Ambow Education Holding Ltd., which briefly had a $108 million privatization bid from private equity firm Baring Asia Private Equity Fund V LP, has been placed into provisional liquidation, similar to bankruptcy, in the Cayman Islands, where it is registered.

The Beijing-based company operates schools, including grade schools, colleges and career enhancement centers.

Baring was one of the shareholders that helped to push Ambow into provisional liquidation, which could help it get a return on its investment, says Tom Vaughn,  a member of law firm Dykema Gossett that focuses on M&A, public securities offerings and securities compliance, and who has no ties to Ambow.

“They still, even at 11 percent, have a very significant investment. One would like to see a return on that investment, or a return of that investment, and obviously there is potential for a transaction here,” Vaughn says.

Baring probably sees the move as a way to potentially displace the Ambow’s current CEO, Jin Huang, Vaughn says.

It’s rare, Vaughn says, to see a private equity firm resort to bankruptcy because it normally ends up destroying the company.

“You only do this when you don’t see any other possible solution to the problem,” Vaughn says.

The company has experienced a string of problems after in 2012, an employee accused it of financial impropriety and wrongful conduct in connection with the purchase of a training school in 2008. Ambow was listed on the NYSE in August 2010.

Baring made its bid just months before Ambow was placed into the hands of joint provisional liquidators, on March 15.

But the company withdrew the bid quickly, on March 26, prompted by several resignations.

On March 22, PricewaterhouseCoopers Zhong Tian CPAs Ltd. Co., a unit of PricewaterhouseCoopers, resigned, saying that it was concerned the investigation into the former employee’s allegations would not be given the necessary resources and time, and that the presence of existing management may make conducting an investigation of the scope that PWC believed was necessary unlikely.

“If an accounting firm has resigned, like PWC, the issues are very serious,” Vaughn says.

“The basis for their resignation was less the accounting problem and more the lack of cooperation from the current management team,“ Vaughn says.

Following PWC’s resignation, law firm Fenwick & West LLP resigned as the counsel the audit committee.

Ambow’s stock price has declined since April 2012.

On April 30, 2012, the company said it would not be able to file its 20-F, a reporting requirement of the SEC, on time. The stock price dropped from around $8, to around $4. Then, on July 2, 2012, the company disclosed the allegations of financial impropriety and wrongful conduct, causing its share price to drop to just above $2. Before the NYSE halted trading of the company’s stock on March 22, the share price had dipped below $2.

“This case is unique because things went messy after Ambow’s independent director, law firm and PWC resigned,” says Julia Zhu, senior counsel at Dykema Gossett. Zhu has experience representing domestic and international clients on entity structuring, joint ventures, M&A, cross-border deals and international litigation, and is not involved with Ambow.

After Ambow’s shares stopped trading, GL Asia Mauritius II Cayman Ltd., which owns 21.6 percent of Ambow, on April 17, filed a bankruptcy petition for Ambow in the Grand High Court of the Cayman Islands, with the help of Baring, according to reports.

Edward Middleton and Wing Sze Tiffany Wong of KPMG in Hong Kong were appointed the joint provisional liquidators for the company on June 7.

The liquidators will be operating Ambow and conducting the investigation into the accounting allegations. 

Scandals like Ambow’s affect other Chinese companies listed on the New York Stock Exchange, which is part of the reason that some of those companies are going private, says Julia Zhu,

The declining shares of several Chinese companies creates an opportunity for investors, says Tom Vaughn.

“The private equity firms who are always looking for opportunities and value are really out there scouring these Chinese companies. They are looking for the good, undervalued companies that are being impacted negatively by reports like Ambow’s,” Vaughn says.

Mergers & Acquisitions has covered several going-private proposals for NYSE-listed, Chinese companies. Camelot Information Systems Inc., an information technology company headquartered in Beijing, received a going-private proposal from its chairman in March. In March, private equity firm TPG Capital was part of a group that offered $173 million to take Chinese pharmaceutical company ShangPharma Corp. private, and Simcere Pharmaceutical Group received a buyout offer from the chairman of its board. 

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