The Zhu family

1387th Commissioners' Meeting (2018)

Case:

A family surnamed Zhu violated the Fair Trade Law in acquiring the shares or management rights of five public natural gas enterprises

Keyword(s):

natural gas business, holding of controlling shares

Reference:

Fair Trade Commission Decision of June 6, 2018 (the 1387th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 107036 to No. 107040

Industry:

Gas Supply (3520)

Relevant Law(s):

Article 11 of the Fair Trade Law

Summary:

1. The FTC received complaints that since public natural gas business was monopolistic in nature, the Zhu family's acquisition of the management rights of five natural gas enterprises, namely Shin Hsiung Natural Gas Co., Ltd. (hereinafter referred to as SHNG), Shin Nan Natural Gas Co., Ltd. (hereinafter referred to as SNNG), Shin Lin Natural Gas Co., Ltd. (hereinafter referred to as SLNG), Shin Chang Natural Gas Co., Ltd. (hereinafter referred to as SCNG) and Yu Miao Natural Gas Co., Ltd. (hereinafter referred to as YMNG), step by step after obtaining the position of general manager of SHNG was in violation of related regulations in the Fair Trade Law. As a result, the FTC initiated an investigation.
2. Findings of the FTC after investigation:
   (1)According to the Natural Gas Enterprise Act, public natural gas enterprises use pipelines to supply natural gas to private households, businesses and service industries. Currently, there are 25 monopolistic natural gas enterprises operating in different areas in the country to supply natural gas for household use and natural gas for non-household use.
   (2) The eldest son of the Zhu family controlled three companies, namely Baotai Investment Co., Ltd. (hereinafter referred to as Baotai Investment), Kuntai Investment Co., Ltd. (hereinafter referred to Kuntai Investment) and Baokun Enterprise Co., Ltd. (hereinafter referred to as Baokun Enterprises). The second son of the family controlled Dakun Investment Co., Ltd. (hereinafter referred to as Dakun Investment) and Kunshan Construction Co., Ltd. (hereinafter referred to as Kunshan Construction). The third son of the family controlled Xingtai Investment Co., Ltd. (hereinafter referred to as Xingtai Investment) and Huipu Investment Co., Ltd. (hereinafter referred to as Huipu Investment). More than half of the members of boards of directors of the aforementioned seven companies were the same people. Therefore, these companies were controlling and affiliate companies to one another. Then there was also Hetong Investment Co., Ltd. (hereinafter referred to as Hetong Investment) which was an affiliate company of SCNG.
   (3) Merger associated with SHNG: In 2011, Xingtai Investment, Huipu Investment, Baotai Investment, Kuntai Investment, Baokun Investment and Dakun Investment jointly acquired 45.51% of the shares of SHNG. The condition complied with the merger pattern described in Subparagraph 2 of Paragraph 1 of Article 6 of the Fair Trade Law at the time. At the 12th Shareholders Meeting on Jun. 14, 2017, Xingtai Investment and Huipu Investment jointly obtained six of the 11 seats in the board of directors of SHNG and gained control over the management and personnel appointment and dismissal of the company. The condition met the merger pattern described in Subparagraph 5 of paragraph 1 of Article 10 of the Fair Trade Law.
   (4) Merger associated with SNNG: At the 12th Shareholders Meeting on Jun. 25, 2015, Dakun Investment, Kunshan Construction, Baotai Investment and Baokun Investment jointly obtained 6 of the 9 seats in the board of directors of SNNG and gained control over the management and personnel appointment and dismissal of the company. The condition complied with the merger pattern described in Subparagraph 5 of Paragraph 1 of Article 10 of the Fair Trade Law.
   (5) Merger associated with SCNG: At the 15th Shareholders Meeting on Jun. 10, 2015, Kuntai Investment, Xingtai Investment and Dakun investment jointly obtained 6 of the 9 seats in the board of directors of SCNG and gained control over the management and personnel appointment and dismissal of the company. The condition complied with the merger pattern described in Subparagraph 5 of Paragraph 1 of Article 10 of the Fair Trade Law.
   (6) Merger associated with SLNG: In 2011, Kuntai Investment, Baotai investment, Dakun Investment, SCNG and Hetong Investment jointly acquired 33.7% of the shares of SLNG and the condition complied with the merger pattern described in Subparagraph 2 of Paragraph 1 of Article 6 of the Fair Trade Law at the time.
   (7) Merger associated with YMNG: Between Apr. 2015 and Jan. 2016, the second son of the Zhu family, affiliate companies he controlled and his relatives within the first two degrees of consanguinity acquired 82.02% of the shares of YMNG. The condition complied with the merger pattern described in Subparagraph 2 of Paragraph 1 of Article 10 of the Fair Trade Law. At the same time, Dakun Investment obtained all the 5 seats in the board of directors of YMNG on May 18, 2015 and gained control over the management and personnel appointment and dismissal of the company. The condition complied with the merger pattern described in Subparagraph 5 of Paragraph 1 of Article 10 of the Fair Trade Law.
3. Grounds for disposition:
   (1)The above businesses did not follow the requirements of the Fair Trade Law and file the mergers with the FTC in advance. Therefore, the FTC cited Article 39 of the same Law and imposed administrative fines ranging between 200,000 and 900,000 NT dollars (same currency applies hereinafter) on them. The fines totaled 5.4 million. In particular, Xingtai Investment and Huipu Investment were fined 600,000 each for gaining control of the management and personnel appointment and dismissal of SHNG.
   (2) For their direct or indirect joint control of the management and personnel appointment and dismissal of SNNG, Dakun Investment, Kunshan Construction were fined 400,000 dollars each, and Baotai Investment and Baokun Investment were fined 200,000 dollars each.
   (3) For their direct or indirect joint control of the management and personnel appointment and dismissal of SCNG, Kuntai Investment, Xingtai Investment and Dakun Investment were fined 900,000 dollars, 600,000 dollars and 300,000 dollars respectively.
   (4) For their joint acquisition of more than one third of the voting shares of SLNG, Baotai Investment (including its affiliate Kuntai Investment, SCNG and Hetong Investment) and Dakun Investment were ordered to take corrective measures while no fines were imposed on them.
   (5) The second son of the Zhu family was fined 600,000 dollars for his acquisition of more than one third of the voting shares of YMNG through himself, the affiliate companies he controlled and relatives within the first two degrees of consanguinity, and Dakun Investment was also fined 600,000 dollars for gaining direct or indirect control of the management and personnel appointment and dismissal of YMNG.