China Fishery against court appointing a US trustee

Singapore-listed China Fishery wants to stop a fire sale of its assets.
Singapore-listed China Fishery wants to stop a fire sale of its assets. PHOTO: CHINA FISHERY GROUP

But lenders say vast majority of creditors have lost all confidence in its management

Beleaguered China Fishery has claimed that the appointment of a United States trustee would subject its bankruptcy estate to "greater costs than benefits" and result in a "severe destruction of value" for stakeholders.

The Singapore-listed fishmeal supplier had filed for Chapter 11 protection in New York in June, along with more than 15 affiliates. Its parent firm, Hong Kong-based Pacific Andes International, also filed for bankruptcy in New York.

China Fishery said the filing is aimed at stopping a fire sale of its assets, particularly its most valuable - the Peruvian fishmeal business that is valued at up to US$1.7 billion (S$2.3 billion).

Last November, HSBC Holdings filed an application, which was subsequently dismissed, in Hong Kong's High Court to wind up China Fishery. Pacific Andes listed HSBC, along with the Hong Kong branches of Rabobank and DBS Bank, among its largest unsecured creditors. Each bank has claims of US$96.5 million against China Fishery.

In bankruptcy papers obtained by The Straits Times, China Fishery argued that the appointment of a trustee would be "perceived as a mandate to comply with the lenders' desire for a quick sale".

Further, "additional costs would compound" as a trustee would be "entitled to commissions of up to US$30 million for each US$1 billion of asset distributions", it said in court papers filed on Sept 2.

China Fishery said the "disruptive effects" of such an appointment would be at least as severe as the appointment of joint provisional liquidators in November last year. These have since been discharged. It added that the appointment of the provisional liquidators had caused "severe damage" to the Peruvian business, from which it is still recovering today.

But lenders Rabobank, Standard Chartered Bank and DBS have challenged its allegations.

They said in court papers filed in New York on Sept 2 that one of the bids for the Peruvian business was for "US$1.5 billion, which would have paid all of (China Fishery's) creditors in full and provided substantial recoveries" to creditors at affiliate Pacific Andes Resources Development.

They argued that "the vast majority of China Fishery's creditors have lost all confidence in its management for a multitude of reasons", which include the "surreptitious planning of global bankruptcy and insolvency filings, the attempt to protect real estate holdings by transferring them to related parties, several billions of dollars of unexplained inter-company transactions... and conflicts of interest of management".

The lenders said in court papers that the Peruvian business had suffered significant financial hardship in recent years for reasons "wholly unrelated to the appointment" of the joint provisional liquidators (JPLs).

They blamed instead the presence of the "largest El Nino in the past 15 years" from 2014 to early 2016 for disrupting two consecutive fishing seasons, coupled with Peruvian government regulations that prohibited commercial fishing within 10 miles (16 km) of the coast, which is rich in anchovy during an El Nino".

"These factors impacted the Peruvian business for several years, while the JPLs were incumbent for a mere few months," they said.

The lenders also pointed out that trading in shares of China Fishery and Pacific Andes Resources Development has been suspended because of investigations for an offence under Singapore's Securities and Futures Act.

In arguing for a trustee to be appointed, they said that the allegations that led to the securities probe "harm the public shareholders, and removing any taint on those securities would also benefit equity security holders".

A version of this article appeared in the print edition of The Straits Times on September 10, 2016, with the headline 'China Fishery against court appointing a US trustee'. Print Edition | Subscribe