An application by the liquidator of four Pacific Andes Group (PAG) entities seeking an order to freeze USD 600m in assets allegedly controlled by the Ng family and related parties was rejected yesterday (16 June) by a Hong Kong Court because it could not be shown that there is a real risk of asset dissipation.
The court accepted that the liquidator, FTI Consulting, had demonstrated a good, arguable case that a fraud may have been perpetrated – but that was in part due to the defendants' having not yet addressed the case against them in any manner.
It was less certain, however, that the liquidator could demonstrate a loss of USD 608m had been suffered. That amount seemed to have been based purely on a draft audit report on one of the entities, Parkmond, which PwC had prepared, rather than any analysis by the liquidators themselves.
But the court found that the liquidator’s failure to provide proof that there is a risk of an asset dissipation was “fatal” in its efforts to obtain the mareva injunction, Deputy High Court Judge Doreen Le Pichon said in her ruling.
“There has been no evidence of any real incident of attempted or actual disposition” by any of the six Ng family members named as defendants in the suit or any of the other 12 defendants, the ruling states. The Ng family through investment vehicle N S Hong Investments (BVI) Ltd holds 54.9% of Hong Kong-listed Pacific Andes International Holdings Ltd, which is the ultimate parent of China Fishery Group (CFG).
Indeed, the court noted that had defendants sought to siphon away assets they would have had plenty of time to so given they would have been tipped off that they could be found personally liable for PAG’s downfall when Hong Kong and Singapore authorities began investigating the company in 2015 and subsequently when an FTI report highlighting questionable trade financing transactions was shared with its creditors.
Deputy Judge Le Pichon’s ruling also states the liquidator’s efforts at obtaining the freezing order had been “seriously undermined” by the conclusion of investigations by Hong Kong and Singapore authorities regarding allegations of fraud at Pacific Andes Group companies without further action taken against the defendants
The liquidator had argued in part that the injunction should be granted because of “an unacceptably low standard of commercial morality” on the part of the defendants. In arguing this point, the liquidators pointed to their allegations of wrongdoing which involved “a systemic, substantial and sustained fraud . . . the fraudulent activities constituted a whole host of offences, in securities law and in general criminal law, across at least 2 jurisdictions" and involved "a massive dissipation of assets".
FTI Consulting, the liquidator for the entities – Pacific Andes Enterprises (BVI) Ltd (PAE), Parkmond Group Ltd, Europaco Ltd and Richtown Development Ltd – applied for the USD 600m freezing order on 18 April 2019, alleging the Ng family and affiliated companies perpetrated a massive fraud that resulted in losses of USD 608m to the entities in liquidation.
FTI Consulting is also the liquidator of Solar Fish Trading Ltd – a non-Pacific Andes Group entity which acted as an agent of Russian fishing vessels that sold their catch of fish to the group – and was one of the plaintiffs.
The liquidator alleges the fraudulent activities involved PAE and Europaco obtaining more than USD 5.5bn in trade-finance facilities to fund purchases and/or prepayments for future supply of fish from Russian suppliers but no such transactions actually occurred. Instead, the funds advanced were mainly paid in a circular fashion through agent companies including Solar Fish, and then back to PAG. A substantial amount of these funds was upstreamed as dividend payments to the Ng family while at least USD 152m of trade-finance funds were allegedly used to back the group’s 2013 acquisition of Copeinca, a Peruvian opco, the liquidator alleges.
The Court noted that extensive investigations over seven years had been conducted by the Securities and Futures Commission (SFC), the Commercial Crime Bureau (CCB) and The Independent Commission Against Corruption (ICAC) – all in Hong Kong – as well as Singapore’s Commercial Affairs Department and the Monetary Authority of Singapore.
“It is a matter of considerable significance that after repeated and emphatic allegations of the 'fraud' allegedly perpetrated by the defendants, not a single charge has been brought. Nor for that matter, have any civil proceedings been launched,” the deputy judge stated. “That fact must counterbalance if not militate against what the plaintiffs have characterized as a "slam dunk" case,” she added.
The court noted that in its allegations, FTI was seeking to reverse the burden of proof by requiring the defendants to explain conclusions the liquidators had reached through a forensic-accounting process. Indeed, the defendants argued that the claims made by the liquidators are vague and the onus is on FTI to be more specific and particular so that the defendants can answer them in full, the ruling shows.
In pleading their case of dishonesty against the PAIH directors and affiliated companies, the liquidator did not differentiate between the individual defendants and their specific executive roles, the ruling notes.
Instead, the liquidator treated the defendants collectively as a single group irrespective of differences in roles and responsibilities and whether the complaint was for breach of fiduciary duty, dishonest assistance, conspiracy or fraudulent misrepresentation, the ruling noted.
“Without a particularised and specific case made against the individual defendant (as is the present case), it is impossible for the court to scrutinise whether the specific dishonesty alleged against the particular individual justifies the inference about risk of dissipation,” the ruling states. “In other words, given the manner in which the plaintiffs have pleaded their case, the necessary scrutiny cannot be undertaken.”
The liquidator also argued the injunction should be granted because the Ng family as executive directors of PAIH and other defendants had flouted court orders when they breached an undertaking signed in January 2016. But the deputy judge noted this event was reviewed by a US bankruptcy court in October 2017 in Justice James Garrity’s decision to appoint a trustee over PAIH indirect subsidiary CFG’s Chapter 11 process. In that decision, Justice Garrity found that CFG’s lenders had “failed to establish that existing management is not trustworthy”, the ruling notes.
The ruling also took aim at FTI’s allegation that the PAIH directors had evaded their statutory obligation to comply with the liquidator’s requests to answer certain questions. Some of these alleged breaches occurred before FTI Singapore had been recognised on 17 January 2017 by the Hong Kong Court as the liquidator over the companies and so there was no need for the PAIH directors to cooperate with FTI. As such, the liquidator could only legitimately complain of the defendants’ failure to cooperate in providing documents in the course of 2017 and 2018, the court noted.
The court also dismissed as a “non-starter” the liquidator’s allegation that defendant Ng Puay Yee (Annie) was attempting to sell assets when she put three properties she owns up for sale. In commenting on this, the deputy judge cited a Hong Kong ruling which stated that it “is as a matter of common sense, the listing of two properties for sale openly is the very antithesis of any attempt to spirit away assets.” Deputy Judge Le Pichon also noted that Ng Puay Yee had purchased the properties in 2016, after becoming aware of the allegations being made against her. “Defendants who plan to dissipate their assets do not purchase new properties within the jurisdiction of the court after they have become aware of the allegations,” the ruling added.
The Deputy Judge also noted that a mareva injunction involves interference with the right of businessmen or corporate entities to deal with their personal or business assets as well carrying a reputational stigma.
In this case, the draft order shows the liquidator had sought from the defendants' disclosure of information on terms that are “draconian and oppressive”, the ruling states. The draft order required the defendants to disclose in writing every asset of an individual value of HKD 50,000 or more in Hong Kong, including its value, location and other details, and for these disclosures also to be made at “lightning speed” of 48 hours and confirmed in an affidavit within seven days.
“This should be contrasted with the leisurely pace the plaintiffs have taken in seeking relief,” the ruling added.
In addition, the draft order was designed to require each of the defendants to alter in a major way their standard, and way of living with individual defendants restricted to "conspicuously" low spending limits of HKD 20,000 per week on ordinary living expenses, the ruling noted.
Senior counsel Laurence Li and Byron Chiu of Temple Chambers acting on instructions from Kobre & Kim represented the liquidator and other plaintiffs Pacific Andes Enterprises (BVI) Ltd (PAE), Parkmond Group Ltd, Europaco Ltd and Richtown Development Ltd and Solar Fish Trading Ltd.
Senior Counsel Wayne Walsh and Natalie So of Parkside Chambers, acting on instructions from Robertsons represented Ng Joo Siang, Ng Joo Puay, Frank Ng Puay Yee (Annie) and Ng Joo Thieng.
James Wood and Jasper Wong of Denis Chang’s Chambers, instructed by Lipman Karas, acted for Ng Joo Chuan and the remaining defendants.
The case number is HCA 688/2019.
by Vinu Pilakkot