ASIC knew, and did nothing

ASIC have known since at least 31 January 2020 that Sargon’s Q4 2019 interest owing to China Taiping was fully paid, yet in the 18 months since, do not appear to have taken any action which might put things right and stop this from happening again.

On the afternoon of 10 August 2021, Tim Wilson MP presented documents to Parliament that he stated “appear to indicate that there has been a deliberate campaign to trigger the receivership of Sargon by China Taiping.” I’m yet to see the documents Mr Wilson MP has tabled myself however Anthony Galloway of Fairfax has reported on the proceedings in the Sydney Morning Herald and the Age (as has the courageous independent news site, Mirage News).

As I told Mr Galloway when he sought my comment on Mr Wilson MP’s speech, I can’t comment on documents that may potentially be relevant to active litigation or investigations. However, readers of my website will probably not be surprised by the allegations contained in Mr Galloway’s article. Despite Ashurst and China Taiping’s best attempts to cover it up, it’s always been obvious that Sargon paid up interest on the Promissory Note in December 2019. Myself and other directors and officers of Sargon have been consistent about this all along, including to employees, administrators, investors, clients and regulators such as ASIC and APRA. Yet, nobody seemed to care, given how expertly China Taiping’s pawns have steered the public narrative.

Now that Parliament appears to be exploring this inconvenient truth, both China Taiping and Ashurst have been resoundingly silent. 

To try to save face publicly, they’ve trotted out Shaun Fraser of McGrathNicol. Speaking to the Sydney Morning Herald, he’s provided the following statement for publication:

Receiver Shaun Fraser, from Mcgrath Nicol, said the appointment of receivers was the “only available option to the lender after efforts to engage with Sargon on the payment defaults and the issuing of formal demands by the lender’s lawyers proved fruitless”.

“Throughout this time Sargon was unable to clarify how it would resolve the default,” he said.

“It is important to understand that Taiping Trustees was fully entitled under its loan facility and related security agreements to appoint Receivers for the purpose of preserving its own position and pursuing the recovery of funds.”

China state-owned lender firm named in Parliament for deliberately bankrupting Australian company, Sydney Morning Herald (10 August 2021)

Let’s break this down. 

[…] the appointment of receivers was the “only available option to the lender after efforts to engage with Sargon on the payment defaults” 

It’s not clear to me if Mr Fraser read Mr Galloway’s article before providing comment for it, and it’s even less clear to me what “payment defaults” he’s talking about given the fact that promissory note interest was paid up well in advance of his appointment.

It’s true that the interest payment for Q3 was delayed – this followed disclosure from China Taiping that they ‘may have’ syndicated or onsold the underlying promissory note exposure (through the Taiping Securities Fund) to one or more third parties, and failure by China Taiping to formally confirm or deny this and disclose who (if anyone) these new beneficiaries were despite repeated requests from Sargon and Trimantium. Ultimately, once Ashurst volunteered the use of their trust account to mitigate Sargon’s sanctions concerns, Q3 interest was paid along with Q4 into that trust account on 11 December 2019 (i.e. within days of Ashurst offering this solution, and well before Q4 was due on 6 January 2020).

Also, I’m not clear what “efforts to engage” he’s talking about. China Taiping appointed one of its officers, Andy Wang, as a director of Sargon in May 2018 and he continued to be an active board participant (and authorised officer of China Taiping) through to the date of Ashurst’s demands and the receivership itself. I always knew Mr Wang to be a highly educated, ethical, judicious, and competent director. Mr Wang had full access to and great relationships with Sargon’s directors, management, auditors, accountants, etc in the period leading up to receivership and if there were genuine problems in the China Taiping and Sargon relationship, his bilingual and incisive mind could have resolved them quickly. Why not use him?

To say that receivership was “the only available option” is categorically false. It is possible he was misquoted saying “the only available option [to generate fees for McGrathNicol]”.

and the issuing of formal demands by the lender’s lawyers proved fruitless”

This is even more bizarre. Firstly, no formal demands were made – the security documents between China Taiping and Sargon included clear notice provisions for all formal demands and notices, none of which were complied with by Ashurst.

Secondly – again – the demand purportedly made of Sargon on 20 January (immediately preceding McGrathNicol’s appointment), alleging that Q4 interest was unpaid and demanding immediate repayment of this allegedly unpaid amount plus the HK$500m principal (which was not due for at least another year) as a result of this ‘default’, was nonsensical once you consider the fact that the interest was already paid. The demand was wrong at best, and misleading and deceptive or outright fraudulent at worst.

For another example of Ashurst’s idea of ‘formal’ correspondence, see the attached where James Marshall responded to correspondence to China Taiping in Hong Kong by a Hong Kong law firm representing various Hong Kong entities regarding claims those Hong Kong companies are exploring against China Taiping and Ashurst LLP, where he invites them to request that I put forward a “repayment plan” more than a year after they blew everything up. Note that the law firm in question wasn’t acting for me personally at all (though they did have the courtesy to pass Mr Marshall’s correspondence along). Instead, Ashurst is trying to create evidence that I should personally underwrite HK$1,153,000,000.00 of their client’s foreign expansion costs and non-recourse corporate loans.

“Throughout this time Sargon was unable to clarify how it would resolve the default,” 

Quite right – Sargon had no idea how to pay an interest bill that had already been paid. Sargon was unable to clarify or even comprehend how Ashurst continued to demand interest payments that it had already received on behalf of its client – particularly when that was just one of many substantive errors in Ashurst’s correspondence. 

When I tried to speak to those instructing Ashurst directly to establish better communication and get to the bottom of things after Ashurst’s first demand in early December, I was told by Ashurst in no uncertain terms not to contact their client again. When I wrote to lead Ashurst partner James Marshall (Award Winner) following this, I received no response or acknowledgement. Yet McGrathNicol have said previously (and continue to imply) that Sargon and/or myself were at fault for the ‘lack of communication’ when Ashurst said to not speak to their client directly and Ashurst ignored substantive communication.

“It is important to understand that Taiping Trustees was fully entitled under its loan facility and related security agreements to appoint Receivers for the purpose of preserving its own position and pursuing the recovery of funds.”

This is an interesting one – to my knowledge, Mr Fraser isn’t a lawyer and has never received any legal training, so it’s bold of him to put forward a position as to China Taiping’s contractual rights. At the very least, he’s revealing that this role was more than just a receiver/agent (for which he’s likely indemnified), but also as an adviser (for which he’s probably not).

To date, I’ve assumed that McGrathNicol were duped in all this – Mr Fraser told me on the evening of his appointment that he “hadn’t had a chance to get [his] feet under the table yet”, that he wasn’t aware of the situation leading up to his appointment, and that he viewed his appointment as an “information-gathering exercise”. I figured that McGrathNicol were just going off of what Ashurst and China Taiping had told them, and didn’t have any first-hand involvement prior to their appointment.

However, now Mr Fraser is making assertions as to China Taiping’s rights (on the implicit – and untrue – assumption that “payment defaults” subsisted). He’s also said the appointment of receivers was the “only available option to the lender” – how could he possibly come to this view unless he was intimately involved in advising China Taiping prior to his appointment? One has to wonder at the conflicts involved in advising somebody that their “only available option” was to hire you to execute this “solution”. 

Summing up

All in all, Mr Fraser’s comments just don’t make sense. He continues to insist China Taiping was in the right, seeking to remedy “defaults”, but doesn’t even engage with the reality that the Promissory Note wasn’t in default. It’s not clear if he’s just unwilling to consider that his client (and possibly his deal pipeline friends at Ashurst) lied to him (and he was too naïve to check), or if he’s in too deep to get out now – particularly given he’s previously been China Taiping and Ashurst’s mouthpiece in their failed Mareva injunction (and also to Sargon’s liquidators, Wexted Advisors, and regulators such as ASIC and APRA).

Ashurst seem to be in a rather similar position themselves – unwilling to comment publicly, but still doing their utmost to reputation-manage behind the scenes through threats of legal action and whatever other means are available to them. Assuming they weren’t previously aware that their client lied about the Q4 interest default, you have to wonder why they haven’t walked away by now – particularly given that word on the street is that they’re struggling to get their invoices paid (after running up millions in legal fees for negative net recovery, you can’t really blame China Taiping). 

Ordinarily, a liquidator would have investigated both Ashurst and McGrathNicol’s conduct long ago. Conveniently for them, they got to pick and choose Sargon’s liquidators, appointing Joseph Hayes and Andrew McCabe of Wexted Advisors. As McGrathNicol had already stripped the Sargon cash their appointment managed to secure, Wexted relied upon a miserly $50,000 indemnity from China Taiping for their costs of administration – that’s barely enough to properly liquidate a corner store, and you’d expect insolvency practitioners to know a thing or to about adequacy of funding. The starving of funding is a great way to guarantee no resources are available to investigate the malpractice of the receivers.

A quick dip into Wexted’s conflicts declaration (or ‘DIRRI’) discloses that they’ve got longstanding commercial relationships (i.e. referral co-existence arrangements) with both Ashurst and McGrathNicol, and both Mr McCabe and Mr Hayes were former McGrathNicol employees (in fact, as of their appointment, both had worked at Wexted for far less time than they’d previously spent at McGrathNicol).

ASIC knew, and did nothing

You have to wonder where ASIC is in all this – after all, they’re meant to regulate the conduct of insolvency practitioners as well as financial services businesses and companies more generally. ASIC was told on 31 January 2020 and 3 February 2020 by myself and other directors and officers of Sargon that Q4 interest was paid, yet decided Sargon’s board and management couldn’t be trusted on the basis of Ashurst’s fraudulent demands and McGrathNicol sharing China Taiping’s ‘concerns’ through back channels. 

What kind of world do we live in where ASIC ignores direct, unanimous and contemporaneous evidence from 6 Australian citizens – our CEO, CFO, COO, CRO, General Counsel and a high profile Non-Executive Director in favour of a foreign power and their local rent-seeking enablers?

Concerningly, probably the only organisation with the power to actually stop this at the time sat back and let a Chinese SOE destroy an Australian-grown company, based on nothing but McGrathNicol’s word. Coincidentally, ASIC’s ‘Senior Executive Leader’ in charge of its oversight of insolvency practitioners, Thea Eszenyi, was at McGrathNicol for over a decade immediately prior to her appointment to ASIC making her a longstanding colleague of Mr Fraser, Mr Preston, Mr Hayes, and Mr McCabe.

Nearly 18 months has passed since ASIC learned of the needless destruction of Australian investors’ money on a fact pattern that was dubious and inconsistent at best and ASIC has not even levied a single utterance of a question at Sargon’s officers to try to ascertain what happened, how it could have been avoided, whether the receivers acted lawfully or otherwise.

The question for ASIC now – particularly given Parliament seems to have taken note – is whether they’ll come clean and do their jobs, or keep trying to cover up on behalf of their old colleagues.