Embattled Chinese business Huishan Dairy has asked its lawyers to make preparations for the company to move into provisional liquidation.

Huishan Dairy, which has had trading in its shares suspended since March after the price of the stock slumped 85%, said in a board meeting on Wednesday (15 November) the combined liabilities of its subsidiaries in China on 31 March “could have been” CNY10.5bn (US$1.58bn).

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The company, which includes in its operations a joint venture in China with Dutch dairy giant FrieslandCampina, said a move into provisional liquidation “will take into account, as far as possible, options available to the company to preserve the assets of the group”.

In March, Huishan Dairy was rocked by allegations of the misappropriation of funds by chairman and controlling shareholder Yang Kai, claims that were denied.

Over the spring, the company saw a number of directors leave its board, although some remained in their management positions. At one stage, that left Huishan Dairy with one director – Yang. The company has since replenished its board. 

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It was on 24 March when Huishan Dairy halted the trading in its shares in Hong Kong after the company’s stock plummeted by over 85%.

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The slump was reportedly due to a short-seller attack. The fall in the value of Huishan Dairy’s shares had come after allegations a “major shareholder” in Huishan Dairy had used CNY3bn  on the dairy firm’s balance sheet to invest in Chinese real estate and was unable to recoup the money.

The following week, Huishan Dairy provided an update on its financial position, revealing it had met with its creditors after missing interest payments. 

However, in a stock market filing, Huishan Dairy insisted it did not believe there was “any misappropriation”, while it has met with government officials and creditors to discuss its payments.

In July, Huishan Dairy outlined plans to give creditors shares in the business, with the Chinese group also proposing to hand a stake to management while the company looks for a “white knight”.