Monday, April 2, 2012

Big Mess At ChinaCast Education (CAST)

8k SEC

As previously disclosed in a Form 8-K dated March 26, 2012, the Company terminated Ron Chan as chief executive officer and effected his resignation as a director. In connection with his termination, the Company actively sought to reach Mr. Chan to conduct an orderly transition of his management functions to interim chief executive officer Derek Feng. This transition was meant to include, among other things, the return of the company seals, business licenses and financial seals of the Company’s Chinese subsidiaries relating to its e-learning and training services business and one of its universities, which items the Company believes are in Mr. Chan’s possession or persons under his direction. Under PRC law, the company seals, financial seals and business licenses are necessary for these Chinese subsidiaries to enter into contracts, conduct banking business, and take official corporate action, including registering the change in management with the relevant authorities in China. Mr. Feng and interim chief financial officer Doug Woodrum made a number of unsuccessful attempts to contact Mr. Chan in connection with his termination to conduct this orderly transition.
On March 30, 2012, Mr. Chan appeared at the Company’s Shanghai office and tried to assert control over the business by refusing to comply with the terms of his termination and resign from his legal representative and other positions with the Company’s Chinese subsidiaries. At the same time, Mr. Feng and Mr. Woodrum, along with the Company’s PRC legal advisors, continued to assert their control over the premises per their authority granted by the Company’s board of directors. Thereafter, Mr. Chan remained on the premises and continued to take steps to obstruct the transition of management.

As a result of Mr. Chan’s actions, the new management of the Company is being frustrated from resuming normal operations in Shanghai. The Company is also in the process of assessing the impact of these actions in Shanghai on the overall business. In addition, the Company is investigating as to whether there were questionable activities involving current and former employees, and if so, whether to pursue relevant civil and criminal legal remedies.

The Company has filed lawsuits against Mr. Chan in the PRC courts. In these lawsuits, the Company is seeking to recover, among other things, the company seals, financial seals, business licenses and accounting books of the Chinese subsidiaries from Mr. Chan, and an order to compel Mr. Chan to effect the change in executive director and legal representative of each of the Company’s Chinese subsidiaries with the local Administration of Industry and Commerce. The Company believes that its legal position is sound. However, if the Company’s efforts to regain control of its assets in China are unsuccessful, there may be a significant material adverse effect on its business, financial condition, results of operations and business prospects. The Company’s current loss of control over its assets in Shanghai, China and its efforts to regain control also are occupying significant management time and resources.

For more on VIE Turmoil read:

SA article -gigamedia-will-survive-current-vie-turmoil

1 comment: