steel Company to provide accounting records since January 1, 2016.
In its defense, Shandong Huijin presented the following disputes with Person A:
However, the court did not support Shandong Huijin's refusal to provide financial records to Person A. In both the first and second trials, the court determined that Person A is a shareholder of Shandong Huijin and has the right to be informed as a shareholder.
Subsequent litigation records show that from November 2021 to August 2022, Person A appealed against Shandong Huijin, involving disputes over confirming Person A's shareholder rights in Shandong Huijin.
In 2019, Akzo Nobel Coatings (Jiaxing) Co., Ltd. ("Akzo Nobel Jiaxing") sued one of its former employees (Person D), a coil coating technical manager, alleging that after Person D resigned in January 2018, he violated the non-compete agreement and had worked at Shandong Huijin since October 2018, by establishing an employer-labor relationship through a third party. Shandong Huijin was in competition with Akzo Nobel Jiaxing.
To prove that his work at Shandong Huijin did not compete with Akzo Nobel Jiaxing's business, Person D provided the following evidence that since 2017 Shandong Huijin has ceased to be licensed in the production of hazardous chemicals by the authority (which may include color-coated steel coating products). The court accepted this evidence but concluded that this could not support the opinion that Shandong Huijin did not produce coating products competing with Akzo Nobel Jiaxing's business.
Akzo Nobel Jiaxing was Shandong Huijin's paint supplier. However, after April 2019, Shandong Huijin stopped purchasing products from Akzo Nobel Jiaxing. Shandong Huijin had a paint production workshop, and although the paint was not directly sold to the public, it was used on color-coated steel products, which were eventually sold to the public. Person D started working for Shandong Huijin in January 2018, and the last non-compete compensation paid to Person D was in May 2019.
The above facts inevitably raise questions about whether Person D's joining Shandong Huijin with violating the non-compete agreement was related to Shandong Huijin's decision to cease purchasing from Akzo Nobel Jiaxing.
Besides the above negative records, we also noted other adverse information in the company search report of Shandong Huijin, including other litigation records, constraints for high-amount consumptions, non-current assets/land mortgages, etc.
Please see here the Riskplus Company Search Report of Shandong Huijin. The above red flags have been captured in this automatically generated report.
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