Analysis of the Daily Consumption Borrowing Incident Involving the Actual Controller of Brightray Biotech (Changzhou Brightray Biomedical Co., Ltd.)

Based on the information I have collected, I will conduct a systematic analysis of the daily consumption borrowing incident involving the actual controller of Changzhou Brightray Biomedical Co., Ltd. (hereinafter referred to as “Brightray Biotech”), assessing its potential impact on corporate governance.

Changzhou Brightray Biomedical Co., Ltd. (Brightray Biotech) is a high-tech enterprise engaged in the R&D, production, and sale of biomedical materials, with products mainly used in the field of post-surgical wound repair such as uterine cavity, pelvic (abdominal) cavity, and nasal (sinus) cavity[1]. The company is scheduled to be reviewed by the Listing Committee of the Beijing Stock Exchange (BSE) on January 21, 2026[1].

During the IPO review process, the BSE conducted key inquiries into the liability status of the company’s actual controller, Shu Xiaozheng. According to the application materials, Shu Xiaozheng directly holds 27.84% of the company’s shares, and controls the voting rights corresponding to 4.51% of the company’s shares through Changzhou Xinyue and Changzhou Xinli, controlling a total of voting rights corresponding to 32.36% of the company’s shares[2].

According to the inquiry response, as of the date of issuance of this inquiry response, the total amount of main liabilities of the actual controller, Shu Xiaozheng, is

, with the specific composition as follows[1][2]:

Creditor	Loan Amount (RMB 10,000)	Maturity Date
Jiangnan Rural Commercial Bank	299.59	2026/10/29
Industrial Bank Zhonglou Sub-branch	180.00	2029/2/5
Industrial and Commercial Bank of China Changzhou New Area Sub-branch	30.00	2027/9/20
China Merchants Bank	47.94	Installment Maturity
China CITIC Bank	40.00	2026/9/10
Friend Shen Yingda	300.00	2027/10/31
Total	897.53	-

According to the company’s disclosure, the formation background of the above-mentioned liabilities of Shu Xiaozheng mainly includes the following[1][2]:

• Lifting of share pledges
• Payment of various taxes arising from historical share changes

• Funds for planned property replacement
• Study abroad expenses for his children
• Family capital turnover

• Personal capital turnover needs

Notably,

include:

• Jiangnan Rural Commercial Bank: RMB 2.9959 million
• China CITIC Bank: RMB 0.4 million
• Total: RMB 3.3959 million
  [1]

Shu Xiaozheng controls a total of voting rights corresponding to 32.36% of the company’s shares, a relatively low shareholding ratio. The company clearly warned of risks in its prospectus: “If the shareholding ratio of the actual controller in the company further declines due to share increases by other shareholders or other reasons after the company’s listing, it cannot be ruled out that this will lead to instability in the company’s governance structure and reduced efficiency in major business decisions.”[3]

Personal liabilities of nearly RMB 9 million are not a small amount for the actual controller of a company seeking an IPO, especially considering his relatively low shareholding ratio. In the event of failure to repay debts on schedule, the following risks may be triggered:

• Forced Liquidation Risk:
  If the actual controller’s shares are used to repay debts, it may lead to a change in control
• Share Stability Risk:
  Debt pressure may force the actual controller to sell shares to repay debts

The actual controller borrowed from banks and friends due to “daily family consumption needs”, a statement that has attracted key attention from regulators. The exchange requires the company to explain whether there is a risk of interest transfer or inability to repay debts[2].

1. The actual controller mixed borrowings for personal consumption needs (children’s study abroad, property replacement) with borrowings for business-related matters such as lifting share pledges
2. Although the company claims there is no guarantee relationship between personal debts and corporate operations, the risk of fund mixing still exists
3. Deterioration of the actual controller’s personal financial situation may affect his focus on the company and decision-making judgment

1. Based on the undistributed profit of RMB 117 million as of June 30, 2025 and Shu Xiaozheng’s total shareholding ratio of 30.37%, Shu Xiaozheng is expected to receive pre-tax dividends of RMB 35.6105 million[1]
2. If the listing is completed within one year, the dividend proceeds can be used to repay debts
3. If the listing is not completed within one year, family funds and salaries can still be used to repay the upcoming maturing debts

1. Over-reliance on Dividends:
   The debt repayment arrangement is highly reliant on dividends received after the company’s listing. If the company fails to list on schedule or its performance declines, dividends may fall short of expectations
2. Tight Repayment Time Window:
   Debts due within one year amount to RMB 3.3959 million, and there is uncertainty from the submission of the prospectus to listing
3. Hidden Risks of Borrowings from Friends:
   The RMB 3 million borrowed from friend Shen Yingda has a relatively long term until 2027, but such informal borrowings may involve hidden guarantees or interest arrangements

1. The actual controller has previously conducted pledge financing with his held shares
2. The amount of personal liabilities is large and the uses are diverse
3. Regulators have explicitly required an explanation of “whether there is interest transfer”[2]

• The actual controller may transfer corporate resources to himself through connected transactions, asset transfers, etc., to repay debts
• He may prioritize personal debt repayment over shareholder interests in the company’s operations

The BSE focused on the following matters in two rounds of inquiries[2]:

1. Control Stability:
   • Combining the actual controller’s shareholding ratio before and after the issuance, the company’s share structure, special investment clauses previously signed by the actual controller, etc.
   • Explain the specific arrangements and effectiveness of maintaining control stability
   • The effectiveness of the termination of special investment clauses and whether it affects control stability

2. Reasonableness of Liabilities:
   • Explain the formation background and reasonableness of the actual controller’s existing liabilities
   • Combining his personal assets, monetary cash, family expenses, capital flow, etc.
   • Explain whether there is a risk of interest transfer or inability to repay debts

3. Debt Repayment Arrangements:
   • Whether the debt repayment arrangements are reasonable and effective
   • Whether they affect control stability

Brightray Biotech emphasized the following in its inquiry response[1][2]:

1. Shu Xiaozheng has no risk of interest transfer or inability to repay debts
2. His debt repayment arrangements are reasonable and effective
3. They will not affect the stability of his control
4. Shu Xiaozheng and his concerted actors have promised to lock up their shares
5. Other major shareholders have promised not to seek control of the issuer

Type of Hidden Risk	Risk Level	Evaluation
Control Stability Risk	Medium-High	The actual controller only holds 32.36% of the shares, and the nearly RMB 9 million in liabilities creates certain debt repayment pressure
Blurred Interest Boundaries	Medium-High	Personal consumption borrowings are mixed with equity-related borrowings; the risk of connected transactions requires continuous attention
Effectiveness of Debt Repayment Arrangements	Medium	Highly reliant on post-IPO dividends, with uncertainty in the time window
Information Transparency	Medium	The company has made truthful disclosures, but some details remain to be observed

1. Tension Between the Actual Controller’s Financial Pressure and Control Stability:
   The nearly RMB 9 million in personal liabilities constitutes a potential risk relative to the 32.36% shareholding ratio, especially as stock price fluctuations after the company’s listing may affect his ability to fulfill obligations.

2. Inadequate Management of Boundaries Between Personal and Corporate Affairs:
   The actual controller intertwined personal consumption needs with corporate equity operations through borrowings, reflecting that the principle of “separation of personal finance and corporate finance” in corporate governance is not strictly implemented.

3. Exposure to Connected Transaction Risks:
   Although the company claims there is no guarantee relationship involving the issuer, the actual controller’s debt pressure may induce him to transfer corporate interests through connected transactions.

4. Responses to Regulatory Inquiries Remain to Be Verified:
   Although the company has proposed debt repayment arrangements and commitments, these arrangements are highly reliant on successful listing and stable performance, and their effectiveness remains to be observed in the follow-up.

• Changes in the actual controller’s shareholding ratio after listing
• The company’s dividend policy and the use of dividends by the actual controller
• Whether there are undisclosed connected transactions or fund flows
• Potential impacts of changes in the actual controller’s personal financial situation on the company

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[1] Eastmoney.com - IPO Radar | Brightray Biotech “to Face Listing Committee Review” Soon; Liabilities and Borrowings for Turnover and Consumption by Its Actual Controller Attract Attention (https://wap.eastmoney.com/a/202601153619372332.html)

[2] AllBright Law Offices - Response to the Second Round of Review Inquiry Letter Regarding the Application Documents for the Public Offering of Shares to Unspecified Qualified Investors and Listing on the Beijing Stock Exchange by Changzhou Brightray Biomedical Co., Ltd. (https://pdf.dfcfw.com/pdf/H2_AN202512021792591876_1.pdf)

[3] Eastmoney.com - Prospectus of Changzhou Brightray Biomedical Co., Ltd. (https://pdf.dfcfw.com/pdf/H2_AN202412261641439039_1.pdf)