The Ningbo Securities Regulatory Bureau recently issued an administrative penalty decision against Ningbo Xianfeng New Material Co.,Ltd. (hereinafter referred to as Xianfeng New Material), along with former controlling shareholder Lu Xianfeng and several former executives, while the Shenzhen Stock Exchange concurrently issued public condemnations, resulting in total fines of 9.4 million yuan. This case revealed two long-standing severe compliance violations, exposing governance issues such as the controlling shareholder exceeding authority, internal control failures, and serious deficiencies in information disclosure.
The investigation found that in November 2018, Lu Xianfeng signed an agreement with a third party to transfer 29.8% of the company's shares for a transaction value of nearly 1 billion yuan, a matter that constitutes a major information disclosure event regarding a change in corporate control. However, due to the deliberate concealment of the complete transaction arrangement, only small amounts of share transfer information were disclosed, hiding the fact of the control change. This "secret agreement" remained hidden for nearly six years until litigation disputes between the parties exposed it, misleading secondary market investors in their decision-making.
Additionally, in 2017, Lu Xianfeng privately used the company's credit to provide a backstop guarantee for a 250 million yuan loan to his related party, with the guarantee amount representing 33.04% of the company's net assets at that time. This major guarantee was not reviewed by the board of directors or the shareholders' meeting, and was not disclosed to the public, hiding significant asset safety risks that seriously infringed on shareholders' legitimate rights and interests. The long-term violations have led to internal governance chaos at Xianfeng New Material, including frequent management changes, non-standard audit opinions on annual reports, and net profit excluding non-recurring gains and losses staying negative for five consecutive years. Following the implementation of this penalty, the company's stock price has fallen sharply, causing significant losses for small and medium-sized investors.
The penalty comprehensively holds the listed company, the former controlling shareholder, and former management accountable, with all related violations recorded in the securities market integrity files. The violations exposed by the Xianfeng New Material case reflect internal governance problems common among many listed companies: controlling shareholders blur the legal boundaries between personal property and public companies, replacing rule-of-law-based corporate governance with personal will.
In this case, Lu Xianfeng held multiple roles, including controlling shareholder and chairman, creating a one-person rule scenario: major equity transactions were finalized behind closed doors and billion-yuan guarantees were decided privately. The board of directors, board of supervisors, and independent directors, who should have performed oversight functions, were entirely absent, with no pre-event checks and balances, no mid-event risk review, and no post-event supervision or correction. The standardized internal control and information disclosure systems became mere paper formalities to cope with regulatory inspections.
The successive failures of the board secretary and subsequent executives to stop the violations revealed a comprehensive breakdown of the duty of diligence among Xianfeng New Material's management. According to regulatory requirements, the board secretary is the primary person responsible for information disclosure, and executives have the obligation to proactively investigate abnormal events such as equity changes and large guarantees. However, over several years, the company's management collectively chose to acquiesce, ultimately leading to a major information disclosure accident. Regulators held successive managers accountable, clearly drawing a red line: the controlling shareholder's exceeding of authority cannot be an excuse for management to remain passive, and management must take full responsibility for the company's compliance obligations.
On a deeper level, such concealed operations directly undermine the foundation of capital market pricing. When investors buy shares of a listed company, they are essentially relying on complete and public information to make value judgments about the company's controlling shareholder, debt risks, and business prospects. The "secret agreement" created a false impression of nominal versus actual control, burying the true debt burden with implicit guarantees. Market transactions guided by false information fundamentally violate the principles of openness, fairness, and justice in the capital market.
The heavy penalty imposed on Xianfeng New Material is a representative example of regulators' ongoing efforts to combat hidden control transactions and the phenomenon of controlling shareholders stripping listed companies. In recent years, regulatory enforcement has established a core judgment logic that prioritizes substance over form, moving beyond the paper-based shareholding recorded in corporate registrations to use penetrating reviews, tearing apart the disguises of nominee holdings, private agreements, and multi-layered related structures, to uncover the true controlling parties and hidden risks. In terms of the scope of accountability, regulators have achieved full-chain coverage: the controlling shareholder, as the primary responsible party for violations, receives severe penalties; negligent chairmen, board secretaries, and other management are jointly fined and publicly condemned; and the listed company itself bears punitive consequences, creating a tripartite binding constraint on individuals, management, and the company, completely breaking the old pattern where "the controlling shareholder causes trouble, the listed company pays, and executives escape accountability."
A fine of nearly 10 million yuan serves as the final punishment for violative behavior. Years of hidden operations can briefly obscure market view, but cannot permanently hide latent risks; the temporary arbitrariness of a controlling shareholder's power will ultimately trigger a chain reaction of litigation, stock price declines, and investor claims. In our view, once a company completes its listing, it must bid farewell to a family-oriented, rule-of-man mindset and accept the rule-of-law-based, transparent market constraints. The system of checks and balances among the shareholders' meeting, board of directors, board of supervisors, and management; timely and complete information disclosure; and independent, rigid internal controls and risk management are not formal compliance tasks but the foundation for protecting the company's long-term operations and safeguarding the legitimate rights and interests of minority shareholders.
For the capital market, continued penetrating regulation and strict, full-chain accountability are not only corrections of individual case irregularities but also a building of a robust governance foundation for the entire market's stable operation through rigid systems.
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