China Fishery bankruptcy proceeds as judge appoints trustee
The judge presiding over bankruptcy proceedings for China Fishery Group, the world’s 12th-largest fishing company, has appointed a Chapter 11 trustee to oversee the company’s lucrative Peruvian assets, including three companies that control a significant percentage of Peru’s total allowable catch of anchovy.
Following a two day trial in New York, Judge James Garrity ruled on 28 October that a large portion of the remaining value of China Fishery Group lies in CFG Peru Singapore, and ordered the appointment of a trustee to oversee the group. The court-appointed trustee, who has yet to be named, will act as an impartial arbiter for the restructuring of CFG Peru Singapore’s assets and business during its Chapter 11 reorganization.
“The court is mindful that the appointment of a Chapter 11 trustee is an extraordinary remedy and is the exception, not the rule. Nonetheless, based upon its review of the voluminous record made in connection with the motion, the court finds that in balancing the advantages and disadvantages to appointing a trustee, the movants have established by clear and convincing evidence that it is in the best interest of debtors’ estate and creditors that a trustee be appointed,” Garrity wrote in his decision.
The ruling is a blow to China Fishery and the Hong Kong-based Ng family, which controls the company and contested the motion to appoint a trustee. While the company’s Chinese processing business and its U.S. subsidiary National Fish and Seafood are unaffected by the ruling, in statements released this summer by China Fishery Group, the Ng family expressed its concern that a trustee might pursue a “fire sale” of its Peruvian assets, which it said “would not be in the best interests of all creditors and other stakeholders.”
In a statement released 31 October, Ng Pauy Yee, also known as Jessie Ng, the executive director and CEO of China Fishery, said “the board and current management of the company will work constructively with the trustee to bring about the best outcome for all stakeholders.”
“The judge made it clear that the appointment was not being made in favor of a sale of the Peruvian business, but to ensure that the highest and best use of the assets in Peru is assessed to maximize value for all debtors, creditors and stakeholders,” Ng said in her statement. “The board and current management of the company remain in control of the business and will continue to ensure that its operations in Peru and Namibia continue to operate as usual, uninterrupted by the restructuring process.”
China Fishery owes hundreds of millions of dollars on loans issued by financial institutions including China CITIC International, HSBC, Bank of America, Maybank, Rabobank, Standard Chartered Bank, DBS Bank, the Agricultural Bank of China and the Industrial and Commercial Bank of China. The company and 16 of its subsidiaries, including Pacific Andes, filed for bankruptcy in the United States on 30 June, 2016.
In his ruling, Judge Garrity wrote that while the claimants failed to establish that existing management is not trustworthy, they did show they have lost all confidence in the debtors’ management for "a number of good reasons,” calling their lack of confidence in management “both justified and understandable.”
Garrity made the decision to appoint a trustee as he or she “will be able to review and address the debtors’ multi-billion intercompany balances and investigate any alleged accounting irregularities, without the conflicts of interest that plague current management,” Garrity wrote in his opinion. “Moreover, a trustee can facilitate between hostile parties in the proposal, review and/or negotiation of a reorganization strategy."
The trustee will oversee China Fishery’s and Pacific Andes’ CFG Peru Singapore group, itself the holding company for three Peruvian operators – CFG Investments S.A.C. (“CFGI”), Corporacion Pesquera Inca S.A.C. (“Copeinca”), and Sustainable Fishing Resources S.A.C. fishing and processing anchovy in Peru. Those entities operate the Pacific Andes Group’s anchovy fishing business and together control a significant percentage of the anchovy fishing quotas fixed by the Peruvian government. Through those entities, the CF Group holds the largest quota for the harvest of anchovy in Peru, which is used to produce fishmeal and fish oil in factories in Peru for sale overseas.
While those companies are not part of the Chapter 11 filing, they are the subject of both involuntary insolvency proceedings filed against them in Peru at their behest, by three “friendly” local creditors, according to Garrity’s ruling and a Chapter 15 filing in U.S. bankruptcy court. The Chapter 15 ruling allows foreign corporate bankruptcy proceeding to take place in U.S. court.
In Garrity’s opinion, he reveals that China Fishery received an offer as high as USD 1.5 billion (EUR 1.34 billion) for its Peruvian assets – enough to pay off all of the company’s debts – but the Ng family had previously let it be known it was seeking USD 1.7 billion (EUR 1.54 billion). Regardless, the offer fell through and other offers were “for much lesser amounts, and in management’s eyes, not an adequate reflection of the true value of the business.”
The appointment of a trustee is necessary because, according to Garrity, “The Ng family…with personal and financial stakes in their continued operations, are plainly disincentivized from selling the Peruvian Business, even at a purchase price that reflects the current company valuation, because (i) there will be no return for the benefit of their equity positions, (ii) the sale will gut the Pacific Andes Group, and the family’s business, its most valuable assets and (iii) the sale may impact the financial accommodations made by the family.”
In the conclusion of his ruling, Garrity said it will be incumbent upon the trustee to maximize the use and value of the CFG Peru Singapore group, as “the record is clear that that the debtors have no prospect of rehabilitation if they cannot realize value from their interests in the Peruvian [companies].”