In Depth: The Battle for Control Over a Billion-Dollar Satellite Firm

The unfolding of events at Chengdu Corpro Technology Co. Ltd. highlights the complex dynamics between company founders and powerful investors, especially when conflicts arise. For over six years, tensions simmered between Chengdu Corpro’s founding team, led by Mo Xiaoyu, and the company's dominating investor, He Yan. This conflict encapsulates the challenges courts face when balancing business continuity and protecting shareholders' rights, culminating in a December court decision favoring He Yan's control. [para. 1][para. 2][para. 4]

Founded in 2003, Chengdu Corpro is a crucial supplier for China’s Beidou satellite system and went public in 2010, now valued at around $1.6 billion. The power battle traces back to 2013 when He Yan, then a majority stakeholder, was implicated in a corruption scandal linked to Zhou Yongkang, a former high-ranking official in China. Following her arrest, Chengdu Corpro encountered financial downturns, prompting Mo's team to seek corporate independence from He's influence. They viewed dissolving the parent company, Gotecom Group, as a means to sever ties and address potential reputational and operational hazards. [para. 5][para. 6][para. 9]

Initially, the courts sided with Mo, ordering Gotecom Group's dissolution citing severe internal obstacles. However, He Yan's legal team successfully overturned this decision, maintaining that no irreparable deadlock existed since the company still held meetings and passed resolutions. Consequently, Mo's final appeal was unsuccessful, with a 2024 ruling reinstating He as the actual controller. Despite Chengdu Corpro's board proclaiming no actual controller in 2020 due to shareholder disputes, He resumed her role in January 2023. [para. 8][para. 15][para. 19][para. 26]

He Yan, often described as reclusive, had previously achieved significant wealth, ranking 82nd on Forbes China's richest list in 2001. Her reentry into public affairs came after serving a prison sentence related to the aforementioned scandal. Despite her legal troubles, Chengdu Corpro maintained that she did not partake in company operations, emphasizing no correlation between her criminal issues and the company’s operations. [para. 10][para. 13]

Faced with rejected efforts to shift control, including equity transfers, Mo addressed the situation as akin to a corporate "divorce," prompting him to take legal action after exhausting other remedies. Chengdu Corpro's independent directors supported these attempts, urging an end to He's control to alleviate regulatory restrictions impacting company refinancing and operational efficiency. [para. 21][para. 22]

In legal terms, China's corporate laws allow for judicial dissolution of firms under serious management difficulties potentially harming shareholders. Nonetheless, courts uphold business continuity as paramount, with intervention primarily grounded on evidence of power abuse by controlling shareholders. In this scenario, lack of sufficient evidence against Gotecom Group's management led to courts prioritizing stability over dissolution—a verdict echoed by experts illustrating the judiciary’s inclination to side with majority rule when feasible. [para. 27][para. 28][para. 31]

Moreover, Chengdu Corpro's saga underscores broader lessons in corporate governance. Despite stepping down due to health reasons, Mo remains a minority shareholder, while academics suggest alternatives like negotiated buyouts to resolve such conflicts, albeit acknowledging challenges in valuations, particularly within the technology sector. Overall, this case underlines the intricate dynamics at play when investor relations sour in corporate settings. [para. 32][para. 35]