Cases on Using Capital Reserve and Surplus Reserve to Offset Losses After the Implementation of the New Company Law
1. Using Provident Fund to Offset Losses
On 2024/7/2, Huachangda (300278) issued two announcements regarding the use of capital reserves to offset losses: one for the listed company and another for its wholly-owned subsidiary.
In the announcement regarding the use of capital reserve to offset losses by the listed company, as of 2023/12/31, the parent company's undistributed profits available for distribution to shareholders amounted to -18.56 hundred million yuan, with surplus reserves of 1296 ten thousand yuan and capital reserves of 18.94 hundred million yuan. The company proposes to use 1296 ten thousand yuan from the parent company's surplus reserves and 18.43 hundred million yuan from its capital reserves, totaling 18.56 hundred million yuan, to offset the cumulative losses of the parent company.
Article 214, Paragraph 2 of the new Company Law stipulates that when using reserves to cover corporate losses, discretionary and statutory reserves shall be used first. If these are insufficient, capital reserves may be utilized in accordance with applicable regulations. The essence of this mechanism is the transfer of capital reserves to retained earnings. Huachangda has implemented its operations based on this provision of the new Company Law.
II. Using Surplus Reserves to Offset Losses
2024-7-3 | China Gold Environment (300145.SZAnnounced based on the audit report issued by Zhongxinghua Certified Public Accountants (Special General Partnership), as of 2023 year 12 month 31, the company's parent entity retained earnings stood at -49,696.98 million yuan, while its surplus reserves were 25,045.66 million yuan (all statutory). Consolidated financial statements showed retained earnings of -47,566.94 million yuan. To enhance shareholder returns and in accordance with the Company Law and the Articles of Association, the company proposes to use 25,045.66 million yuan from the parent entity's surplus reserves to offset prior-year losses. This will promptly bring the parent entity's retained earnings into positive territory, enabling dividend distributions in subsequent and interim periods.
The company's loss compensation plan will reduce the parent company's accumulated losses by 25,045.66 ten thousand yuan. Upon implementation of this plan, the parent company's surplus reserves at the end of 2023 will be 0 ten thousand yuan, retained earnings at the end of 2023 will be -24,651.32 ten thousand yuan, and consolidated retained earnings at the end of 2023 will be -22,521.27 ten thousand yuan.