MORRIS HOME questions the legality and compliance of the relevant allegations regarding commitments and has reported to the Hong Kong police

According to the news from Zhitong Finance and Economics APP, MORRIS HOME (01575) announced that on June 11, 2024, the company's indirectly wholly-owned subsidiary Zhejiang Muhua Home Furnishings Co., Ltd. received a subpoena from the People's Court of Haining City, Zhejiang Province regarding a pre-trial meeting (which can be returned on June 14, 2024), and the meeting has been postponed with the date to be determined.

The pre-trial meeting involves a claim filed by Haining Murong International Fur Co., Ltd. (Haining Fur) against Muhua on the following matters: Haining Fur, as a guarantor, paid RMB 3 million to China Merchants Bank Co., Ltd. (Hangzhou Branch) on behalf of the two bank loans of RMB 30 million each provided by China Merchants Bank to Zhejiang Murong Fashion Home Furnishings Co., Ltd. and Zhejiang Apollo Leather Products Co., Ltd., and expenses.

Fashion Home Furnishings and Zhejiang Apollo (related subsidiaries) are limited companies established in China and their indirectly wholly-owned subsidiaries. Due to financial difficulties, the related subsidiaries initiated a restructuring process to formulate a restructuring plan to repay all debts of the related subsidiaries, and obtained approval from the Haining Court in 2022. According to the restructuring plan, 20% of the total outstanding amount under the loan has been paid to China Merchants Bank to fulfill the obligations of the related subsidiaries.

China Merchants Bank has sought a judgment from the People's Court of Shangcheng District, Hangzhou City for the remaining unpaid amount of financing granted to Murong Group Co., Ltd. (Murong China), Haining Fur, Zhejiang Murong Family Real Estate Co., Ltd. (Family Real Estate), Mr. Zou Ge Bing, and Ms. Wu Xiangfei (referred to as "guarantors") (as guarantors or mortgage providers) for the financing granted to Zhejiang Apollo.

As of the date of this announcement, Murong China, Haining Fur, and Family Real Estate are companies controlled by Mr. Zou Ge Bing, who resigned as the major shareholder and executive director of the company on January 8, 2024. Ms. Wu Xiangfei is the spouse of Mr. Zou Ge Bing and a non-executive director (the resolution for her removal must be passed by the company's shareholders at the annual general meeting scheduled for June 21, 2024).

As stated in the civil complaint filed by Haining Fur with the Haining Court on May 10, 2024 (the company disagrees with the complaint), as Muhua and the related subsidiaries are subsidiaries of the company, the actual controller of the company before the restructuring (Mr. Zou Ge Bing) and the investor introduced after the restructuring (the new controlling shareholder of the company) have reached a "consensus" that the loan will remain the responsibility of the group, as it is the group's debt; and therefore, Muhua will provide a repayment commitment to Haining Fur and other guarantors.

In the claim proof documents compiled by Haining Fur, a written document called "Commitment Letter" (referred to as the "Commitment") bearing the official seal of Muhua and the company's "round seal" is included. As stated in the Commitment, Muhua voluntarily agrees to fulfill the repayment obligation under the loan and irrevocably commits to repay all amounts and expenses paid to the guarantors within 5 working days after the guarantors fulfill any repayment obligations under the loan (including guarantee and mortgage obligations); After Mu Hua repays, they cannot claim against the guarantor. The civil complaint stated that Haining Fur had paid RMB 3 million to China Merchants Bank as a guarantor and was seeking repayment from Mu Hua.

The group suspects the authenticity and validity of the alleged commitment because no authorization or record of the use of Mu Hua's official seal and/or company "round seal" was found in the alleged commitment. The group also questions the legality and compliance of the alleged commitment, as Mu Hua's official seal and/or the company's "round seal" can only and should only be used legally after proper authorization in compliance with relevant company and securities laws, regulations, rules, internal monitoring policies, and procedures of the group. Furthermore, even if the alleged commitment was signed according to internal procedures (which the company believes is not the case), it should be disclosed by the company and approved by the company's independent shareholders. Mr. Zou Ge Bing breached his duties by not informing or convening the board of directors to approve the alleged commitment, make announcements, and/or convene the necessary independent shareholders' meeting. Given the suspicious circumstances mentioned above, the company reported the alleged commitment to the Hong Kong police on June 13, 2024.

The group is seeking legal advice on the claim and intends to vigorously defend itself