The trustee in charge of the sale of China Fishery’s Peruvian assets has asked the judge overseeing the company’s Chapter 11 bankruptcy case to remove the members of the Ng family and their associates from their positions of control over the company.
William J. Brandt was appointed by U.S. Bankruptcy Court Judge James Garrity in November 2016 to act as an impartial arbiter for the restructuring of CFG Peru Singapore’s assets and business during its parent company’s Chapter 11 reorganization. CFG Peru is a holding company for three anchovy fishing and processing operations in Peru, and is considered the most lucrative asset of China Fishery, which at one time was ranked as the 12th-largest seafood company in the world.
The sale ran into difficulty and was delayed as a result of competing claims on company assets collectively worth hundreds of millions of dollars – most significantly, a USD 459 million (EUR 376.5 million) intercompany claim owed by one of the Peruvian subsidiaries to China Fishery International Limited, a separate branch of the larger China Fishery corporation. In March 2018, Brandt asked Garrity to support his effort to use a legal process called “netting” to bundle all intercompany claims owed by the CFG Peru subsidiaries into one main claim. Doing so would also save the company approximately USD 10.3 million (EUR 9.3 million) per year in tax costs, according to Brandt’s new legal filing on 22 May.
However, the Ng family refused to agree to the bundling, Brandt said.
“Given the Ng Family’s refusal to cooperate with respect to the netting of the USD 459 million claim, the Chapter 11 trustee has lost all confidence that the Ng family will cooperate in other aspects of these Chapter 11 cases, including effectuating the remainder of the netting at the appropriate time and giving the necessary approvals at entities above CFG Peru Singapore to effectuate the CFG Peru Sale or an alternative, value-maximizing transaction,” Brandt wrote. “The Chapter 11 trustee simply cannot have yet another issue impede progress on these Chapter 11 cases. Although he has kept the Ng subsidiary directors in place at CFG Peru Singapore’s subsidiaries until now out of a desire to foster cooperation, the Chapter 11 trustee believes that the time has come to remove the Ng subsidiary directors in order to eliminate the risk that they can further impede progress.”
Furthermore, Brandt said he believes “there is a risk that the Ng subsidiary directors could use their authority to actively subvert his objectives at the Peruvian Opcos and other subsidiaries below CFG Peru Singapore.”
Brandt said until recently, he had worked to foster an atmosphere of cooperation and mutual trust between himself and the Ng family, but that he had decided to move to cut them out of their directorial roles because “these cases are at a critical juncture.”
“Next month, it is intended that a large number of stakeholders in these Chapter 11 cases will engage in mediation to attempt to resolve two remaining gating items to carving a path out of Chapter 11: an intercreditor dispute over the relative priority of third-party funded debt at the Peruvian Opcos, and a dispute involving Hong Kong litigation proceedings initiated by the liquidators appointed by courts in Hong Kong and BVI,” he said. “The Chapter 11 Trustee is cautiously optimistic that resolution of these gating issues will reignite the CFG Peru Sale process or allow progress to be made on an alternative, value-maximizing path out of Chapter 11.”
The current state of the Peruvian anchovy fishery, and the global economic impact of the COVID-19 pandemic, have also forced him to take action, Brandt said.
“The global COVID-19 pandemic has had a significant impact on the Peruvian Opcos. The first fishing season of 2020, which under normal circumstances would have begun at the beginning of April, was delayed until 13 May. Further, once begun, there were significant limitations imposed by the Peruvian government which will result in reduced productivity. Although the Peruvian Opcos, in no small part due to the Chapter 11 trustee’s previous efforts, are well-equipped to quickly catch and process a large portion of their quota during the delayed fishing season, it is unlikely that they will realize 100 percent of their quota,” he said. “Thus, the Peruvian Opcos are keenly focused on near-term liquidity measures that will help them weather the uncertainties of the current fishing season and the ongoing COVID-19 pandemic. To that end, the Chapter 11 trustee has also determined not to make the anticipated interim distribution to creditors of the Peruvian Opcos at this time and has been focused on other cost-saving measures.”
The distribution is part of an effort by Brandt to pay back CFG Peru Singapore creditors who have competing claims against the company’s assets. The two groups of lenders have been unable to agree on terms on how they would split the recovery of any assets through the company’s bankruptcy proceeding; the topic is set to be a primary subject of next month’s mediation session, which was ordered by Garrity in January. The mediation was originally scheduled to take place in May but has been pushed back due to the coronavirus crisis.
Brandt has thus far spent USD 30 million (EUR 27.2 million) in his unsuccessful effort to sell the CFG Peru Singpore assets; he received permission in late 2019 from Garrity to borrow an additional USD 15 million (EUR 13.6 million) from the company to continue his efforts through 2020.
Photo courtesy of DSI Civic
