1) Form a small retail investors association and lobby the SEC. This is already done in the CCME thread. There are such associations in many other countries.
2) Get Nasdaq or SEC to shore up their practices once and for all
Here are some ways:
-Get the audit committees and directors of listed firms with operations in China to make sure that the Articles of Association of their Chinese units allow them to appoint or remove legal representatives.
This move can prevent a legal representative from denying access to crucial accounting records who does not want to step down. Legal representatives carry considerable weight in China, as they hold the company seal which can be used to execute transactions and transfer assets, and the potential for wrongdoing is correspondingly large.
However, changing these articles of association to get rid of a legal representative who does not want to go will only be the start of a protracted and costly battle against shenanigans on the mainland,
During the legal proceedings, for example, the parent company will have to submit certain documents to the State Administration of Industry and Commerce. In some cities, the original copy of the business licence might be required as opposed to just a photocopy.
This is a problem as some legal representatives hold the original copy and might not want to hand it over.
This tussle over documents extends to other areas and can considerably impede the parent company's attempt to regain control over its rogue subsidiaries.
When (the legal representative) refuses to pass on these documents, a court order is needed. In some cases, a few years is needed to get these documents, which by the time all the money will be gone.
Pre-emptive steps that can be taken to minimise the complications of removing a legal representative, like getting critical papers such as the stamp registration form pre-stamped and kept with the company secretary instead,
Currently, the articles of associations embedded in most Chinese units are a landmine-filled proposition where removing legal representatives is concerned.
In some cases, the legal representative might be the Chinese subsidiary's general manager, and it is the board of the subsidiary that has the power to appoint or remove the general manager.
The parent company has to remove the whole subsidiary's board and then remove the general manager. However, there will be great resistance when new members are being appointed to the board.
The urgency for making better provisions is further underlined by the fact that existing articles of association might specify the tenure of a legal representative, but remain silent on his removal.
Apart from making these provisions in the Articles of Association, stocks in the CGS space should be asked to conduct a review to find out if checks and balances for cash and company seals are adequate, and to tell the Nasdaq the outcome by a stipulated date. That means all RTO must undergo a forensic audit if they want to continue listing by a certain timeline.
This seems impossible, but could be the best way out to attract only the best growing companies to list on Nasdaq. This is an opportunity to clean up once and for all.
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