Kelon ex-chairman sued for misusing funds

Updated: 2006-03-01 15:39

Kelon, which is based in Foshan, Guangdong Province, said in a legal notice that the four subsidiaries recently filed lawsuits in the Foshan Intermediate People's Court, charging that Gu Chujun and his company, Guangdong Greencool Enterprise Development Co., and companies associated with Greencool signed purchase contracts with them but did not deliver the goods after receiving payment.

The Kelon subsidiaries are demanding repayment totaling 328 million yuan (US$40.49 million) and are also asking for additional compensation, according to the notice.

Kelon said it made a provision of 154.37 million yuan for 2005 for possible losses stemming from lawsuits, adding that it could not forecast the impact of this litigation on its future profits.

Kelon's board of directors dismissed the flamboyant Gu as the company's chairman last August after he and other Kelon executives were detained by the police on suspicion of economic crimes.

Regulators are also launching an investigation into accusations of fraud and the results are expected to be announced shortly, according to domestic media reports.

Kelon, now controlled by Hisense Group, China's sixth-largest electronics company, said in January that auditor KPMG International found that Gu and former executives had inflated sales and embezzled at least 592 million yuan. Kelon hired KPMG to investigate the cash flows for Kelon and its 29 subsidiaries between Oct. 1, 2001, and July 31, 2005, when Kelon was headed by Gu.

KPMG's investigation found "evidence of abnormal sales" recorded by Kelon for dealings with companies affiliated with Gu's Guangdong Greencool, which is Kelon's largest shareholder with a 26.4 percent stake.

Kelon posted a net loss of 44.7 million yuan for 2004 after reporting profit of 84.2 million yuan for 2002 and 197.3 million yuan for 2003. Its managers are alleged to have inflated profits since 2002 and violated securities laws.

(Source: Shenzhen Daily/Agencies)