March 20, 2023

Judge paves way for China Fishery trustee to investigate lender HSBC’s conduct

By Jason Smith From Undercurrent News

A US judge has granted China Fishery trustee William Brandt permission to issue subpoenas to lender HSBC Bank, as part of a probe into the bank’s conduct prior to the 2016 bankruptcies of several Pacific Andes group companies.

The opinion, written by judge James Garrity, means the trustee now has permission to use a provision in US bankruptcy law known as Rule 2004. This would allow it to subpoena documents and compel witnesses to testify as part of its investigation.

In doing so Garrity overrode an objection from HSBC which had argued that its Hong Kong branch, which had lent to the Pacific Andes group, was outside of the court’s jurisdiction and legally separate from the bank’s US arm.

The Hong Kong branch of the bank had submitted itself to the US court’s jurisdiction, Garrity wrote, when it filed proof of claims in the US bankruptcy proceedings in an effort to seek repayment.

Long-standing relationship

HSBC had long cultivated a relationship with China Fishery’s parent company, the Hong Kong-based fishing and processing conglomerate Pacific Andes group. The bank had lent the group around $200 million but in 2014 — for reasons likely relating to group’s payments to Russian pollock fishing companies — HSBC began what the trustee’s lawyers have called an “aggressive campaign to obtain repayment”.

After the group launched a series of share offerings to raise money, the bank was eventually repaid $102m of its debts and is still owed around $96m.

But HSBC’s unexpected application before a Hong Kong judge in November 2015 to appoint a provisional liquidator over China Fishery allegedly helped to provoke a liquidity crisis at the fishing company at a time when it was already reeling from low anchovy catches caused by El Nino, Jessie Ng, managing director of Pacific Andes International Holdings (PAIH) has said.

The appointment of the provisional liquidators was later rescinded by the Hong Kong court, reportedly due to a lack of evidence of wrongdoing, Ng said. Soon after, the group entered into an agreement with creditors known as the deed of undertaking. In exchange for HSBC halting its efforts to appoint liquidators in Hong Kong and the Cayman Islands, the group would undergo a restructuring and sell off the lucrative China Fishery assets by July 15, 2016 in order to settle creditors’ debts.

While the liquidators were eventually withdrawn, their appointment caused “irreparable damage” to China Fishery’s ability to obtain financing in Peru needed to maximize revenue from those operations, Ng claimed.

And in pollock processing — Pacific Andes owns the largest whitefish re-processing factory in China, the Hongdao complex in Qingdao, while also using contract factories — the liquidators’ appointment allegedly led some lenders to cut credit which was used to buy raw materials, which had an “adverse impact” on that business, the company said.

With only two weeks before the expiration of the June deadline that would have allowed for the liquidators’ reappointment, no sale appeared imminent. Shocking investors, Pacific Andes filed for bankruptcy on June 30, 2016, initially putting 16 of its major subsidiaries under the oversight of the US courts.

Brandt’s investigation

Brandt hasn’t said specifically what documents he’ll be seeking but the trustee’s lawyers wrote in a filing that the investigation will focus on actions taken since 2014 when Pacific Andes began to fall behind on its debts.

In a January interview with Undercurrent News, Brandt, the trustee, called the subpoenas a routine tool and didn’t want to prejudge the outcome of the inquiry.

“The reason I’m asking for data is that there seems to be enough issues that I should educate myself,” Brandt said.

According to the trustee’s filing, the subpoenas are seeking documents, communications and testimony detailing the bank’s interactions with China Fishery, prior attempts to appoint liquidators over the business in Hong Kong and the Cayman Islands, and interactions between HSBC and China Fishery’s “investors, creditors, lenders, customers, suppliers, trade counterparties, and/or employees as well as actual or potential bidders”.

HSBC representatives declined to comment for this article.

However, in their objection to Brandt’s subpoena power request, the bank’s lawyers said Brandt was being “wasteful and premature”.

“It remains a mystery why the trustee has singled out HSBC-HK for this purpose, particularly when this court has already heard evidence of misconduct by the debtors and their management and owners,” they added.

Brandt should rather concentrate on “maximizing the value of the Peruvian assets” towards “a value-maximizing transaction or other strategy”, they said.

“Doing so may result in a complete repayment of creditors and entirely moot the need for the trustee to expend estate resources pursuing claims of speculative value.”

Other subpoenas

Brandt told Undercurrent that he is not specifically seeking the so-called FTI Report, a document that HSBC previously reportedly used to have the Hong Kong liquidators initially appointed over China Fishery. However, the trustee added that the document, which has been much discussed in court filings but not yet made public, may become part of the inquiry.

The Ng-family controlled Pacific Andes Resources Development, (PARD) has separately sought permission to issue subpoenas compelling documents and testimony from FTI Consulting, the report’s author, and three of its employees. Garrity has yet to rule on that request.

The information to be subpoenaed is wide-ranging in scope relating to the FTI liquidators’ appointments over PARD subsidiaries PAE-BVI, Parkmond Group Limited and PARD Trade. It includes 13 separate requests for information relating to communications between the liquidators and other creditors, the FTI report and investigation of Pacific Andes companies and any communications that FTI representatives had with journalists about the liquidations.

PARD accuses FTI of “apparently providing letters containing false allegations regarding PARD’s business operations to the media,” the filing states.

FTI denies those allegations. Employees of the company’s office in the British Virgin Islands (BVI) were recently appointed as liquidators of several BVI-registered Pacific Andes affiliates.

Those liquidators have alleged that Pacific Andes group affiliates used offshore companies engaging in potential trade finance fraud to fund its 2013 purchase of fishmeal maker Copeinca as well as other allegations of wrongdoing.

IMAGE: Pacific Andes
Seafood Expo Global, May 2015, Brussels, Belgium. Photo: Miriam Okarimia/ Undercurrent News

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