Excerpted from China Clothing Network. Someone once got involved in a dispute in China over some beautiful T-shirts embroidered with crocodile patterns. However, after four and a half long years of waiting, he found that he was still trapped in the dispute. China's legal system cannot escape.
Such a story happened to Ang Boon Tian. He is the general manager of Shanghai Oriental Crocodile Clothing Co., Ltd. invested and established by Singapore Crocodile International Institutions (Private) Co., Ltd. He now looks back on the experience as an ordeal. Singapore Crocodile (no relation to the French brand Lacoste, whose trademark is also a crocodile) violated at least two rules of survival for foreign investors trying to establish a foothold in China: it did not pay close attention to its own operations; secondly, it failed to communicate with Chinese management Be prepared for the possibility of conflict.
In 1998, Shanghai Oriental Crocodile Clothing Co., Ltd. fired Fan Juanfen. Fan has long been responsible for the company's business operations in China and owns a small stake in the company. Over the next week, the company's Shanghai office experienced an uproar, with company files taken away and hard drives missing from computers. Soon, two-thirds of the employees in Shanghai left the company. Within a few months, Fan Juanfen registered a new company and began selling men's sweaters, shirts and jackets in a few stores. These stores used to be Oriental Crocodile retail outlets.
The story is actually very common: a foreign investor and a Chinese partner jointly established a company with a multiple ownership structure to bypass China's various regulations on the business activities of foreign companies. Foreign investors have given Chinese managers considerable management authority, and the Chinese managers also own part of the company's equity. However, once the two parties have disagreements and disputes, they have almost no relevant legal protection.
In this case, the dispute raged on for several years through a series of legal battles. This aspect also reflects that China's legal system remains helpless in resolving such disputes due to political and local rivals.
A Chinese lawyer who works for foreign companies in Shanghai said: "The first rule is to resolve such disputes before they go to court." What about the second rule? "The second rule is to follow the first rule as much as possible."
The amount of money involved in the crocodile incident was not too large, but it was obvious that the matter became more and more personal later on. Hong Wenzhan, a Malaysian, is a golf fan who used to live in Los Angeles. After this incident, he felt that the personal danger was increasing, and he later hired bodyguards to escort him on the golf course and even accompany him when he took a sauna. This situation lasted for 6 months.
Fan Juanfen denied that she had done anything wrong. She argued that she founded Crocodile's business in China, only to be kicked out by greedy foreign partners. She pointed out that many employees left the company as the best proof of their trust in her.
How did the situation evolve to this extent? Let's go back to 1993, when Tan Hian Tsin, the founder of Crocodile International in Singapore, visited China. He discovered that there were a large number of counterfeit products imitating his company's clothing being sold in China. Through someone's introduction, he met Fan Juanfen, who was just running a small clothing trading company at the time, and granted Fan a license to sell crocodile brand clothing in China. One year later, Singapore Crocodile International invested US$800,000 to establish the wholly-owned Shanghai Oriental Crocodile Clothing Co., Ltd. in China to import and sell crocodile brand clothing, and Fan Juanfen naturally became the general manager of the company.
However, it was stipulated at that time that foreign-owned companies could not open retail stores in China. With some exceptions, foreign companies were absolutely not allowed to operate retail businesses. So Oriental Crocodile established six regional trading companies and held a small share of each trading company. Among these six trading companies, the legal representative of four companies is Fan Juanfen.
This strategy really worked at the time. In Shanghai, Shanghai Oriental Crocodile Clothing Co., Ltd. and Shanghai Oriental Crocodile Trading Company share warehouses.
When retailers want goods, Oriental Crocodile Clothing Co., Ltd. transfers the products to Oriental Crocodile Trading Co., Ltd., and both parties settle accounts every month. Shanghai Oriental Crocodile Clothing Co., Ltd. started with a registered capital of US$1 million. With this strategy, it has grown into a highly profitable and rapidly expanding enterprise.
In early 1998, cracks began to appear. Crocodile International Singapore invited Hong Wenzhan to Shanghai and asked him to take charge of business operations here. Hong Wenzhan said that this is preparation for the listing of Singapore Crocodile International Institutions. Hong Wenzhan has a long history of dealing with the garment industry, but his Chinese is not that fluent. He had a dispute with Fan Juanfen because of the company's accounting problems.
After Fan Juanfen was fired, Oriental Crocodile filed a series of lawsuits in Shanghai courts, accusing her and 18 other former company employees of misappropriating company funds to purchase properties for themselves. But Fan Juanfen said that these properties belong to the salary they deserve. Oriental Crocodile was ruled against in three of the series of lawsuits, but the company won the remainder, although all defendants appealed.
After the case entered the criminal justice field, the situation became more complicated. In May 1999, police in the central Chinese city of Chengdu detained Fan Juanfen for 26 days on suspicion of embezzling public funds. Later, the Shanghai police took Fan back to Shanghai on the pretext that she was under their jurisdiction. Last year, the Chengdu police once again tried to take Fan Juanfen back to Chengdu for review, but they were seen having a fierce argument with the Shanghai police at the Shanghai airport and eventually returned home empty-handed.
In February this year, the Supreme People’s Procuratorate in Beijing revoked the arrest warrant against Fan Juanfen. The Supreme People's Procuratorate specializes in handling disputes between inspection agencies across provinces and cities.
Meanwhile, Fan spent most of February as a special guest at the annual meeting in Beijing of an influential organization that advises China’s legislative body.