Followed by penalties: The regulatory facts and compliance review of Hongdou Co., Ltd.'s capital occupation and information disclosure violations

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On April 3, 2026, Jiangsu Hongdou Industrial Co., Ltd. (600400.SH) simultaneously received both an administrative regulatory measures decision from the Jiangsu Securities Regulatory Bureau and a disciplinary action decision from the Shanghai Stock Exchange, becoming one of the few cases in the A-share market where two types of regulators held the company accountable for violations in the same day.

According to the findings in the two regulatory documents, Hongdou Co., Ltd., its controlling shareholder, Hongdou Group Co., Ltd., and the then-Secretary to the Board of Directors, Meng Xiaoping, clearly violated regulations in areas such as fund-related dealings management and information disclosure operations.

As of December 31, 2024, Hongdou Co., Ltd. had accounts receivable from Hongdou Group Co., Ltd. of RMB 110 million that had become overdue. Although all of the overdue amount was fully collected by April 30, 2025, in the 2025 fiscal year, Hongdou Co., Ltd.’s accounts receivable from Hongdou Group again became overdue. As of September 30, 2025, the outstanding balance of Hongdou Co., Ltd.’s accounts receivable from Hongdou Group that exceeded the credit period was RMB 45.0943 million. The regulatory authorities determined that this conduct constituted the controlling shareholder’s occupation of listed company funds in daily business activities.

In addition, in May 2025, Hongdou Group also non-operationally occupied RMB 12.50 million of funds from Hongdou Co., Ltd. through a prepayment arrangement, and Hongdou Co., Ltd. did not disclose this non-operational fund occupation in its 《2025 Semi-Annual Report》.

In terms of information disclosure, on November 12, 2024, Hongdou Group conducted two stock pledge transactions at the Pudong Development Bank Wuxi Branch, but it did not promptly notify Hongdou Co., Ltd., resulting in the equity pledge information being inaccurate in the relevant announcements disclosed by the company on January 23, 2025. In addition, shares held by Hongdou Group were judicially marked for 51.34518 million shares (2.24% of the company’s total share capital) on February 25, 2025, judicially marked for 164.5 million shares (7.16% of the company’s total share capital) on June 10, 2025, and subject to a round of pending freeze for 143 million shares (6.24% of the company’s total share capital) on July 10, 2025. All of the above matters met the information disclosure standards, but Hongdou Group failed to promptly inform the listed company, leading to delayed information disclosure.

Meng Xiaoping, the then-Secretary to the Board of Directors and the specific person responsible for the company’s information disclosure, was determined by the regulatory authorities to have failed to perform her duties diligently and conscientiously, and thus bears corresponding responsibility for the violations in information disclosure.

Put simply, Hongdou Group owed the listed company Hongdou Co., Ltd. money that was overdue multiple times. After the RMB 110 million arrears in 2024 were repaid, in 2025 there were still more than RMB 45.09 million overdue, which was recognized as the large shareholder’s occupation of funds. In addition, Hongdou Group also occupied RMB 12.50 million for free under the name of prepayment without disclosure, and it also failed to promptly notify the listed company of important matters such as its stock pledges, judicial markings, and freezes, leading to errors and omissions in information disclosure. Meng Xiaoping, who was responsible for information disclosure, was also held accountable due to failure to perform her duties.

Penalty notice delivered: Basis for punishment and requirements for rectification

The regulatory measures issued by the Jiangsu Securities Regulatory Bureau and the Shanghai Stock Exchange to Hongdou Co., Ltd. and relevant parties strictly follow the currently effective securities laws and regulations and self-regulatory rules, and the legal basis is clear and authoritative. The Jiangsu Securities Regulatory Bureau took orders to rectify measures against Hongdou Co., Ltd. and Hongdou Group Co., Ltd., and issued warning letters to Hongdou Co., Ltd., Hongdou Group Co., Ltd., and Meng Xiaoping. The main basis is the relevant provisions of Article 170, Paragraph 2 of the 《Securities Law of the People’s Republic of China》, the relevant provisions of 《Regulatory Guidance No. 8 for Listed Companies — Regulatory Requirements for Listed Company Funds and External Guarantees》, as well as relevant provisions of the 《Measures for the Administration of Information Disclosure of Listed Companies》.

The SSE issued a notice of criticism to Hongdou Co., Ltd., Hongdou Group Co., Ltd., and Meng Xiaoping, based on rules including the 《Shanghai Stock Exchange Listing Rules for Stocks (Amended in April 2024)》《Shanghai Stock Exchange Listing Rules for Stocks (Amended in April 2025)》《Implementation Measures for Disciplinary Actions and Regulatory Measures of the Shanghai Stock Exchange》 and 《Shanghai Stock Exchange Self-Regulatory Guidance No. 10 — Implementation Standards for Disciplinary Actions》, among others. According to regulatory requirements, the SSE’s decision on the notice of criticism will be reported to the China Securities Regulatory Commission, and it will be filed in the integrity record for the securities and futures market. Hongdou Co., Ltd. must, within one month after receiving the decision notice, submit a rectification report confirmed by signatures of all directors and senior management personnel.

Hongdou Co., Ltd. has stated in public announcements that the company and relevant responsible persons attach great importance to the issues involved in the regulatory decision. It will strictly implement rectification in accordance with laws and regulations and regulatory requirements, strengthen compliance learning, reinforce information disclosure management, and earnestly safeguard the interests of the company and all its shareholders.

Trace it to the source: The core crux of the violations

Based on the facts recognized in the two regulatory documents, this case involved multiple violations by Hongdou Co., Ltd., which collectively reflect weaknesses in the company’s internal governance and compliance management.

Hongdou Co., Ltd. has obvious deficiencies in managing accounts receivable from related parties. Large accounts receivable became overdue in 2024, but in 2025, it did not exercise strict control and timely collection efforts regarding accounts receivable from related parties, resulting in the repetition of similar problems and its inability to effectively prevent the risk of controlling shareholders’ occupation of operating funds.

The internal management and information transmission mechanism for information disclosure failed. When Hongdou Group, the controlling shareholder, occurred with reportable matters such as stock pledges, judicial markings, and pending freezes, it did not inform the listed company in writing in a timely manner as required. The company also did not establish an effective investigation and rectification process internally, ultimately leading to inaccurate and untimely information disclosure.

Meng Xiaoping, the then-Secretary to the Board of Directors, failed to perform her duties diligently and conscientiously, and is responsible for violations such as not disclosing non-operational fund occupation in a timely manner. This reflects loopholes in the fulfillment of duties for key positions in the company’s information disclosure.

In summary, Hongdou Co., Ltd.’s internal controls were insufficient. After the controlling shareholder’s arrears became overdue in 2024, in 2025 the company failed to manage the collection of the arrears properly, leading to the reoccurrence of the issue of fund occupation. The controlling shareholder’s matters such as stock pledges, judicial markings, and freezes were not communicated to the company; the internal information transmission and verification mechanism malfunctioned, causing errors and omissions in information disclosure. Meng Xiaoping, the Secretary to the Board, was held accountable for failing to perform her duties diligently and conscientiously. These factors ultimately led the company to be held accountable by two regulators on the same day.

Hongdou Co., Ltd. received double penalties from two regulators within one day. This is a typical case showing that regulatory authorities adhere to strict oversight over behaviors such as fund occupation and violations in information disclosure, fully demonstrating the rigid requirements of the capital market for compliance operations by listed companies.

Strict regulation by regulatory authorities is the “stabilizing ballast” for the healthy operation of the capital market. Only by taking a zero-tolerance attitude toward such violations can listed companies be deterred from acting arbitrarily, ensuring that market information is more transparent and trades are more fair, thereby protecting the interests of the broad investing public and maintaining the stability and healthy development of the capital market.

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