On January 15, 2026, Hong Kong GEM-listed company ZHEJIANG YONGAN announced the resignation of its auditor, ShineWing (HK) CPA Limited, nearly 11 months after its stock was suspended from trading. According to HKEX rules, if ZHEJIANG YONGAN fails to meet the requirements for resuming trading by February 20, 2026, the company will enter delisting procedures. This auditor resignation directly exposes significant deficiencies in its financial internal controls, while a compliance mystery involving 167 million yuan in advance payments has become the final straw that broke investor confidence.
The resignation of the auditor reveals a collapse in financial internal controls. ShineWing explicitly stated in its resignation report that the reasons for stepping down included the company's failure to provide information required for the audit of the 2024 financial statements, uncertainty regarding audit costs, and internal resource adjustments. However, the core catalyst was two advance payments that were not disclosed in compliance with regulations: ZHEJIANG YONGAN paid 112 million yuan to Guizhou Yongli Enterprise Management Co., Ltd. and 56 million yuan to Zhejiang Yongli Industrial Group, totaling 167 million yuan in transactions that failed to follow the disclosure and approval procedures required by Chapter 20 of the GEM Listing Rules.
The compliance issues surrounding these payments directly prevented the financial statement audit from progressing. According to the GEM Listing Rules, if a listed company cannot remedy the regulatory breaches and resume trading within 12 months of suspension (i.e., by February 20, 2026), the Exchange will initiate delisting procedures. The auditor's resignation now forces ZHEJIANG YONGAN to find a new audit firm, but with only one month remaining for a new firm to review the accounts and issue an audit opinion, completion from a technical standpoint is nearly impossible.
The mystery of the 167 million funds and suspicions of connected transactions. The relationship between ZHEJIANG YONGAN and the recipients, Guizhou Yongli and Zhejiang Yongli Industrial Group, has raised market suspicions. Although the company did not explicitly confirm their connected relationship in the announcement, the highly similar "Yongli" name to ZHEJIANG YONGAN's controlling shareholder, "Zhejiang Yongli Industrial Group," coupled with the non-compliant payment procedures, suggests the potential existence of undisclosed connected transactions or利益输送 (benefit transfer).
Such issues constitute major regulatory breaches in the Hong Kong stock market. In April 2025, the Exchange issued additional resumption guidance to ZHEJIANG YONGAN concerning such problems, demanding it remedy internal control weaknesses. However, the company failed to complete the rectifications as required, ultimately leading to the breakdown of its relationship with the auditor. Industry analysis indicates that if these funds are ultimately deemed non-compliant connected transactions, the company could face regulatory penalties and even shareholder class-action lawsuits.
Deteriorating operations and a liquidity crisis. ZHEJIANG YONGAN's main business continues to shrink. Its 2024 interim report showed revenue plummeting 42.67% year-on-year to 16.96 million yuan, with domestic and export sales of woven fabrics declining by 42.89% and 37.93%, respectively. Although the company achieved a net profit of 57.29 million yuan in the first half of 2024 through asset sales, the profitability of its core business remains under pressure—with a gross profit margin of only 4.81%.
More severe is the liquidity pressure. As of June 2024, although the company's cash and equivalents increased to 168 million yuan, this included non-recurring income from the sale of a subsidiary and拆迁补偿 (demolition compensation). Its operating cash flow remained negative, with a net outflow of 7.96 million yuan in the first half of 2024, and its accounts receivable turnover days reached 92 days, indicating inefficient collection of funds. During the suspension period, unable to raise capital through the market, the demands for debt repayment and operational funding will further exacerbate the crisis.
Delisting countdown: Resumption conditions difficult to meet. To avoid delisting, ZHEJIANG YONGAN must simultaneously satisfy three resumption conditions: first, remedy internal control weaknesses and disclose a compliance report on the fund transactions; second, publish all outstanding financial results; and third, demonstrate sustainable operating capabilities. Currently, none of these have been achieved: 1. Investigating the fund compliance requires third-party involvement, but the auditor's resignation leaves this process without a foundation; 2. The 2024 annual report and 2025 interim report cannot be published due to the lack of an audit; 3. The shrinkage of its main business and cash flow pressures cast doubt on the going concern assumption.
Even if the company urgently appoints a new auditor, the new firm would need to reassess historical data, and the Exchange's scrutiny of problematic companies is becoming increasingly strict. If ZHEJIANG YONGAN is ultimately delisted, it will become the first case in the 2026 Hong Kong stock market where an auditor's resignation triggered a delisting, leaving behind another classic example of corporate governance failure for the capital markets.
Note: This article was generated with the assistance of AI tools and does not constitute investment advice. The market carries risks, and investment requires caution.