China High Speed Transmission Equipment Group Commences Legal Proceedings for Fund Misappropriation of RMB 6.64 Billion

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, /PRNewswire/ -- The Board of Directors (the "Board") of China High Speed Transmission Equipment Group Co., Ltd. (the "Company", Stock Code: 0658.HK, together with its subsidiaries, the "Group") today announced that its wholly-owned subsidiaries, Nanjing High Accurate Drive Equipment Manufacturing Group Co., Ltd. ("Nanjing Drive"), Nanjing Handa Import and Export Trade Co., Ltd. ("Nanjing Handa") and Nanjing Shengzhuang Supply Chain Co., Ltd. ("Nanjing Shengzhuang", together with Nanjing Drive and Nanjing Handa, the "Relevant Subsidiaries"), issued a writ of summons (HCA 656/2025) in the High Court of Hong Kong on 31 March 2025.

The Legal Proceedings

The action is brought against the following defendants (the "Defendants"):

(1) Fang Jian (former Executive Director of the Company and former Legal Representative of the Relevant Subsidiaries),

(2) Fullshare Holdings Limited ("Fullshare", Stock Code: 0607.HK),

(3) Five Seasons XVI Limited, a wholly-owned subsidiary of Fullshare,

(4) Ji Changqun (Chairman and Executive Director of Fullshare),

(5) 16 other companies (the "Counterparties") which are counterparties to certain agreements for the sale and purchase of commodities (the "Agreements"), and

(6) 10 other individuals who were Fullshare personnel improperly involved in the administration, financial management and contract approval of the Relevant Subsidiaries.

The claim is based on the alleged wrongful conduct of the Defendants, which resulted in the loss of RMB 6.64 billion (the "Relevant Amounts") of the Relevant Subsidiaries.

The legal action reflects the Group's commitment to safeguarding the interests of all shareholders, particularly minority shareholders, in light of potential unlawful activities by the Defendants.

"Our Board takes this matter very seriously and has taken decisive steps to protect the Group's interests and uphold our obligations to shareholders," said Hu Jichun, Chairman of the Group. "We are duty-bound to rectify any misconduct that undermines corporate governance and shareholder value. We will pursue all necessary legal remedies to ensure accountability and transparency."

Key Considerations

As of 31 October 2024, receivables and pre-payments due to the Relevant Subsidiaries under the Agreements totaled approximately RMB 6.64 billion.

Demand letters were sent to the Counterparties, which were not properly answered. Amongst the limited replies received, the Counterparties claimed that amounts owed were transferred to third parties following instructions from the Relevant Subsidiaries.

The Relevant Subsidiaries have reported to the authorities in the PRC, which have, after vetting, initiated formal criminal investigation into suspected embezzlement and misappropriation of the Relevant Subsidiaries' funds and assets by individual(s) in position(s) of authority.

Whilst the details surrounding the Relevant Amounts are still under independent investigation and formal criminal investigation, the Company and the Relevant Subsidiaries have been advised of the following:

• Meeting minutes, commercial records and communication records of the Relevant Subsidiaries indicate that Fullshare personnel, reporting to Ji Changqun, were improperly involved in the decision-making and management of the trading business of the Relevant Subsidiaries for which the Agreements were signed.
• According to Nanjing Drive's employees interviewed and financial records reviewed, Fullshare's financial personnel and accountants directly handled various payments between the Relevant Subsidiaries and the Counterparties;
• Financial records of the Relevant Subsidiaries were recovered from Fullshare's premises at Fengsheng Science Park in December 2024, after repeated demands from the current management of Nanjing Drive, demonstrating the potential control of Fullshare over the financials of the Relevant Subsidiaries;
• There existed a parallel contract approval procedure of the Relevant Subsidiaries where former legal counsel and other former or current executives of Fullshare were substantively involved;
• Crucially, public company search records show that certain Counterparties, which received the funds of the Relevant Subsidiaries, could be related to Ji Changqun or Fullshare. Nanjing Drive's current and former employees also indicated that the Counterparties are indirectly connected to Fullshare; and
• Fang Jian was responsible for the operation and management of the Relevant Subsidiaries when the Agreements were executed. Fang Jian also oversaw the management and approval of the company seal for these subsidiaries at the relevant time.

In view of the above, the Relevant Subsidiaries have started to pursue the Defendants named in the legal action for the Relevant Amounts. Further defendants may be added to the proceedings as the investigations progress.

Actions taken

Upon discovering the Agreements, the Board promptly formed an Independent Investigation Committee to oversee an investigation into the matter. An independent investigative consultant was engaged and is expected to deliver a preliminary report of its findings by mid-May.

The Board and the Group have reiterated their unwavering commitment to strengthening the Group's internal controls and have to date implemented interim remedial measures, including:

• Enhanced oversight and control of commodities trading operations
• Streamlined cash flow controls and inventory management
• Optimized senior management roles to ensure robust corporate governance
• Heightened management oversight and compliance

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About the Group

China High Speed Transmission Equipment Group Co., Ltd. (Stock Code: 0658.HK, together with its subsidiaries, the "Group") operates as a professional corporation principally engaged in the manufacture of high-speed and heavy-duty gears. The Group was established in 1969 and listed in Hong Kong in 2007. The Group's "NGC" brand is famous in the PRC market and well established in the international market. Its business is focused on wind energy gearboxes, rail vehicle gearboxes, industrial gearboxes, robot reducers and new energy vehicle gearboxes. For more information, please visit www.chste.com.