Bankruptcy judicial proceedings for Chinese smartphone manufacturer Gionee are moving forward following a ruling from the Shenzhen Intermediate People’s Court, according to news outlet iFeng. The source notes that unnamed lawyers expect the proceedings to result in a complete reorganization of the company. Gionee’s debt has largely been attributed to spending and gambling problems on the part of founder and chairman Liu Lirong. In spite of relatively strong sales, particularly in India, the company has been losing money at a rate of $143,804 to $28.7 million per month since its financial troubles began.
Background: The ongoing case is effectively a continuation of the bankruptcy liquidation application filed by Huaxing Bank against the company and recently accepted by the court. That would seem to imply that liquidation is still one possible outcome. It also extends from financial problems brought forward by the company as far back as December of 2017. The executive finally came clean about his gambling issue in November, admitting that as much as $143.8 million of the total $2.45 billion in company debt was derived from his activities. That money was at least part of the overall amount owed to approximately 648 creditors. Its losses have not been solely monetary either, with as many as half of its 8,000 headquarter employees being placed on the chopping block as of March.
Subsequent reports from the region have speculated that Mr. Liu Liron’s excessive spending may equate to a figure that’s closer to $1 billion. While the chairman denies that claim, it has led to further speculation that gambling is not ultimately the reason that money went missing. Some of those currently-unsubstantiated claims have gone so far as to claim that the money was intentionally ‘lost at the casino’ as part of a bid to funnel the money outside of China for Mr. Liu Liron’s personal use. Those activities would be illegal but are said to be widespread in the region according to some local sources. Accusations of the practice could equate to further problems for both the company and its founder if any evidence comes forward to confirm them. Gionee recently hired restructuring experts, seemingly strengthening the probability that reorganization instead of liquidation will result from the case. The chairman had previously expressed some hope that the entire ordeal could be resolved within the next few years.
Impact: There is still a possibility that Gionee will be liquidated in order to pay back debtors and that will only become more prominent if there is any basis for more recent accusations against Mr. Liu Liron. With a reorganization of the company now appearing to be the most likely outcome, there’s a very good possibility that the chairman will be forced to step down or to accept more oversight as well. Regardless, Gionee may be well on its way to reentering the wider smartphone market and that’s not only good news for fans in China, India, and other regions where the OEM is popular. Gionee-built handsets also make their way to other regions under rebranding, such as some smartphones made by US-headquartered BLU. So negative implications for the Chinese manufacturer can ultimately have an impact on other brands worldwide.