Appeal Statement
Appellant: Zeng Hanlin, Male, Chinese, born in 1945, Director of Guangdong Flying Dragon Group Co., Ltd.
Appellant contest the verdict made by Chengdu Intermediate People's Court (2011) Criminal Judgments No. 417, the appellant hereby appeal the court of second hearing to pronounce the appellant Not Guilty according to law. The specific grounds of appeal are as follows:
(A) Flying Dragon Group and the appellant did not commit an act of fraud against Chengdu Lianyi.
(1) Flying Dragon Group and the appellant did not instigate any fraud in the acquisition of 40% equity interest in Chengdu Liangyi.
Verdict from the court of first hearing was based on the verbal opinion of witnesses Zhang Zhaohui, Wen Rupei, Li Kai, denying the assets assessment report made by rating agencies on Guangdong Flying Dragon High-speed and subsequently ascertained that Flying Dragon Group was heavily in debt during the acquisition of Chengdu Lianyi's equity. This ascertainment bias finds no reason or logic, is a serious contradictory to the facts.
During the court of first hearing trial, after cross-examination, prosecutor admitted their blunder in court on the miscalculation of Flying Dragon Group liabilities by duplicating the company debt's amount repeatedly, and therefore amended the Flying Dragon Group debts to RMB 30 million yuan during the acquisition of Chengdu Lianyi. However, in the testimony of Zhang Zhaohui, he confirmed Flying Dragon Group debts amount to be RMB 56 million yuan; Li Kai's testimony confirmed Flying Dragon Group assets are not worth more than RMB 60 million yuan, with a debt ratio of 200% which is equivalent to RMB 120 million yuan; Wen Rupei's testimony confirmed Flying Dragon Group liabilities to be tens of millions. Evidently, Zhang, Li and Wen testimonies all contradict each other and are serious misrepresentation of fact, inadequate to be used as evidence. (Note: however in the trial, none of the witness was ever summon to the stand)
Appellant believes that, to ascertain the amount of a corporate asset, it can only be based on factual evidence or financial assessment report. By using the conflicting testimonies of Zhang and the others in the absence of any documentary evidence in this case, to negate the certification reports made by authoritative national rating agencies (Guangdong Evaluation Corporation) and the audit reports made by internationally recognized auditors (KPMG Certified Public Accounting firm), this identification is erroneous, as well as lack of legal grounds. Definitely disputable and unconvincing.
Relevant documentary evidence indicated that during the acquisition of Chengdu Lianyi, the total assets of Flying Dragon High-speed (a subsidiary of Flying Dragon Group) were more than hundreds of millions, Guangdong Asset Evaluation report clearly documented the debt was only RMB 13.85 million. To strongly emphasise, the second restructuring of the asset was a related transactions, to achieve an asset restructuring project, it must be mutually committed by both sides and agreement must be signed for the asset swap, allowing injection of high-quality assets. In this connected transaction, Chengdu Lianyi had acquired Flying Dragon High-speed 75% equity through this joint interest valuing at a total RMB 74 million yuan, Chengdu Lianyi has also never made any payment to Flying Dragon Group, such assets condition and account receivable for Flying Dragon Group, how would Flying Dragon Group be termed as "heavily in debt," this is absolutely a deviation of fact and false allegations. According to proven information, Chengdu Lianyi Group debt ratio was several times higher than Flying Dragon Group at then.
Since Flying Dragon Group was not heavily in debt, and they had never concealed any information towards Chengdu Lianyi, therefore, no fraud was even instigated.
(2) Guangdong High-speed Passenger Ferry and the Appellant did not commit an act of fraud in the transfer of 75% stake to Chengdu Lianyi.
Verdict from the court of first hearing decided that Guangdong High-speed Passenger Ferry stake ownership in Flying Dragon High-speed was 51% instead of 75%. This was based on the approval of Guangdong Foreign Economic and Trade Commission (1997) No.416. However, in the same volume of the company's business files clearly recorded that the Guangdong High-speed Passenger Ferry stake ownership in Flying Dragon High-speed to be 75%. In the verification report of Guangdong Kexing Certified Public Accountants, it clearly documented that Guangdong High-speed Passenger Ferry invested RMB 75 million yuan in Flying Dragon High-speed, accounting for 75% of total funding. Undoubtedly, it illustrate that Guangdong High-speed Passenger Ferry actual holding of shares in Flying Dragon High-speed is 75%, the not yet approval of Guangdong Foreign Economic and Trade Commission filing is only a mere procedural flaw, it does not contradict the objective reality.
Verdict from the court of first hearing decided that Flying Dragon Group and the Appellant had withheld the information on the change of equity ownership from Guangdong High-speed Passenger Ferry to Flying Dragon High-speed and the ship mortgage to the bank. But the verdict from the court of first hearing has ignored the fact that the vessels had actually been delivered to Flying Dragon High-speed for usage and all proceeds have been contributed to Flying Dragon High-speed. Since 1997, Flying Dragon High-speed had injected its capital into Chengdu Lianyi, Chengdu Lianyi benefitted greatly from the 75% equity investment from Flying Dragon High-speed. In the span of two years after the equity investment by Flying Dragon High-speed, Chengdu Lianyi generate huge profits every year, was even able to implement a 10 shares plus 3 bonus shares scheme complimentary to all Chengdu Lianyi shareholders, this includes Informants Xu Huaizhong, Zhou Guangjun, etc had all benefitted from this bonus system and derived a huge amount of profit from it. Without the equity injection of Flying Dragon High-speed, Chengdu Lianyi will have no profits, let alone the 10 shares plus 3 bonus shares complimentary dividends, this is a cold hard fact. Therefore, merely based on the document procedures flaw to negate a truth that had happened, this is not reasonable. Regarding the mortgage on the ship, firstly, to be clear and concise, all financial conditions of Flying Dragon High-speed from 1993 to 1999 are assessed and rated by national agency and verified by audit authorities, from 1997 to 1999 its financial position was also documented in the listed company annual report and announced to the public, including the then financial condition and collateral conditions, apparently the listed company's annual reports and announcement statement have been verified by Chengdu Lianyi board of directors before announcing to the public, board of directors included the informant Xu Huaizhong (Vice Chairman). Thus, Flying Dragon Group did not conceal any information. According to the asset conditions of the then Flying Dragon Group, without any doubt, they have the ability to acquire the shares.
Verdict from the court of first hearing decided that Chengdu Lianyi shares report on Flying Dragon Group profit is a unilateral statement, intended to explain the report is untrue. But the fact is, a listed company's annual report, is required to be approved by all members of the board of directors, among the board of directors also include the informants Xu Huaizhong (Vice Chairman), Zhou Guangjun (Managing Director), the annual reports must be confirmed by this two person, and then verified by qualified audit accounting firm, and finally approved by the Securities and Futures Commission before it can be announced to the public. If the audit report exist any error or contain any falsified information, all related institutions will be held accountable. These institutions include local audit institutions in Sichuan, but the fact is not. Therefore, the evidence is absolutely impossible to be a unilateral statement by Flying Dragon Group as mentioned in the verdict from the court of first hearing. To negate such evidence of fact like child's play is definitely unreasonable, unconvincing and unpersuasive.
In the event of transferring Flying Dragon High-speed 75% stakes, Flying Dragon Group and the Appellant not only did not commit any fraud, they had even transfer their high quality asset Flying Dragon High-speed 75% stake worth of RMB 74 million yuan of assets actually into Chengdu Lianyi shares, and generated a profit of RMB 32 million for Chengdu Lianyi in 1997, profit of RMB 23 million yuan in 1998, implemented a 10 shares plus 3 bonus shares scheme compliment to all Chengdu Lianyi shareholders, so to benefit all shareholders, created remarkable profit results, all including Xu Huaizhong, Zhou Guangjun had harvested bountifully from this profit gain. This is the reality of the facts.
(3) In the Chengdu Lianyi payment collection process for the transfer of shares, Flying Dragon Group and the Appellant did not instigate any fraud.
Verdict from the court of first hearing was based on the testimonies of Xu Huaizhong, Zhou Guangjun, Zhang Zhaohui, etc, implying that the Appellant had instructed Zhang Zhaohui to forged certificates of deposit and wire transfer documents, evidence is clearly weak and insufficient. Xu Huaizhong, Zhou Guangjun being the informants of the case, having conflicting interest with the case, as an Informant, the adverse statement against Flying Dragon Group and the Appellant, inherently lack of credibility. Zhang Zhaohui, a fraud perpetrator, in order to shirk its responsibility and shift blame to the Appellant, the possibility of this act cannot be ruled out. Moreover, the conflicting testimonies of the trio including Zhang Zhaohui, under cross-examination in the trial, the prosecutor had even admitted during the trial that the testimonies of the trio including Zhaohui exist serious inaccuracies, more importantly, its argument on the Appellant instigating the fabrication is purely a solitary testament, and it does not have probative force. Therefore, in the absence of substantial evidence, we cannot claim that the Appellant had instigated Zhang Zhaohui to fabricate certificate. Even if Zhang Zhaohui as an individual had forged documents, this is a behavior that occurs in order to elude responsibilities, this is a civil act, and the prosecutor had admitted during the trial that this is an act of evasion.
(B) Flying Dragon Group and the Appellant have no purpose or intention for any illegal possession of Chengdu Lianyi equity.
Verdict from the court of first hearing decided that Flying Dragon Group and the Appellant in the absence of the ability to fulfil the contract obligation had proceed with the acquisition of equity interest in Chengdu Lianyi, has instigate a fraud. As mentioned earlier, during the acquisition of shares, Flying Dragon Group apart from owning RMB 50 million yuan worth of vessels, it also possess RMB 50 million worth of assets and properties in construction in progress, buildings, store ships and shipyards, machinery and equipments, land use rights, it’s also has several profitable subsidiaries, including Guangdong Asia Daily Chemical, the well-known chemical plant in Guangdong Province that provided Chengdu Lianyi with RMB 6.8 million profit in 1997, more importantly, in the related transaction under this restructuring of assets, Chengdu Lianyi acquired 75% stake in Flying Dragon High-speed, worth RMB 74 million yuan, and has not been honouring any payment to Flying Dragon Group. The undeniable fact is that Flying Dragon Group has substantial account receivables due to this trade off equity and other assets in possession, this absolute fact has proven Flying Dragon Group having the ability to pay the acquisition price. Using such basis to deny Flying Dragon Group ability to make payment, such rationale is absolutely unfair to Flying Dragon Group, because as the reciprocate acquirer, Chengdu Lianyi should be paying RMB 74 million yuan to Flying Dragon Group in this shares swapping. Given such situation, the audit should be a fair perspective on these two companies located in Guangdong Province and Sichuan Province. Not based on the unilateral statement to repudiate the reality of the real situation, this verdict is definitely lack of legal basis, disputable and unconvincing.
Flying Dragon Group and the Appellant pledge their stock to obtain loans, after repaying the transfer amount for the acquisition to the transferor, the balance was used for business operation, not a penny was squander away. To be precise, in the signed Equity Transfer Agreement between Guangdong High-speed Passenger Ferry Ltd and Chengdu Yi Industrial Co., it was clearly defined under Clause 6.2 that after 1996, all credits and debts of Guangdong High-speed Passenger Ferry will be undertaken by Chengdu Lianyi. In the span of the two years, the Appellant coexist with the company, working hard to create huge profits for Chengdu Lianyi, implementing the 10 shares plus 3 bonus shares scheme complimenting all shareholders, in coexistence with creditors as well, facing creditor with a positive attitude and seeking common development with the creditors, actively fulfilling his duties and commitment. Never had the Appellant hide or try to elude. Only when the Appellant was wanted by the national public security, helplessly not able to clarify himself that he has no choice but to flee, not fleeing because of any inability to repay debt. These facts illustrated that Flying Dragon Group and the Appellant have no purpose or intention to illegally take possession of other property.
(C) Zeng Hanlin and his families affirmed that Chengdu Intermediate People's Court's verdict is UNFAIR, a serious lack of objectivity and fairness. Had requested to transfer this case to the Supreme People Court for public hearing. The reasons as below:
(1) This case contains many controversy, both Guangdong Province and Sichuan Province holds different judgment, the court decisions vary, different viewpoints of law.
Guangdong and Sichuan, both legal (ruling) verdict is based on the judgments of their individual civil economic law and criminal law, and are all made according to the law. The two encountered conflict in executing the verdict. In regards to the Flying Dragon Group RMB 35 million yuan loan taken from Bank of Communication in 1998, the two provinces derived at two different conclusions. Guangdong Province Court found that the equity trading agreements and Bank loans are under legal compliance, it does not involve any criminal offense; Sichuan Province final decision determined that the loan is a contract fraud proceeds. Due to the fact that two provinces People's Court derived at extremely opposite judgment, that leads to the two sentences not being able to be executed.
(2) This case is associated with local protectionism
Chengdu Lianyi Group is a collective township and village enterprise of Chengdu City, Guangdong Flying Dragon is an enterprise originated from Guangdong province. This result in the two District Court’s ruling in opposite direction, not being able to be fair and objective. According to the relevant judicial understanding, the two court decisions should be adjourned to a higher court for hearing. The final decision should come from the Supreme People Court.
(3) The final outcome of this case is associated with significant interest in the District Court
In the Intermediate People's Court's verdict, we can clearly see that their decisions lack objectivity and fairness. Reason being that this case till now is still highly controversial. If the point of law were to overturn the verdict, this will greatly impact the previous verdict made by the district court in Chengdu, they may have to bear the responsibility of negligence. Given these conflicting interest, Chengdu District Court is bound to be affected and fail to maintain fairness and independence judgment on this case, inability to be objective and fair to trial this case.
In summary, Flying Dragon Group and the Appellant's conduct did not constitute a contract fraud. Beseech the thorough investigation and prudent judgment of the Court of second hearing.
Sincerely to:
Sichuan Higher People's Court
(Beijing City, King & Capital Law firm lawyer Yang Zhaodong, Zhu Yalin, appealing on behalf of the Appellant Zeng Hanlin under his consent)
21 January 2012
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