Q&M Dental Group has issued a letter of demand to Dr Shao Yongxin, the executive director and group CEO of Aoxin Q&M . As at April 17, Q&M owns about 32.78% of Aoxin’s shares.
According to Q&M, Shao had provided certain profit guarantees in its circular dated Oct 14, 2016, in connection with the acquisition of Shenyang Xinao Hospital Management. The hospital was acquired from Shao by Q&M’s subsidiary, Shanghai Q & M Investment management & Consulting Co. Ltd. In the circular, the profit guaranteed was RMB122,434,750 (or approximately $25.67 million then). The profit guarantee period was stipulated to be for 12 years from July 1, 2014.
The profit guarantee is secured by an escrow arrangement and all of the ordinary shares in the capital of Aoxin held by Health Field Enterprises Limited, says Q&M.
Under the escrow arrangement, Shao is required to deposit certain sums of money into the account maintained by Q&M. He is also required to do the same for the duration of the profit guarantee.
Should there be any shortfall in the amount guaranteed for any year, Q&M has the right to withdraw the shortfall amount from the escrow account. In such an event, Shao is required to put further sums of money into the account to maintain the amount.
In addition, Health Field Enterprises has created security interest over its Aoxin shares to Q&M for the entire 12 years, per a share security agreement. This is to serve as security for the performance of Shao’s obligations.
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Should the shortfall in the profit guarantee for any year exceed the amount available in the escrow account, Q&M says it will have the right to the Aoxin shares held by Health Field Enterprises per the terms of the share security agreement.
As at Dec 31, 2024, Shao is said to owe Q&M a total of RMB72,274,588 (or $13.0 million) arising from shortfalls under the profit guarantee.
“Despite numerous reminders and follow-ups with Dr. Shao, the shortfall amount remains outstanding,” says Q&M.
In addition to the letter of demand, Q&M is in the process of obtaining legal advice and will consider “all available options for the recovery of the shortfall amount, including without limitation, the enforcement of the share security agreement”.
“The board is of the view that the company’s issuance of the letter of demand is not expected to have any material impact on the financial position of the company,” Q&M adds.
Shares in Q&M closed 1 cent higher or 3.7% up at 28 cents on April 17. Shares in Aoxin Q&M closed 3 cents lower or 50% down at 3 cents on the same day.
