CFG Peru trustee hopes to “unblock” China Fishery deal with settlement push
Two developments in the China Fishery Chapter 11 bankruptcy filing have given William Brandt, the trustee overseeing the sale of the company’s Peruvian assets, hope that he will get a deal done.
On 19 February, Brandt filed a proposed settlement agreement with China Fishery Group’s court-appointed liquidator, FTI Consulting, which had sued the company, arguing it had used ill-gotten earnings to purchase Copeinca in 2013. The suit alleges the Ng family, which controls a majority stake of China Fishery, used inflated revenues and fraudulent transactions through its subsidiaries PAE, Europaco, Palanga, Zolotaya and third-party vendor Solar Fish as leverage to acquire Copeinca. FTI Consulting has also filed a separate lawsuit in Hong Kong against members of the Ng family, accusing the family of being at the center of the alleged trade-finance fraud.
The lawsuit, which Brandt previously described to SeafoodSource as a significant roadblock in his efforts to sell China Fishery Group’s Peruvian assets, including Copeinca, demands USD 152 million (EUR 127.4 million) in reparations, but the in-principle agreement Brandt has struck with FTI Consulting will reduce the payout to USD 12 million (EUR 10.1 million) in cash. A hearing on the settlement will take place on Tuesday, 16 March with U.S. Bankruptcy Court Judge James Garrity, who is presiding over the Chapter 11 proceedings.
“I negotiated the deal. I spent the last eight to nine months in mediation carefully crafting the settlement and pushing people to accept the agreement. So I’m very much in favor of it,” Brandt told SeafoodSource. “I absolutely believe this is the best thing for the company.”
If approved by Garrity, the settlement still faces obstacles before it is finalized, including certification by the British Virgin Islands court in which it was filed, and approval of a majority of the company’s shareholders. While the Ng family can oppose the settlement, Brandt has threatened to push to have their rights as company directors removed if they do so. However, he said the settlement is in the Ng family’s best interest, as it “terminates costly litigation that could plod on aimlessly for years” and would clear a path for a potential sale of the CFG Peru assets.
“The whole point of the FTI settlement is to aid in unblocking the course of the dealflow,” Brandt said. He pointed to a debt-for-equity restructuring proposal made public earlier this month by a majority of the holders of the China Fishery’s senior notes and club loans – calling themselves the ad hoc creditor group – as evidence that the settlement agreement is helping to unfreeze the sale process.
“Their plan indicates it has well served that purpose,” Brandt said. “I’m trying right now work to see if I can get an agreement with the Ngs and moving to encourage all the other parties including, including the ad hoc group, to get there [on the settlement].”
Brandt said the ad hoc group’s proposal is another positive step in his efforts to sell the CFG Peru assets, as its offer to convert USD 700 million (EUR 581.4 million) of existing debt into new equity, add USD 300 million (EUR 251.5 million) in new senior secured notes, and provide USD 150 million (EUR 124.6 million) in new funding to the company could potentially serve as the equivalent of an initial bid for the Peruvian assets.
“I’m fine with that offer and it’s good for them, though I’m not sure they're going to get it done,” Brandt said. “I have some concerns about how they’re doing it and who’s going to sign on, but I have no problem whatsoever with them trying. At the same time, if that becomes the basis of a stalking horse other people bid against, so be it.”
Brandt listed the baseline of a stalking horse bid at USD 1.15 billion (EUR 964 million), similar to his previous public comments but lower than his initial expectation the assets could bring in as much as USD 1.7 billion (EUR 1.4 billion). Following publication of the settlement terms, Brandt said he has heard from three separate buyers with renewed interest.
“The [COVID-19] pandemic has produced an odd outcome – food security has all of a sudden gone up in importance. You can presume large Asian nations are reconsidering their position and want to lock up large supply chains on the theory this isn’t the last pandemic that hits,” he said.
Brandt said there are still several sticking points that need to be addressed before any sale is consummated, the most important of which is sign-off from the Ng family. He suggested the family may seek to retain an interest in the Peruvian business through a sale or otherwise try to recover some of the assets currently being brokered through the trusteeship.
“I don’t want to put words in their mouths, but like everyone else, this process has grinded on them over four years. Everyone wants a conclusion if it can be reached,” Brandt said. “The last four years have provided everyone a certain dose of reality about what’s able to be accomplished. At the same time, the Ngs are still fighting and it’s round 15, so you’ve got to give them their due. We’ll see what happens.”
Securing support of Hong Kong and Shanghai Banking Corporation (HSBC), China Fishery’s primary lender, will also be vital, Brandt said. China Fishery remains locked in a legal battle with HSBC and Brandt has himself sued HSBC on behalf of CFG Peru, but he said he hopes the bank is willing to resolve its disputes in pursuit of an end to the entire Chapter 11 debacle.
“I’m glad people are trying to move toward the center on this – it’s about time,” Brandt said. “But I’m the first to agree there’s no shortage of roadblocks remaining, given the complexity of the case and the numerous national jurisdictions involved. It’s taking time but we’re getting there, and an important step is the much-needed clarity we are gaining through the recent moves that have been made.”
Photo courtesy of DSI Civic