Jiacheng illustrates perils of family squabbles

The spat between the wife of a Shanghai tycoon and her estranged stepson shows how family disputes can paralyze companies, both private and publicly traded

Key Takeaways:

  • A family feud has left more than $1 billion worth of homes in a Shanghai ultra luxury villa complex in limbo
  • The case illustrates the complex web of onshore and offshore companies that Chinese entrepreneurs often set up to hide and protect their assets from seizure

  

By Doug Young

A Shanghai family dispute that has left a luxury development in limbo is casting a spotlight on the legal quagmires that some of China’s earliest and most successful private companies may face as their aging founders start passing on their wealth to the next generation.

The case, involving a Shanghai-based company called Shanghai Jiacheng Zhaoye Real Estate Co. Ltd. (上海嘉城兆业房地产有限公司), includes a bit of everything. At its core is a falling out between Hu Lan, the wife of Jiacheng founder Gao Jiaren, also known as Karl Golden, and Gao’s son, a 54-year-old Chinese-born man with the similarly foreign-sounding name of David Golden.

The tale crosses international boundaries, involving courts in both China and the British Virgin Islands (BVI), a favorite place where Chinese entrepreneurs often set up holding companies that are the ultimate owners of their China-based businesses. It also contains some spice from China’s go-go real estate market that fueled the rise of many of the country’s best-known entrepreneurs and has more recently left many nearly insolvent as the market crashes.

While this story mostly affects several members in this family dispute, it also offers a cautionary lesson on the kinds of perils that could confront minority investors in such companies that ultimately go public. While many such companies portray themselves as modern and professionally managed, most are dominated by a single individual or family that often controls a large majority of the voting power over any decisions.

Such concentrations of power can often claim victims, including minority shareholders, as helpless hostages when internal disagreements break out.

In our Jiacheng story, the biggest hostage isn’t any minority shareholder, but rather Sunville, or Shanghai Ziyuan (上海紫园), a complex of more than 200 ultra-high-end villas in Shanghai’s western suburbs that was once China’s most expensive address when it was completed about a decade ago. While 68 of the villas were sold, most of the rest have currently been frozen under a court order pending the dispute’s resolution – something that could still be years away.

Even two years after China’s property market crested and began to decline, a recent listing for the development shows a 430-square-meter unit for sale at 43 million yuan ($5.9 million), implying the remaining unsold villas could be worth more than $1 billion.

The latest chapter in this story unfolded in November 2024 with a Shanghai court ruling that took an unusual four years to reach. But the complete story traces back to the 1990s when China’s first generation of private entrepreneurs was starting to emerge. Gao Jiaren was among those, building his fortune in China’s young real estate market after earlier entrepreneurial endeavors, some in Singapore, with his son, which led the family to establish Jiacheng in 2001.

Like many Chinese entrepreneurs both then and now, Gao and his son set up a holding company to own their Shanghai entity, in this case the British Virgin Island-based Best Land Investments Ltd. (嘉城置业有限公司). They added another layer to the mix in 2008 with the establishment of Sundale International Ltd. (新达国际有限公司), another BVI company and ultimately the 100% owner of Best Land and Jiacheng back in China.

Such ownership webs are relatively common among Chinese business owners, often used to create legal obstacles for anyone who wants to try and seize or otherwise learn more about such assets.

Generational handover

With the business empire’s legal foundation now in place, the elder Gao Jiaren began handing over the reins by naming David Golden, his only son through his first marriage, as Jiacheng’s chairman and legal representative in 2008. The family set up Sundale in the British Virgin Islands the same year with Hu Lan, Gao’s current wife and David Golden’s stepmother, as the lone shareholder.

As Gao became seriously ill in 2012, the family transferred 100% equity of the BVI companies to David Golden in January 2013, making him the sole director of Best Land as well as the sole director and shareholder of Sundale. That effectively gave him 100% control over the actual Shanghai company, whose signature development, the Sunville luxury villa complex, was nearing completion at the time.

But family relations began to sour towards the end of the 2010s, leading Hu Lan to file a lawsuit in the BVI’s Eastern Caribbean Supreme Court in February 2020, claiming all the equity in Sundale was held by her stepson Golden on her behalf through a trust agreement. As part of her action, she demanded her stepson return 100% of the company to her.

Hu Lan also filed another lawsuit in March 2021 in Shanghai that mirrored the one in the BVI, again claiming the equity in Sundale was held by her stepson on her behalf through a trust agreement. She took the action before the BVI court issued its verdict, even though the Shanghai court should technically lack jurisdiction over such a matter limited to the shareholding status of an offshore company, and a verdict from the Shanghai lawsuit was unlikely to be enforced in the BVI.

In late 2020, patriarch Gao Jiaren filed lawsuits in Shanghai, claiming Jiacheng owed him 4.4 billion yuan for a 1.1 billion yuan loan and an additional 3.3 billion yuan in interest that had been accruing at an unusually high rate of 24% annually. That lawsuit was the primary factor leading the court to freeze all future sales at the luxury villa complex until the matter was resolved.

The BVI court was the first to reach a verdict, ruling in Golden’s favor in July 2021 that Hu Lan and Gao Jiaren had engaged in document tampering and forgery, and that David Golden was the rightful owner of Sundale. Notably, the verdict also revealed that Hu Lan and Gao Jiaren admitted to creating a loan agreement with fabricated interest rates and deliberately inserting it into the loan agreement at a later stage – a document that became the basis for Gao’s claim involving the 4.4 billion yuan he was owed from a loan to Jiacheng.

But the Shanghai court where Hu Lan filed her same complaint ruled in her favor over Sundale’s ownership in late November 2024. In fact, the Shanghai case violated a BVI court order prohibiting a party from initiating or continuing legal proceedings on the same matter in another jurisdiction. The BVI court then declared Hu Lan in contempt and ordered her committal to prison, even though such an order is unenforceable as long as she is in China.

David Golden has appealed the Shanghai court’s decision, meaning the story has yet to end. Also to be resolved is the 1.1 billion yuan loan at the heart of the other lawsuit that has left the luxury villas frozen.

The legal dispute stands out in the Chinese market not only for involving rare luxury villas in one of Shanghai’s most prestigious areas, but also as the latest example of challenges facing family-owned companies.

A growing number of listed Chinese companies have encountered similar family-related boardroom, management and shareholder disputes in recent years, resulting in commercial, operational, and reputational damage. Recent cases include ones involving Shanshan Corp. (600884.SH) and Seazen Holdings (601155.SH). Meanwhile, the years-long family dispute at Sun Hung Kai (HK.0016) is a classic example among Hong Kong-listed companies.

For overseas investors in particular, these family-related governance issues often remain hidden until legal proceedings begin. That highlights the importance of understanding not only the companies themselves but also the family dynamics of their majority shareholders – especially as more Chinese family-owned businesses are transitioning to the next generation.

The Bamboo Works offers a wide-ranging mix of coverage on U.S.- and Hong Kong-listed Chinese companies, including some sponsored content. For additional queries, including questions on individual articles, please contact us by clicking here.

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