Legal Cases Part 1: The process of establishing the Huazang Enterprise Co., Ltd.

The process of  establishing the  Huazang Enterprise Co., Ltd.

Huazang Enterprise Co., Ltd., a company, was founded in accordance with the law in 1999. It is characterized by the fact that over three thousand individuals  are the founders of the company. The purposes of the company are to make use of all the founder’s background experience, both cross-regional and cross-industry, to allow them to share resources and be of benefit to each other in ways that would allow them to create value, address poverty, and promote development by the use of high technology. In 1999 different media reported the news, one after another, that Huazang Enterprise Co., Ltd., the first private joint-stock company started by individuals, was founded after approval was granted by the Beijing Municipal Government. This is a new attempt in China’s stock company development. The course of events occurring during the Founding of Huazang Enterprise Co., Ltd. is as follows:

Part I )  The process of the company established

The first preparatory meeting: 

On April 20, 1999, Mr. Wu Zeheng, the initiating founder and honorary chairman of the China Life Science Society, presided over the first preparatory meeting. Seven people attended the meeting. At this time a preparatory group was set up. In order to respond to the call of Chinese Communist Party and Beijing Municipal Government to accelerate the development of Chinese private joint-stock enterprises, the seven attendees decided to prepare the company by uniting more partners or reliable friends as founders. They then started to draw up the documents needed to apply for the establishment of a company according to the Company Law of the People’s Republic of China.

The second preparatory meeting:

On May 21, 1999, the preparatory group convened the second meeting. The initiators from Tianchang and Bengbu in Anhui Province, Xuzhou and Pizhou in Jiangsu Province, Weihai in Shandong Province, Taiyuan in Shanxi Province, Shenyang and Fushun in Liaoning Province, etc., attended the meeting. At this time, the feasibility report of “Huazang Group Co., Ltd.” and the articles of association for share holding were approved.

The third preparatory meeting:

On June 5th to the 6th of 1999, the preparatory group convened their third meeting. During the meeting they selected the founders representatives, decided to postpone submitting documents to the authority for approval of the group company since Industry and Commerce Administration Bureau of Beijing Municipal Government would not accept any group company registration for short duration before the end of the year, changed the company’s name from “Huazang Group Co., Ltd.” into “Huazang Enterprise Co., Ltd.”, amended the articles of association for Huazang Enterprise Co., Ltd., approved the “articles of association for share holding”, and decided to make the shares available for subscription from June 15th to the 25th.

The fourth preparatory meeting: 

On June 27th, the preparatory group convened its fourth meeting to look through the Company’s application procedures and discuss the solutions for the emergent incidents cross the country. The approval procedures were progressing.

Approval by State Administration of Industry & Commerce: 

On June 29th, the State Administration of Industry and Commerce officially issued [the State] Preparatory Approval of the Company Name [1993] Document No. 368. The approved name for the Company was “Huazang Enterprise Co., Ltd.” Accordingly, the preparatory group opened a bank account specifically for the deposit of money paid to the company for shares to be used for and verified as registration capital.

The fifth preparatory meeting: 

On June 30th, the preparatory group made the decision on its fifth convention that, if the company could not be registered successfully as scheduled, the funds collected would be refunded in full and on time to the subscribers when necessary. Nobody is allowed to embezzle the money.

From July 1st to the 30th, the application documents of Huazang Enterprise Co., Ltd. were examined and verified by the relevant authorities (this included the Beijing Municipal Commission for Economic Restructuring, Beijing Municipal Assets Supervision & Administration Commission, the Beijing Municipal Administration Bureau of Industry and Commerce) and were approved according to all relevant regulations. On August 6th, the General Office of Beijing Municipal Government approved the establishment of Huazang Enterprise Co., Ltd. by issuing “[Jing] Gov. Office Document [1999] No.110 ”.

Part II ) Search and detention in different regions

However, during the national wide share offering period, some regional authorities thought the initiators of Huazang were “raising money illegally” or “issuing the stocks without authorization”.

They searched and detained some of the Huazang initiators throughout the country. Some initiators even had charges filed against them alleging criminal liability. The incidents are as follows:

1. On June 20th, more than ten personnel from Wanbolin Administration Bureau of Industry and Commerce and Wanbolin Public Security Bureau of Taiyuan besieged Taiyuan Huazang Consulting Centre. Without producing any search warrant, and in the name of illegally raising funds and issuing stocks, they seized 1,962,800 Chinese Yuan and various materials. They also took away six persons, Ma Shuying, Cao Sufang, Li Wei, Zhang Songtao, Zhang Bo and Du Weiyuan (for details please refer to Wanbolin Administration Bureau of Industry and Commerce Notice 99 of detaining property No.24 25 26 27). That evening, Zhang Songtao, Zhang Bo and Du Weiyuan were interrogated before being released.

  1. On June 21st, Wanbolin Public Security Bureau of Taiyuan issued detention notices for Cao Sufang and Ma Shuying alleging they were issuing shares without authorization.
  1. On June 22nd, 230 founders from Taiyuan jointly signed a letter to appeal to the Minister Li Jingtian of Shanxi Provincial Committee of the Communist Party strongly requesting them to return the two detained founders and all the money they confiscated.

4. On June 28th, led by the director of the Tianchang Municipal Scientific Affair Office of Anhui Province, members of the special prosecutor’s team came to the office of Tianchang Life Sciences Society. They closed it down and took away all the account information and receipts to be used in the investigation of Hua Maobin,the representative of the founders. Meanwhile, at about 12 o’clock noon, without a search warrant or detention warrant, the personnel of Nanyang Police Station of Fushun Public Security Bureau went into the office of Fushun Petroleum factory No. 1, seized the list of founders, their application forms, receipts, and a bankbook containing 91,000 Chinese Yuan. They also arrested Yu Guangzhen, He Yuzheng, and Sun Shujing.

5. On June 29th, Li Heping, the representative of the 230 founders in Taiyuan, wrote an application to the Wanbolin Administration Bureau of Industry and Commerce for reconsideration. He requested that the Bureau return all the money they took and release Ma Shuying and Cao Sufang, who were still in custody. FuShun Municipal Public Security Bureau was the issuer of the notices of detention for Yu Guangzhen and the other detainees; and transferred Yu Guangzhen’s deposits of 91,000 Chinese Yuan to the account of Wang Huiwen, the Police woman.

6. On June 30th, over 200 founders of the Company in Tianchang of Anhui province jointly presented a petition to the Tianchang Municipal Committee and the Municipal Government of Tianchang to explain the legitimacy of establishing the Company and requested the Government to provide support and help.

7. On July 1st, the Deputy Secretary of Politics and Law of Tianchang declared at the People’s Congress that Huazang Enterprise Co., Ltd was illegally founded to collect money illegally. He warned the populace to be careful so as not to be taken in. On July 2nd, division No.1 of the Beijing Municipal Bureau of Public Security secretly peremptorily froze the account of “Huazang Enterprise Co., Ltd.

8. On July 6th, the family members of Ma Shuying and Cao Sufang, who were being held in custody in Taiyuan, authorized Liu Yan, Guo Jianfan and Ni Zeren, the lawyers from Zi Guang Law Firm, to handle their cases. On the same day the Taiyuan Administration Bureau of Industry and Commerce replied to “the Reconsideration Appeal” of Huazang Consulting Centre as follows:

A. The Centre breached the stipulations of article 84 and article 210 in Company Law of the People’s Republic of China by raising capital through the issuance of unauthorized shares, it was illegal.

B. The amount of money raised was huge, which has also breached the relevant stipulations of Criminal Law of The People’s Republic of China. This Bureau will hand over the case to the Public Security concerned and will not take any further action on the reconsideration application. The preparatory Group of Huazang Enterprise Co., Ltd. thought the above reply contradicted the truth of the Company’s approving process.

9. On July 7th, at 2:30 am in the early morning, the Xuzhou Municipal Public Security Bureau of Jiangsu Province summoned Wang Ziying, Yu Shaolian and Hu Jinhua to the Bureau for interrogation. On the same day the three lawyers from Zi Guang Law Firm tried to negotiate with the Public Security Bureau of Wanbolin but they were delayed in meeting their clients. The reason for this was that since it was a political case, nobody was allowed to see the persons involved in the case or ring them before they asked for instructions from their Bureau superiors.

The same day, the Public Security Bureau of Fushun went to the office of the Petroleum No. 1 factory and broke open the lock to take away the business license and books.

Part III)  Wu Zeheng’s efforts and the result

On July 9, 1999, in regard to the crisis arising from the process of establishing Huazang Enterprise Co., Ltd., Mr. Wu Zeheng wrote a letter of appeal to the President Jiang Zemin and Premier Minister Zhu Rongji. On July 31st, in order to avoid more innocent people being charged, Wu took all the responsibilities upon himself and was put in prison as the victim of an unjust charge.

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