Core Viewpoint - The investigation of the actual controller Tan Pingtao by the Guangdong Provincial Supervisory Committee raises concerns about corporate governance and potential insider trading, particularly in light of his recent significant sell-off of convertible bonds before the investigation was announced [1][3][4]. Group 1: Company Events - On August 13, Huakang Clean announced that its actual controller Tan Pingtao was placed under investigation, with specific reasons undisclosed [1]. - The company activated a temporary management mechanism, appointing director and general manager Xie Xinqiang to assume the responsibilities of chairman and legal representative, emphasizing that daily operations would not be significantly affected [1]. - Tan Pingtao chaired a board meeting to review the semi-annual report just two weeks prior to his detention, indicating the suddenness of the event [1]. Group 2: Convertible Bond Issues - In late 2024, Huakang Clean plans to issue 750 million yuan in convertible bonds, with Tan Pingtao and his wife allocated 44.81% of the total [2]. - Between July 30 and August 4, Tan Pingtao and his wife sold off a significant portion of their holdings, totaling approximately 2.94 million bonds, resulting in cash proceeds of around 2.94 billion yuan [2]. - After the sell-off, Tan Pingtao retained 17.89% of the convertible bonds, while his wife completely exited her position [2]. Group 3: Financial Performance and Concerns - The company reported a 50.73% increase in revenue for the first half of 2025, with a net profit turnaround of 18.68 million yuan; however, the net operating cash flow plummeted to -294 million yuan, a 74.03% year-on-year decline [3]. - The significant cash flow issues are attributed to increased procurement payments and taxes, raising questions about the use of funds from the convertible bond issuance [3]. - The company has 3.827 billion yuan in orders, with 66% from medical projects, but the reliance on advance funding and long repayment cycles continues to pressure cash flow [3]. Group 4: Governance and Structural Issues - The governance structure is criticized for its lack of checks and balances, as Tan Pingtao and his family hold a 51.75% stake, which may facilitate potential misuse of funds [3][6]. - The case highlights the urgent need for governance reform in private enterprises, particularly in the context of the founder's absolute control leading to corporate crises [6]. - The company faces challenges in converting its substantial orders into positive cash flow, especially with the ongoing investigation casting a shadow over its operations [6]. Group 5: Market Reactions and Future Implications - The announcement of the investigation led to a 7.9% drop in the company's stock price, with convertible bond prices also declining, reflecting investor concerns about governance stability [4]. - There is a high probability of regulatory inquiries regarding the timing of the sell-off and the compliance of information disclosure, which could lead to further investigations [4]. - The interim management must act quickly to stabilize cash flow and mitigate the impact of the investigation on ongoing projects to avoid further financial distress [7].