Chinese foodservice giant Joyvio plans to file a USD 1.22 billion (EUR 1.13 billion) suit against the former owner of Puerto Varas, Chile-based Australis Seafoods, which it purchased in 2018 for USD 921 million (EUR 850 million).
Joyvio, a subsidiary of Legend Holdings which also owns the computer giant Lenovo, has accused businessman Isidoro Quiroga of allegedly withholding information regarding overproduction at the company’s farming centers during the acquisition’s due diligence phase.
In a statement issued 28 March, Australis filed a self-report with Chile’s Superintendency of the Environment (SMA) on 27 October, 2022, “after detecting facts that could constitute of infractions.”
“Having discovered the existence of this systematic salmon overproduction policy devised by the previous administration, we can affirm that these are acts in force at least since 2016 and that they generated an overproduction of more than 80,000 tons of salmonids. Given this, we take different measures to eradicate from the company such bad practices that affect both the controller and the authorities and that significantly damage public faith,” it said. “The first measure was to file a self-report with the SMA and, at the same time, immediately end the regulatory breaches detected. Collaboration with the SMA seeks to facilitate its inspection work, for which reason a precise description of the circumstances detected (magnitude, duration, etc.) was made available to them; a detail of what happened in the 33 fattening centers involved; reports from external and independent environmental experts; and the description of a program to compensate during the next five years (from 2023 to 2027) the denounced overproduction.”
Australis said it is pursing civil and criminal actions "against those responsible for the systematic policy of overproduction and its concealment” and is restructuring the company's corporate governance – “a process that is already being implemented.”
Australis said the value of the company upon its acquisition was artificially inflated, and accused the previous owners of the company of fraud “and other serious crimes that will be exposed in the different lawsuits.”
“As a company, controlled by a responsible foreign investor, we know that this self-reporting will have a short-term negative impact on us,” Australis said. “However, we are doing the right thing to ensure compliance with Chilean environmental regulations. We hope that justice punishes those responsible and that the national authorities and other stakeholders, local and foreign, understand the damage that third parties have caused the company.”
In recent years, SMA, Chile’s environmental watchdog, has stepped up scrutiny and oversight of the country’s USD 6.6 billion (EUR 6.1 billion) salmon industry and has levied sanctions on several companies that exceeded their authorized production limits – considered a serious violation of the farmers’ concession terms, in which penalties can include millions of dollars in fines and a revocation of the license to operate. Australis itself has been cited in several cases of overproduction.
Andrés Lyon, appointed Australis CEO in June 2022, having previously headed Puerto Montt, Chile-based salmon-farming firm Multiexport, said immediately after starting in his new role, he discovered anomalies in the company’s farming data.
“Once in office, I detected significant inconsistencies and anomalies in the company’s operation, which I immediately reported to representatives of Joyvio Food,” he told Chilean newspaper El Mercurio. “I detected certain irregularities in the way of carrying out production, which were anomalous, planned, and systematic, and that went against compliance with environmental regulations.”
Lyon said the five grow-out centers under SMA scrutiny had production amounts 20 to 80 percent in excess of their permitted limits prior to Joyvio purchasing Australis.
“After analyzing the information collected and having discovered, via the analysis of our lawyers and the documentation found, the existence of a systematic policy of overproduction of salmon, devised and executed by the previous administration, we can affirm that these crimes and deplorable acts are in force at least since 2016, and that generated an overproduction that causes significant risks to the company,” he said. “These were risks that the selling party knew and did not declare. Here we are facing a concealment of facts and information … Their concealment is a crime.”
There is “no doubt” Australis is a victim of the bad practices implemented and concealed by the previous administration, Lyon said.
“We have a lot of information that supports this, we have evidence of the communications between the executives and directors of the company, prior to the purchase and during the period of negotiation and due diligence, in which in those communications they decide how to hide information on the overproduction that had already occurred and that was happening at that time. They explicitly refer to that issue,” Lyon said.
Lyon said he has in his possession more than 100 emails between Quiroga and other former Australis executives involved that “leave no room for interpretation.” The concealment was so well orchestrated that it was impossible to detect during the due diligence process, he said. Irregularities were not detected earlier because Quiroga remained as director for more than a year after the purchase, after which Covid-19 hit. As a result, Lyon said, the company’s Chinese controllers could not significantly interact with the company until 2022, when they hired Lyon and launched an investigation. The purchase agreements signed between the parties declared that Australis had always remained in compliance with Chile’s environmental and sectoral regulations.
“Which turned out to be false,” Lyon said, calling the situation “a scam” for which civil and criminal suits will be filed those responsible.
Joyvio has invested over USD 250 million (EUR 231 million) into Australis in areas such as a high-tech processing plant in Puerto Natales and farm build-out and improvements. But the alleged mismanagement is a blemish on Chile’s investment-friendly reputation, Lyon said.
“Here we are facing a case that greatly damages the country's image, because we are seeing how a foreign investor who trusted Chile and who in good faith has already invested more than USD 1.2 billion in Australis between 2019 and 2022, was the victim of a sale process that hid sensitive information, information that was key both to value the company and to make the purchase decision,” Lyon said, decrying those “who had the nerve to continue administering Australis after the takeover by Joyvio, with the explicit purpose of continuing their criminal plan and preventing its discovery.”
At the end of January 2023, Joyvio Food informed China’s financial regulator of a USD 240 million (EUR 222 million) write-down from its Australis operations. The company said it has subsequently enacted strict compliance programs regarding production and restructured its corporate governance.
In response, Isidoro Quiroga – who now lives in Great Britain and may face extradition as a result of the accusations – called them “falsehoods and slander.”
“I regret that Joyvio and its advisors in Chile have chosen the path of slander and defamation to try to solve their financial and business management problems,” he told El Mercurio.
“Joyvio went scandalously into debt to buy Australis, based on profit expectations that were impossible for any company to meet,” he said, questioning why the accusations surfaced four years after the purchase. “They failed when it came to adapting to new regulatory conditions. The debt pressure was so great that Shaopeng Chen, Joyvio's chairman, decided not to listen to the warnings of Chilean executives and ordered the company to continue producing as if everything remained the same. This is taking its toll on them.”
Quiroga insisted all the details of Australis' present and past production, as well as environmental and sectoral permits, were made available to Joyvio and its specialized advisors throughout the due diligence period.
“Personally I am very much at ease, because I always acted in good faith,” Quiroga said. “I will defend my good name, that of my family and that of my employees to the ultimate consequences, exercising the corresponding civil and criminal actions against the people who have participated in this infamous campaign.”
When contacted by SeafoodSource, executives from Australis confirmed the accusations levied by Lyon as published in El Mercurio, but offered no further comment.
Photo courtesy of Australis Seafoods
