Recently, it was learned from the National Enterprise Bankruptcy and Reorganization Case Information Network that due to the inability to repay its maturing debts, Hunan Reach Biology Group Co., Ltd. (referred to as “Reach”), a company based in Hunan Province, China, has been applied for bankruptcy liquidation by Xinyong Chemical Co., Ltd. in Yiyang City.
Reach is known as a leading supplier of disinfection and sterilization products in China, and its clients have included major Chinese and international daily chemical giants such as Procter & Gamble, Walch, Blue Moon, and SC Johnson Wax. In 2015, Reach was listed on the National Equities Exchange and Quotations (New Third Board) in China, and its annual revenue once exceeded 100 million.
So, why did Reach end up in bankruptcy?
Reach has previously secured four rounds of financing in four years.
According to the National Enterprise Credit Information Publicity System, Reach was founded in November 2005 with a registered capital of 77.76 million yuan. Public information indicates that Reach focuses on the production and technological development of antibacterial, antifungal, and preservative products in the field of personal health and care. Its main products include 4-chloro-3,5-dimethylphenol (PCMX), triclocarban (TCC), polyhexamethylene guanidine hydrochloride (PHMG), pyrithione zinc (ZPT), and others.
In terms of equity structure, according to public information from Qichacha, Mr. Cai and Mrs. Hu hold 47.62% and 22.55% of the shares respectively, while Shenzhen Dachen Chuangtai Equity Investment Enterprise and Changsha Kaideng Investment Management Partnership Enterprise rank as the third and fourth largest shareholders.
Looking back at Reach’s development, between 2013 and 2016, Reach secured four rounds of financing, attracting numerous renowned venture capital companies including CITIC Securities, Dachen CaiZhi, Donghu Venture Capital, Zhongshan Securities, Guotai Junan, and others. It enjoyed a period of high popularity and attention.
With the support of capital, Reach went public on the National Equities Exchange and Quotations (New Third Board) in December 2015. However, in less than three years, Reach terminated its listing in 2018. According to Reach’s public announcement regarding its departure from the New Third Board, it was done “to promote the company’s long-term development and better maximize the interests of the company and all shareholders.”
Based on Reach’s previous disclosed annual reports, the company’s revenue in 2015 and 2016 was 115 million yuan and 146 million yuan respectively, with a year-on-year growth rate of -8.31% and 26.94%. The net profits were 20.87 million yuan and 26.30 million yuan respectively, with a year-on-year growth rate of 13.01% and 25.99%. The performance showed a growth trend.
However, Reach encountered difficulties in its annual report for 2017, and on July 27, 2018, it officially announced the termination of its listing.
After delisting, Reach experienced a significant decline in its number of employees. According to the company’s disclosed corporate annual report information, the number of social security employees was around 80 from 2016 to 2018. In 2019, the number dropped to only 10, and from 2020 to 2022, the number remained at 1.
Recently, CHAILEEDO noticed that Reach has been applied for bankruptcy liquidation. A recent announcement addressed to Reach as the debtor was published on the National Enterprise Bankruptcy and Reorganization Case Information Network. It stated that Reach has been applied for bankruptcy liquidation by Xinyong Chemical Co., Ltd. in Yiyang City, citing the inability to repay its maturing debts, and the application has been formally accepted by the Intermediate People’s Court of Changsha, Hunan Province.
CHAILEEDO recently attempted to contact Reach for more details. After dialing the contact information publicly available on the company’s official website, a staff member who answered the call stated, “Specific information cannot be disclosed. Currently, the company has established a new factory and is still supplying goods to old customers.” However, today, when CHAILEEDO searched for Reach’s official website, it displayed a message stating, “The website does not exist or has been closed.”
Reach’s Private Lending Exceeds 10 Million Yuan
As a supplier of disinfectant and sterilization materials, Reach is well-known in the industry. According to public information, it is a supplier to Procter & Gamble, Reckitt Benckiser, and SC Johnson Wax, with its products being sold in several countries in Europe, North America, the Middle East, and Southeast Asia.
According to Reach’s previously disclosed 2015 annual report, Walch (Guangzhou) Daily Necessities Co., Ltd., Foshan Fangxin Chemical Co., Ltd., and Reckitt Group were its top three customers, while Hunan Weijia New Materials Co., Ltd., Tongling Hengxing Chemical Co., Ltd., and Winning Special Chemicals (Shanghai) Co., Ltd. were its top three suppliers.
With such prestigious customers and suppliers, why did Reach face bankruptcy liquidation?
CHAILEEDO’s investigation found that Reach had long been mired in debt and faced significant operational difficulties. According to the information from China Judgments Online, Reach was involved in 104 legal cases between 2018 and 2023. Among them, the years 2018 to 2020 were particularly intense with 18, 46, and 28 cases respectively, including disputes over loan contracts, sales contracts, and private lending. Among them, Reach, Mr. Cai, and Ms. Hu were sued in five cases related to private lending disputes, involving an amount exceeding 10 million yuan.
For example, according to the judgment document of case number (2020) Xiang 0124 Min Chu 5005, on December 16, 2014, the defendant Ms. Hu borrowed 3 million yuan from the plaintiff Changsha Furong District Youa Small Loan Co., Ltd. (“Youa”) with an annual interest rate of 2% and a loan term of one year. The parties also signed three “Maximum Guarantee Contracts” between Ms. Hu, Mr. Cai, and Reach respectively. However, after the loan term expired, the defendant only repaid 400,000 yuan of the principal.
In court, Reach argued that due to the impact of Ningxiang’s environmental protection policies, which affected the operations of Reach managed by Ms. Hu, they were temporarily unable to repay the principal and requested exemption of interest, with repayment of the principal to start half a year later. In the end, the court ruled that Ms. Hu should repay the plaintiff 2.6 million yuan in principal, 399,500 yuan in interest and liquidated damages, and Ms. Hu, Mr. Cai, and Reach jointly bear the joint and several liability for repayment.
Another example is the “First Instance Civil Judgment in the Trade Contract Dispute between Changsha Heping Paper Tube Materials Co., Ltd. and Reach.” In 2017, after signing seven “Sales Contracts” with Changsha Heping Paper Tube Materials Co., Ltd. (“Heping Paper Tube”), Reach failed to pay 286,300 yuan for the paper drum supplied by Heping Paper Tube, even after partially paying the purchase price. As a result, Heping Paper Tube filed a lawsuit against Reach.
According to public information from Qichacha, Reach was sued by Hunan Jiayu Pawn Co., Ltd. for a loan contract dispute. In early June of this year, Reach, Mr. Cai, and Ms. Hu were subject to enforcement by the Yuhua District People’s Court in Changsha, Hunan Province, with an execution amount of 13.5 million yuan.
An insider close to Reach revealed to CHAILEEDO, “Because Reach delayed delivery despite customers’ payment, several companies in Guangzhou alone have sued it.”
It is worth mentioning that due to overdue debts, Reach has been listed as an untrustworthy debtor six times and has faced restrictions on high consumption. The total amount involved in these cases reached 8.42 million yuan.
Raw Material Business Performance Under Pressure
From its establishment in 2005, Reach gradually developed and achieved great success when it listed on the New Third Board. However, it is now facing bankruptcy liquidation, which is a regrettable situation.
A Guangzhou distributor who had been an agent for Reach’s PCMX and TCC products in 2012 shared with CHAILEEDO that they stopped being an agent for Reach in 2015. According to the distributor, “Previously, Reach had two sales representatives in the South China region, but later they no longer had sales representatives and distributors. Instead, they cooperated directly with Blue Moon and Weilai.”
Regarding the reason for no longer being an agent for Reach’s products, the distributor mentioned, “There was intense price competition among PCMX and TCC raw material suppliers like Leading Chem, Aoyou Chemical, and Reach. Reach faced significant sales pressure for multiple products in the South China region. Later, Aoyou Chemical had a more advantageous price, so we started to represent Aoyou Chemical’s products.”
Reach’s current situation may reflect the market challenges faced by the raw material industry in its development process. CHAILEEDO noted that the days are not easy for Chinese raw material suppliers at present. According to intelligence data compiled by CHAILEEDO on 40 listed cosmetic-related companies in China, the total revenue of raw material companies in 2023 was 35.456 billion yuan, a year-on-year decrease of 16.1%.
Looking at the performance in the first quarter of this year, the performance of Chinese cosmetic raw material-related companies shows polarized results. For example, the leading sunscreen agent on the raw material side, Cosmos Chemical, achieved a revenue and net profit growth of 21.10% and 37.16% respectively. The leading collagen reagent, Jinbo Biotech, achieved a revenue and net profit growth of 76.09% and 135.72% respectively.
However, many Chinese raw material suppliers have experienced declines in performance or the situation of “increasing profits without increasing revenue.” For example, Tinci’s revenue and net profit in the first quarter of this year decreased by 42.91% and 83.54% respectively. Although Yashang’s revenue increased by 39.41%, its net profit declined by 13.55%.
In fact, the performance of several international raw material suppliers at the beginning of the year is also unclear. According to the first-quarter financial reports of Givaudan, IFF, Dsm-firmenich, Symrise, BASF, Evonik Industries AG, and Ashland, except for Givaudan and Symrise, the sales of other raw material suppliers decreased year-on-year, with the highest decline reaching 12%. At the same time, the net profits of many raw material suppliers declined by double digits, with the highest drop being 35%.
The person in charge of a cosmetic raw material company in Shanghai told CHAILEEDO that among the local raw material suppliers he knows, several large enterprises are doing well, while small businesses are average. “Meanwhile, the performance of international raw material suppliers is indeed declining, which may be influenced by various factors such as the overall market environment. At the same time, with the rise of Chinese ingredients and many cosmetic brands and factories seeking to reduce costs and increase efficiency by looking for produced alternative materials in China, it has also had a certain impact on the performance of international raw material suppliers.”
“Innovation in raw materials is a major pain point in the Chinese cosmetics industry. Currently, there are not many basic raw material manufacturers, and there is a lack of technologically innovative materials. Raw material companies need to increase their innovation efforts and not limit themselves to a few types of materials, otherwise they are easily surpassed by competitors,” said the person in charge of the cosmetic raw material company.
