Ashurst #CashFurst

There’s nothing that “top tier” law firms like more than the snarky wordplay on their names established and cemented into the parlance of bored law students around exam time, clerkship and grad season.

Since my last reflection piece on the Sargon Saga, Ashurst’s limp attack dogs have had the cunning tech savvy to successfully fill in my blog’s contact form asking me to take down my article(s) on the basis of defamation of the reputations of the people who destroyed my company and cited malice as my primary intent. The contact form submission is marked as “NOT FOR PUBLICATION” so I will not publish it (for now), notwithstanding I owe them no such obligation and they have not offered me any such courtesy when they abused the public examinations process, by all accounts and certainly in my opinion, by asking countless questions that had nothing to do with Sargon’s examinable affairs. There is nothing of substance in the submission anyway other than bare denials and quoting their own prior erroneous/incomplete work as “evidence”, never actually engaging on objective evidence and pesky facts.

In any event, an eye-for-an-eye and the world would be blind – so I will take the high-road and not publish. FYI, by arguing malice, they are trying to remove defences available to me such as honest opinion. The problem is, my primary intent is patently not malice, it is telling my side of the story, in totality, over a series of blog posts on my personal website. I highly doubt that a “top tier” law firm’s partners’ reputation could be impacted by a lowly layman blogger like myself, unless of course what I’m saying is true, then the defamation crusade is unlikely to be successful. It is clear that the primary motivation of any defamation campaign against me would be to deplete my financial resources as it was the assumed intent with the spectacularly failed Mareva injunction where the intention was clearly not to put forward a coherent case but instead to burn my cash. Unless Ashurst was, in fact, trying to put forward a coherent case, in which case they have bigger existential problems than my blog posts.

Excitingly, Ashurst also advised me of a new client conflict in the process, now Ashurst is acting for Mr James Marshall and Mr David Greenberg, the masterminds of the flawless recovery of funds on behalf of Taiping Trustees Limited. So now Ashurst needs to juggle legal professional privilege in addition to its plethora of client-client and client-firm poorly or not managed conflicts. I’m no top tier lawyer myself, but I struggle to see how Ashurst’s conflict epicentre Sydney office can act for two Sydney partners in their personal capacity at the same time as a large client (Taiping) against the same opponent, little old me – a Ginger Visionary, particularly in a campaign where much of the legal contention sits on the alleged conduct of the “defamed” partners themselves. How do they intend to rank their internal partners’ spoils of war vs. their client’s rights in the unlikely event of a victory? How do they deal with the systemic problem that their partners’ arguments will turn on client communications and instructions, or lack thereof, which is kind of what privilege is all about? No doubt they’ll just advise Taiping that the conflict is manageable (lol) and to waive privilege! That would be next level conflict stuff, out of my legal ethics pay-grade and into the stuff that legal ethics professors’ dreams are made of.

To the law students of future legal ethics subjects at university, I’m sorry you have to read all this rubbish, but this is unprecedented.

This blog post, which does not have the primary intent of malice, is intended to establish two positions:

  1. No interest was owing by Sargon or Trimantium Taiping Investment Management at the time that receivers were appointed by Ashurst unless Ashurst misdirected transit money.
  2. Taiping Trustee Limited’s poor record keeping and staff turnover, and Ashurst’s lack of attention to detail were the key points of failure as to why more prudent options were ignored/never considered in favour of the blunt and ineffective weapon of receivership.

If Ashurst had read the investment documentation and emails with the same attention as they read my blog posts, or undertook the path they represented to me in December 2019 of appointing an independent investigating accountant to get to the bottom of the whole structure for their and their client’s educational benefit, then their client would by now likely be in funds exceeding A$200 million and Ashurst wouldn’t be dealing with an annoying blogger impugning their otherwise stellar reputation.

More on the investment structure

Trimantium Taiping Investment Management was set up in early 2018 as an investment management partnership between Trimantium Capital and China Taiping, and launched its first fund, the Trimantium Taiping Investment Fund I, with China Taiping’s subsidiary, Taiping Trustees Limited, as its primary investor and beneficiary, providing HKD 500,000,000 in seed capital. 

For tax, FIRB, and other reasons, China Taiping advanced the funds via a Promissory Note to the Trimantium Taiping Investment Fund I, secured over the fund’s investments. They specifically selected Taiping Trustees Limited as their investment vehicle as it was a trustee company capable of syndicating exposure to promissory notes across other funds and investors within the China Taiping group. China Taiping’s Overseas Investments Division had to approve all investments (and appointed Australian lawyers to review and negotiate the various contracts implementing said investments on behalf of China Taiping).

By January 2020, the Trimantium Taiping Investment Fund I held the following investments:

  • A$50,000,000 invested into 333,334 Seed Preference Shares in Sargon Capital Pty Ltd via Trimantium Sargon Investment Trust;
  • A$10,000,000 invested in 100,000 Class A Preference Shares in Sargon Capital Pty Ltd via China Silk Road Fund; and
  • A$10,400,000 invested in secured debt in Sargon Capital Pty Ltd (behind circa. A$30,000,000 of senior secured debt from Westpac in Sargon’s operating subsidiaries). 

When this investment was negotiated and implemented, the parties never conceived of it as a simple loan agreement – the promissory note was simply the mechanism to inject the funds that most suited China Taiping’s needs. Their legal counsel at the time probably spent more time reviewing the share purchase agreement for the 333,334 Seed Preference Shares than they did on the initial Promissory Note itself. 

In fact, here’s how Taiping Trustees characterised their investment to their fund auditor, PwC Hong Kong, in early 2019. This characterisation was consistent with the combination of oral and written agreements so there was no reason for me make any substantive adjustments to the audit confirmation (authored by Taiping Trustees Limited):

Excerpt from PwC Audit Confirmation in 2019 of the Promissory Note investment that agreed with China Taiping’s internal records.

Taiping Trustees’ principal investment holding was the Trimantium Taiping Investment Fund I, and the written terms of the Promissory Note notwithstanding the investment was always understood to be principally a seed equity investment through this venture fund, with a high probability of renewal or conversion into direct holdings over time. Sargon was a guarantor, not a borrower.

Note in particular how they indicated on this document that there were no strict interest and repayment terms. I had always understood this to be the commercial position on the investment until Ashurst got involved. I corrected the issuer name from ‘Sargon’ to Trimantium Taiping Investment Management Pty Ltd and signed and forwarded confirmation to their fund auditor as requested (to go with their own investment declaration under their corporate seal). Ashurst put Sargon into receivership for “unpaid interest” on an arrangement that PwC confirmed in their audit had “no scheduled repayment terms” and “no specific interest terms”. Whoops. Oh, and there was no unpaid interest – read on.

As the primary unitholder and sole lender, China Taiping had the power to replace Trimantium Taiping Investment Management as trustee of the fund with a nominee of its choice to better secure the assets. It also possessed the ability (through upstream trust structures and share pledges supported by self-executing contracts) to simply take direct ownership of Trimantium Taiping Investment Management and/or replace its board. 

Further, not only did Taiping Trustees hold share pledges supported by self-executing transfers in relation to the Trimantium Taiping Investment Fund I’s equity holdings in Sargon, Sargon actually amended its constitution to enable this security feature. Yes – China Taiping was savvy back in 2018 and negotiated a constitutional change to Sargon’s constituent documents to enable pledged shares to be smoothly exchanged in the event of default and removed the ability for the board to block the registration of the transfer provided a legitimate event of default occurred. So either Ashurst didn’t read the contracts in the first place, or didn’t believe that an event of default occurred. I suspect both might be true. 

Constitution before China Taiping’s investment:

Clause 21: Registration of Transfers

(a) Unless all of the shareholders otherwise agree in writing, the Board may not register the transfer of any share unless the transfer complies with rule 20 and is permitted under any written agreement between all of the shareholders.

(b) The Board may require the transferor or the person named as transferee in any transfer lodged for registration to furnish the company with any information the Board may think necessary for the purpose of ensuring that a transfer of shares is permitted under this Constitution or any written agreement between all of the shareholders. If that information is not furnished to the satisfaction of the Board within a period of 28 days after that request the Board may refuse to register the transfer in question.

Constitution after China Taiping’s investment:

Clause 21: Registration of Transfers

(a) Unless all of the shareholders otherwise agree in writing, the Board may not register the transfer of any share unless the transfer complies with rule 20 and is permitted under any written agreement between all of the shareholders.

(b) The Board may require the transferor or the person named as transferee in any transfer lodged for registration to furnish the company with any information the Board may think necessary for the purpose of ensuring that a transfer of shares is permitted under this Constitution or any written agreement between all of the shareholders. If that information is not furnished to the satisfaction of the Board within a period of 28 days after that request the Board may refuse to register the transfer in question.

(c) Notwithstanding any other provision of this Constitution, the Directors may not refuse to register, or suspend or delay the registration of, a transfer of shares made pursuant to a valid exercise of an enforcement power under a mortgage of or charge over the shares the subject of the transfer, and in any such case, the Directors must register the transferee as a shareholder. The Directors may rely on receipt of such transfer as conclusive notice that the mortgage or charge has become enforceable.

Each of these options were agreed and documented contractual rights of Ashurst’s client China Taiping, and using them in January 2020 would have delivered a substantial return to China Taiping as they would not have had such a destructive impact on Sargon’s business and reputation. China Taiping could take possession of (at China Taiping’s own valuation) around A$250 million of stock owned indirectly and/or pledged to them and a path to control of Sargon. All while spending probably a fiftieth of the legal fees with Ashurst.

As part of this heavily negotiated arrangement, Sargon Capital was only a guarantor of the Promissory Note. China Taiping ostensibly appointed receivers on the basis of this guarantee (and associated security). Why Ashurst advised them to do so, as opposed to the plethora of alternative options which would have seen their client recover all of their investment exposure (equity and debt) is still a mystery to me.

The outcome, however, is painfully clear – Ashurst’s “plan” did not work at all unless their plan was to destroy Sargon and provide their client with the weakest prospects of recovery (particularly net of legal fees).

To cap it all off, China Taiping also held another A$28,500,000 of equity exposure in Sargon Capital via a holding of an additional 171,000 Seed Preference Shares funded through another separate financing structure between Trimantium and China Taiping – also destroyed instantly by Ashurst’s appointment of receivers. I wish I was making this up – the destruction of so much money and 7 years of my and hundreds of other people’s work is impossible to digest, all so Ashurst could bill a few million of extra fees. Sargon (as a fast growing Ashurst client themselves) could have given Ashurst more work if James Marshall needed to meet his billing targets that badly.

I would love to see the email where Ashurst set out their reasoning for a strategy that would destroy the balance sheet of the actual borrower, Trimantium Taiping Investment Management (their client’s own investment vehicle) by appointing receivers over the guarantor – particularly when their clients’ investment exposure to the guarantor was 90% equity to 10% debt. 

But what about the interest?

After Ashurst appointed receivers over Sargon Capital Pty Ltd, they said that interest was owing on the Promissory Notes between it, Trimantium Taiping Investment Management Pty Ltd and Taiping Trustees Limited. This is not mathematically possible on proper accounting. 

As I have stated previously, it can only be true if Ashurst applied funds paid into their trust account for some other purpose, or on account of another client (that Sargon did not have any obligations towards). 

As canvassed above, Sargon shared payment obligations under the Promissory Note with Taiping Trustees with Trimantium Taiping Investment Management. When Sargon paid up interest on the Promissory Note (via Ashurst’s trust account) in December 2019, it did so to discharge these payment obligations. If this had been properly implemented by Ashurst, then they would have understood that this payment covered both Q3 and Q4 2019 interest (and in fact was paid up, in line with the interest calculations Taiping Trustees had provided in writing in November 2019, until the end of January 2020). On proper trust accounting, no interest was outstanding when receivers were appointed, and the next interest payment would have fallen due at the end of March 2020. 

Why was Ashurst’s trust account used?

In late September 2019, a representative of China Taiping told me that Taiping Trustees had sold their Promissory Note exposure in Sargon to a foreign government (they intimated it was a foreign state that cannot easily do direct financial services deals due to their sanctions list status in many countries). As mentioned previously, China Taiping had insisted on a promissory note structure through Taiping Trustees as it was a trustee vehicle and was able to syndicate promissory note exposure more broadly throughout China Taiping. They warranted at the time that they would only be syndicating the exposure within their own corporate group, which was considered acceptable given the broader relationship between Sargon, Trimantium, and China Taiping.

This new information was therefore rather concerning, and prompted me to seek advice on any KYC obligations this gave rise to. One of Sargon’s most trusted external corporate lawyers advised that, while the AML rules don’t explicitly regulate interest payments, sanctions laws are broader, and best practice as a fiduciary company would be to confirm who the new beneficiaries of your payments are. This being completely common sense and best practice, I attempted to do so.

Before making the September quarter interest payment, I asked Taiping in writing to tell me 1) if they had, in fact, sold the exposure in Sargon and 2) to whom. They refused to answer either question after multiple attempts. This was concerning. It should have been a simple answer. The fact that they refused to answer (and still to this day have not confirmed either way) is alarming. 

Taiping got Ashurst involved when Sargon refused to authorise the payment on behalf of Sargon without knowing who the ultimate beneficiary of the payment was and I asked Ashurst if they had done KYC/AML and sanctions (DFAT) checks and if they were able to provide responses to my queries on behalf of their client and they said: 

We are not aware of any sanctions law in Australia relevant to the lending of money which would prevent you from paying our clients. KYC applies to customers of a bank and not to the lenders who have lent the money to those customers.” Ashurst

This is a concerning response for so many reasons. Firstly, it continued the trend of staunchly refusing to answer the question of whether the exposure had been externally syndicated (in breach of Taiping’s representations in negotiating for the facility to be a promissory note, and potentially in breach of sanctions laws). Secondly, it served as one of many demonstrations of Ashurst’s lack of understanding of the investment structure: as I’ve previously outlined, Taiping Trustees was nothing like a bank, and the structure of their investment was nothing like a bank loan.

Ultimately, Ashurst offered the use of their trust account to keep the peace. I was happy with this solution as all of the DFAT/AUSTRAC risk fell to them and meant Sargon could release the funds (which were – all along – ready for payment and promptly paid).

I later found out from the General Counsel of Ashurst, Angela Pearson, that they had not in fact done any due diligence on the underlying beneficiaries of Taiping Trustees’ investment in the Trimantium Taiping Investment Fund I (and its investment exposure to Sargon Capital). 

My question in February 2020:

“Despite a number of attempts by me to have information about the ultimate beneficiary provided to me, both your client, and subsequently your colleagues have repeatedly ignored those requests. 

I understand that Ashurst established a trust account to hold monies in your client’s favour (into which we were instructed to make interest payments and did so), and so I expect that appropriate KYC/AML checks have been conducted by your firm, but it is a matter I would like to raise with you nonetheless, given the risks involved.

We understand that your client has syndicated or on-sold at least a proportion of their debt exposure in the months leading up to this issue [receivership], and despite efforts by us to be provided with information about the ultimate beneficial owners we are dealing with, we are still unaware of those third parties’ identities. Our concerns have been heightened by the repeated refusal of a number of parties, including Ashurst, to acknowledge the request or provide the requested information (or indeed to refuse to do so).“

Angela Pearson’s response in February 2020:

“Our client is owned by China Taiping Insurance Holdings Co (100% direct ownership) which is itself listed on the Hong Kong Stock Exchange. It is 60% Chinese State owned through the China State Owned Assets Supervision Administration Commission. The remaining 40% is held generally by the public.”

Nothing else needs to be said about how inadequate this response is. Who owns the trustee company Taiping Trustees Limited was not and is not my concern – I want to know who Taiping Trustees may be acting as trustee for. Did the beneficiaries change or not in 2019? Why can’t you answer this basic question? Did you even realise that your client’s investment was designed to be syndicated? 

As a couple of months had passed until this (interim) workaround was achieved, Taiping asked if Sargon and Trimantium Taiping Investment Management could pay the next quarter’s interest at the same time as well as up to the end of the proposed early termination period (agreed to be 31 January 2020 in early November 2019). Given it was already December and they indicated that they would waive any penalty interest for the Q3 payment, this was agreed to and paid in one payment – both the outstanding September 30th payment (which had been held pending an acceptable solution to the lack of beneficiary disclosure) and (in advance) the December 31st and January 31st payments as set out in the Early Termination Agreement. This amount was $4.4 million AUD. 

This was the relevant section (verbatim) from the Early Termination Agreement sent to me on 5 November 2019 that outlined the interest payment (in its composition) for the Q3 (July to September) and Q4 (October to December) payment as well as up to 31st January 2020:

Total Outstanding Interest: HKD$ 23,561,643.84 (Form 2019.7.1 to 2020.1.31)

Breakdown as shown below:

  1. HKD$ 10,082,191.78 (Form 2019.7.1 to 2019.9.30)
  2. HKD$ 10,082,191.78 (Form 2019.10.1 to 2019.12.31)
  3. HKD$ 3,397,260.27 (Form 2020.1.1 to 2020.1.31) (Pro-rata basis, indicative on actual)

At the time, HKD 23,561,643.84 was approx A$4.4 million. 

What happened to the $4.4 million?

The short answer is that I can’t be sure. Reviewing emails, Ashurst’s next correspondence was on 19 December, addressed to me personally, alleging that I had ‘failed to pay interest payments due in full’. They did not address this letter to any of the borrowers under the Promissory Note facility and did not specify which of their clients alleged nonpayment. Taiping Trustees had been paid up by Sargon the previous week; however, Ashurst was simultaneously acting (in yet another overlapping appointment) for a related party of Taiping Trustees in a separate financing agreement that they allege I am personally liable for. That agreement is currently subject to legal action, so I can’t say much other than to confirm I dispute liability and that no interest was outstanding – however, it’s the only facility under which their clients allege I had personal payment obligations like those Ashurst appeared to be referring to in this 19 December letter.

After ignoring my written response, they then sent further letters purporting to be demands in late January, alleging that both the Promissory Note and this separate facility were in default. They did not specify in these letters how they came to such a conclusion, but merely asserted ‘payment was not made in full’. They also did not follow the proper procedure for the service of notices and demands under the various finance and security agreements (or under the Corporations Act). Nearly simultaneously (within half an hour), a representative of their clients (who, you’ll recall, Ashurst told me not to speak directly to), also sent me (unprompted and without any context or covering letter) standstill agreements in relation to the alleged defaults. A separate representative of their clients also advised me that Ashurst’s letters were formalities for ‘audit trail’ purposes and that China Taiping supported Sargon’s ongoing capital raising efforts. Before I had a chance to sift through these volumes of confused and contradictory information (I was on leave, as I suspect was Mr Marshall and possibly also many of their client’s key people – they rushed this through in the midst of both Australia Day and Chinese New Year), intermingling and conflating various different parties and finance facilities, and my attempts to clarify their actual position(s) in relation to each facility, Ashurst advised the appointment of receivers over the obligors of the Promissory Note. 

In fact, at no stage up to the date of this blog post (13 April 2021) have Ashurst or China Taiping stated an open position as to how the alleged outstanding interest was calculated – and as a result, the best conclusion Sargon’s liquidators could come to regarding the payment was as follows:

We understand the A$4.4M payment may have included: 

o Interest on the Corporate Loan, HKD$500M Secured Promissory Note with TIM and [Sargon], which [Sargon] guaranteed; and
o Interest on the Personal Loan, HKD$653M Loan Agreement with Mr Kingston and other related parties.

(Wexted Advisors, Sargon Capital Statutory Report by Liquidator, 22 May 2020, page 13

As such, it looks like Ashurst ‘may have’ applied part of the A$4.4m towards this other finance facility on behalf of their other client (the web of appointments strikes again). 

Sargon never had any payment obligations under what Wexted referred to as the ‘Personal Loan’. Equally inaccurate (at least as far as China Taiping’s audited records by PwC are concerned) is the statement that there was a “Corporate Loan” between Taiping Trustees and Sargon of HKD500M. The “Personal Loan” was an institutional facility which had many corporate parties, including Trimantium Taiping Investment Management, but Sargon was not one of them, and there was no way Sargon funds (generated from the operating profit of its subsidiaries) could be directed towards a facility it was not a party to and had no obligations under. I certainly did not provide Ashurst with instructions to this effect when authorising the payment. If Wexted were able to establish that (potentially millions of dollars of) Sargon funds intended to discharge Sargon’s interest payment obligations as guarantor were instead redirected to a different offshore company that Sargon owed no money to, such a transaction would clearly be for an improper purpose and would likely be a recoverable transaction in liquidation. It would be untenable for Wexted to form this conclusion as it would result in ~A$2.2 million being clawed-back from China Taiping for the potential benefit of other genuine creditors, as China Taiping were paying Wexted’s invoices (via McGrathNicol). One does not bite the hand that feeds you. Hence, Wexted both as a matter of verifiable fact and commercial “practicality” are required to confirm that the A$4.4 million advanced by Sargon should have been applied by Ashurst only to the Promissory Notes and for no other purpose. Hence, no interest owing and no proper basis for receivership.

During the December 2019 period (and arguably continuing to this day), Ashurst’s Sydney practice was very confused about the various financing structures, in part because they were governed by a combination of agreements, some in English, some in Chinese, some in Australian law, some in Hong Kong law, in part because they were genuinely complex arrangements that had been amended a number of times, and in part because of a general lack of attention to detail.

Effectively, in mixing up clients and matters, it appears Ashurst ‘may have’ (inadvertently or otherwise) misdirected transit money. As a consequence of doing so, it appears they advised Taiping Trustees that the Promissory Note facility remained in default, and further advised them to trigger a ‘bring-forward’ clause on that basis and demand repayment of the full HKD$500,000,000 over a year before it would ordinarily fall due – and then advised them to appoint receivers over both the issuer (Trimantium Taiping Investment Management) and the guarantor (Sargon) on this basis while Sargon was in the middle of a private equity raise that was expected to enable early redemption of China Taiping’s investments within three months (which China Taiping was aware of from 10 January 2020).

Was any money owing to Taiping Trustees Limited by Sargon on the date of receivership appointment?

No. The sum total of interest payments made up to and including the $4.4 million payment in December 2019 meant that, even with the worst possible FX consequences after the payment was made in December 2019 until 31 January 2020 (AUD-HKD), no interest was capable of being outstanding by Trimantium Taiping Investment Management Pty Ltd (or Sargon Capital Pty Ltd) under the Promissory Note facility on 29 January 2020.