Reply to the Shenzhen Stock Exchange's Inquiry Letter Regarding the 2020 Annual Report
To the Management Department of the Shenzhen Stock Exchange's SME Board:
Kairuide Holdings Co., Ltd. (hereinafter referred to as "Kairuide" or "the Company") received your inquiry letter titled "Inquiry Letter Regarding Kairuide Holdings Co., Ltd. 2020 Annual Report" (SME Board Annual Report Inquiry Letter [2021] No. 1) on February 10, 2021. The Company has conducted a thorough study and verification of the issues raised in the inquiry letter and has sought opinions from the annual audit institution. The responses to the inquiries are as follows:
- As of December 31, 2020, the Company has accounts receivable from the original shareholder Zhang Peifeng amounting to 170 million yuan. In 2020, the Company recognized an impairment of 146 million yuan for this receivable, with a cumulative impairment of 170 million yuan. The annual audit accountant could not assess the reasonableness and accuracy of this impairment provision. Please provide detailed information on the composition, formation reasons, basis and proportion for recognizing bad debt provisions, and the reasonableness and accuracy of the recognized amount, along with Zhang Peifeng's performance capability and relevant performance guarantees, and further explain the measures taken and planned regarding the uncollected receivables.
Response: The receivable from Zhang Peifeng primarily arises from the Company's efforts to protect the interests of the Company and minority shareholders. In December 2019, the Company signed a contract with Zhang Peifeng and Dezhou Jinmian Textile Co., Ltd., whereby Zhang Peifeng voluntarily replaced Shandong Demian Group Co., Ltd. as the payment obligor in the "Framework Agreement for Major Asset Disposal of Kairuide Holdings Co., Ltd." and the "Supplementary Agreement for Major Asset Disposal of Kairuide Holdings Co., Ltd." He undertook the payment obligations for amounts receivable from the disposal of assets by the Company. For detailed composition and formation reasons, please refer to the Company's response to question 1 disclosed on January 26, 2021, on the Giant Tide Information Network.
As of now, Zhang Peifeng has overdue payments for the third and fourth installments. The third installment of 27.72 million yuan was due by September 15, 2020, with an actual payment of 23.13 million yuan made; the fourth installment of 27.72 million yuan was due by December 15, 2020, and has not been paid to date. Additionally, the Company's stocks held by Zhang Peifeng have been subject to judicial enforcement, and he is currently under restrictions on personal freedom due to violations in the securities market. His equity assets from external investments have been judicially frozen due to illegal activities and debts. Therefore, based on the latest situation in 2020 and after a comprehensive assessment of his repayment capability, the Company decided to fully recognize a 100% impairment provision for this significant receivable based on the principle of prudence. This full impairment provision for the receivable from Zhang Peifeng has been approved by the 30th meeting of the 7th Board of Directors, the 14th meeting of the 7th Supervisory Board, and the first extraordinary general meeting of shareholders in 2021, with independent directors expressing their agreement. The Company believes that the bad debt provision for the relevant receivables is sufficient and complies with the relevant provisions of the "Enterprise Accounting Standards."
Given that Zhang Peifeng's stocks have been judicially enforced, and he has overdue payments totaling 32.31 million yuan for the third and fourth installments, and is under restrictions on personal freedom due to suspected criminal activities, the Company assesses that Zhang Peifeng's current performance capability is weak. Therefore, the Company has fully recognized a bad debt provision for the receivable from Zhang Peifeng and will actively communicate and negotiate with relevant parties to seek solutions beneficial to the listed company and its shareholders.