A Study On The Legal System Of Chinese Enterprises' Reverse Mergers And Acquisitions

In recent years, Chinese enterprises have been involved in the international capital markets, and securities trading markets in the United States has gradually become one of the most concentrated overseas destinations for the Chinese enterprises, in which the method of reverse takeover has become a phenomenon especially worthy of attention. One the one hand, because reverse takeover are widely used by Chinese enterprises, even once more than the cases of initial public offerings; on the other hand, a lot of problems are exposed before or during or after the reverse takeover that some Chinese enterprises faced administrative penalties, class action for violation of U.S. laws and regulations or the rules of the Exchanges, and even eventually was ordered to withdraw from the market, which leads to severe losses for both enterprises and investors. Therefore, a study of legal system governing Chinese enterprises using reverse takeover to board the US capital markets has a strong practical significance.This paper tries to sort the legal system governing Chinese enterprises using reverse takeover to board the US capital markets. Firstly, the author starts from the introduction of the concept of a reverse takeover, its historical development, its market selection and its characteristics, and tries to clear the scope of this paper, and issues a brief analysis of the reasons Chinese enterprises are willing to choose reverse takeover. Secondly, the author intends to analyze the legal entities of reverse takeover (including the parties to the transaction, intermediaries and regulatory body), the legal process (including the preparation and implementation), and briefly introducts two new modes of reverse takeover. Subsequently, the author makes the analysis of the specific legal and regulatory frameworks from theoretical and normative level. Later, the author using cases as perspective, makes a detailed analysis of the legal risks that may be encountered in the Chinese enterprises using reverse takeover in the United States, specifically the Bodisen case, China’s high-speed case, CleanTech Innovations cases, Dalian RINO cases emerged in recent years, and summarizes such legal risks into categories as the risk of trade barriers and intermediary fraud as well as the risk of class action, administrative penalties and even delisting. Finally, the author sums up some lessons learned from the aforementioned cases, and makes a number of operational recommendations for the Chineses enterprises using reverse takeover to board the US capital markets, including familiarizing with the U.S. capital market regulatory rules, fully recognizing the legal risks, cautiously selecting intermediaries to prevent intermediaries fraud; improving corporate governance, timely and accurate disclosing information and actively responding to class action, in order to reduce the losses.