The Lim family-run Xihe Holdings and four of its vessel-owning units are being brought under "urgent" judicial management by creditor OCBC Bank, which "strongly distrusts (their) current management" after US$208.1 million (S$288 million) was transferred by the Xihe group to troubled oil trader Hin Leong "for no valid commercial purpose", according to court documents seen by The Straits Times.
OCBC applied to the High Court on Monday for Mr Seshadri Rajagopalan and Mr Paresh Jotangia of Grant Thornton Singapore to be appointed as interim judicial managers (IJM) for Xihe and four of its subsidiaries: Da Xin Tankers, Hua Guang Shipping, Nan King Maritime and Hua Xin Shipping.
Among the reasons OCBC cited is that the Lim family, which owns and manages the Xihe group, has "admitted to and/or been found to have fabricated fictitious gains and forged documents on a massive scale, concealed massive losses, misused secured inventory and misled banks into extending financing to Hin Leong, causing (the) billion-dollar insolvencies of Hin Leong and Ocean Tankers".
Hin Leong and its shipping arm Ocean Tankers initially sought a six-month moratorium on debts of more than US$3.6 billion to 23 banks. Court filings cited the collapse in crude prices and the coronavirus pandemic, which battered oil demand and pushed up costs for Hin Leong.
The oil trader's founder Lim Oon Kuin admitted that he had directed the firm to hide about US$800 million in futures trading losses.
OCBC noted that the Lims further paid themselves dividends of US$30 million in 2017 and US$60 million in 2018 from Hin Leong when there were no profits to support such dividends, and withdrew US$19 million from Ocean Tankers shortly before filing for the debt moratorium.
Both companies have since withdrawn the debt moratorium application and sought to be brought under judicial management.
Ocean Tankers' exposure to potential claims of US$2.67 billion allegedly stems from its dealings with the oil trader.
The serious irregularities extend to the affairs of Xihe and its four units, OCBC noted. It pointed out that "bareboat charters of OCBC-financed vessels were terminated without OCBC's consent, and the Xihe units have persistently failed to... collect payments from Ocean Tankers for months or years, to the prejudice of creditors of the Xihe group, and in breach of contractual obligations owed to OCBC".
"Especially in the light of the interlinked businesses, common ownership and leadership of the debtor companies, Hin Leong and Ocean Tankers, independent judicial managers need to be appointed urgently over the debtor companies to investigate the serious irregularities and prevent further prejudice to creditors," OCBC said.
It further pointed out that the current or recent management of Xihe "may include individuals who would have been privy to... the financial misreporting, misuse of secured inventory and other issues plaguing Hin Leong, and to a certain extent, Ocean Tankers".
With the negative publicity and potential claims in relation to the massive fraud uncovered in Hin Leong and Ocean Tankers, the appointment of IJM will help "restore confidence of potential investors, vessel purchasers and other counterparties", the bank added.
The risk of arrest or claims against vessels of the debtor companies mounts daily, it said.
"Vessels owned by the Xihe group have already been subject to numerous writs, with the majority of the fleet idling in international waters, costing a fortune in lost income and expenses daily.
"A moratorium would give the debtor companies the time and breathing space to properly restructure the debts, and better preserve the value of the vessels.
"In a liquidation or enforcement action taken by creditors against Xihe and its subsidiaries, it is likely that (their) assets would be sold at distress values, which would result in a low recovery for its creditors.
"Liquidation and enforcement action against the Xihe group will also result in a sudden flood of vessels into the second-hand market, further depressing the price recoverable by creditors," OCBC said.
Further, the bank noted that the Xihe group appears to be "short of crew, competence/capacity and money to make payments on taking redelivery of the vessels, which has led to vessels of the group being stuck with Ocean Tankers even though Ocean Tankers does not appear to be paying charter hire for it".
The IJM will be able to engage professional ship managers to help with the technical and commercial management of the vessels, if necessary, the bank added.
Mr Lim said in an affidavit filed in April that the proposed restructuring of Hin Leong will be "linked to or intertwined with Ocean Tankers' debt restructuring, as Ocean Tankers' liabilities are related to the debts owed by Hin Leong to its bank lenders".
While details of the scheme of arrangement are yet to be worked out, Mr Lim said the broad terms are likely to include, among other things, "the injection of assets by the Lim family, such as the family's shares in the Xihe group and Universal Group Holdings". Mr Lim and his family own 41 per cent of Universal Terminal through Universal Group.
With liabilities of US$3.5 billion and assets of just US$257 million, PwC, the IJM for Hin Leong, has pointed out that the "restructuring of Hin Leong on its own is unlikely to result in a recovery that is better than liquidation".
PwC also pointed out that there may be some prospect of restructuring if Hin Leong is put together with other firms in the group, and if the Lim family injects personal assets as well.
But the Lim family has not responded to this recommendation and has hired the law firm Davinder Singh Chambers to represent them.