The arrest of a Chinese-born Australian citizen for alleged illegal business activities immediately triggers memories of the arrests earlier this year of Stern Hu and his three Rio Tinto colleagues. The case of Matthew Ng, founder and chief executive of Et-China, a travel agency based in Guangzhou and listed on London’s Alternative Investment Market, is not on the same scale but does raise some potential red flags for foreign companies on the acquisition trail in China.
Ng was detained on Nov. 10 and is being held in Guangzhou’s No. 3 Detention Center. According to a company statement on Nov. 22, Ng is being held
as a suspect of the crime of misappropriation of company assets. At present Et-china has no further information about the cause of his detention. As far as Et-china is aware at present Matthew Ng has not been charged with any offense.
Australian foreign ministry officials have since said that Ng has been charged with embezzlement. If convicted, the executive faces up to 20 years in jail.
We aren’t aware of any further details being made public by the authorities, but we understand that the case revolves around Et-China’s $10 million acquisition in 2007 of a majority stake in GZL, one of the largest travel businesses in southern China. Lingnan, a Guangzhou-owned enterprise, is the other main shareholder along with three other state-owned enterprises. GZL’s value has since increased eightfold. Lingnan feels it was underpaid for the shares it sold to Et-China and wants GZL back. Lingnan is also said to be unhappy that the Swiss travel group Kuoni, which already owns a third of Et-China, is in the process of taking Ng’s company over fully in a deal would value Et-China at $125 million. Lingnan has told Kuomi that Et-China bought GZL illegally, a move that has held up the completion of the sale.
We don’t know where the truth lies, but if local shareholders are resorting to a legal system not designed to settle corporate disputes to do just that it risks dragging more deals in to that murky world of business, political connections and a legal process that detains first and asks questions later.