Category: Sargon

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 The contact form submission is marked as “NOT FOR PUBLICATION” so I will not publish it (for now), notwithstanding I owe them no such obligation and they have not offered me any such courtesy when they abused the public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):

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 https://www.wexted.com/wp-content/uploads/2020/03/SAR11-200522-Statutory-Report-WXA.pdf)

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. 

As a follow-up to this popular post on Ashurst’s conduct around the receivership appointment over Sargon Capital Pty Ltd, I bring the Australian business community’s attention to issues around conflict management and how breaches of client confidentiality by Ashurst might have coloured advice given by Ashurst to China Taiping which led to Sargon’s unnecessary demise. My next post will be on Ashurst’s handling of Sargon’s transit money and likely breach of fiduciary duty. For the eager students, you can get some background in the LEGAL PROFESSION UNIFORM LAW (NSW) – SECT 140.

Let’s start with the solution:

They are seemingly struggling to hire for this role going back to at least June 2020 and it is becoming extremely urgent I can tell you. I commend Ashurst – better late than never – but have a few comments on spelling, perhaps it is the spelling issues which are causing your Sydney-office conflicts team to miss direct conflicts?

We are keen to speak to any candidates with Senior Adviosry (sic) Conflicts and Ethics experience within a legal setting who would be interested in reclocating (sic) form (sic) the UK to Sydney.

https://www.professionalsinlaw.com/job/37767/senior-conflicts-advisor-sydney-/

In the 12 months prior to appointing receivers over Sargon, Ashurst’s Sydney office acted routinely for and around Sargon and her allies. Typically, Ashurst would act on matters relating to financing, capital structure, note issuances and our client’s debt situations in Sargon’s Corporate Trust business. It’s a complex web of appointments, but at a high level this is what was going on:

I have kept innocent parties’ names out of this post. The anonymous names (2 JLMs, The Global Bank and The Institutional Investor) are all large credible global businesses and I’m happy to share them should it become relevant.

Twenty Nineteen (2019)

What you see below is an invoice to a wholly-owned subsidiary of Sargon Capital Pty Ltd, fairly obviously associated with Sargon, called Sargon CT Pty Ltd being invoiced by partner Tony Ryan from Ashurst’s Sydney office. Tony Ryan styles himself as being a Partner in the Restructuring, Special Situations and Insolvency team. This may look familiar as it is the same team and office as Mr James Marshall, the Ashurst partner who appointed receivers over Sargon.

There are heaps of these Ashurst invoices to Sargon over 2019, this one was particularly poorly timed for them as it appears to be quite a bit after they were acting for China Taiping (in the exact same team and same office without disclosing the conflict).

In fact, the following Ashurst people were involved in the above Sargon-aligned appointments (ex. China Taiping) over 2019 and were provided confidential information regarding Sargon in that capacity (these are the ones known to me through invoices and correspondence with Ashurst at the time; there were likely more involved in the background):

• James Marshall – Partner, Restructuring, Insolvency and Special Situations, Sydney
• Tony Ryan – Partner, Restructuring, Insolvency and Special Situations, Sydney
• Kyle McLachlan – Law Graduate, Restructuring, Insolvency and Special Situations, Sydney
• Jamie Ng – Global Head of the Finance, Funds and Restructuring division
• Lisa Simmons – Partner, Corporate Practice, Sydney
• Rehana Box – Partner, Corporate Practice, Sydney
• Sarah Dulhunty – Partner, Corporate Practice, Sydney
• Con Tzerefos – Partner, Corporate Practice, Melbourne
• Jared Lynch – Senior Associate, Corporate Practice, Melbourne
• Kevin Lu – Senior Associate, Corporate Practice, Sydney
• Megan Fung – Lawyer, Corporate Practice, Sydney
• Steve Smith – Partner, Banking and Finance, Sydney
• Jack O’Shea – Partner, Banking and Finance, Sydney
• Elly Ko – Senior Associate, Banking and Finance, Sydney
• Timon Ibrahim – Senior Associate, Banking and Finance, Sydney
• Alice Au – Associate, Banking and Finance, Sydney

From May to July 2019, Ashurst’s acted for Trimantium Insurance Partners Pty Ltd (Trimantium Insurance), related to Trimantium Capital Funds Management Pty Ltd and (indirectly) to Sargon and China Taiping by beneficial interest. The appointment was in relation to a prospective insurance venture which was in partnership with Sargon and Taiping (all of which Ashurst should have been aware).

In March 2020, shortly after the receivership appointment, Ashurst’s finance team followed up Trimantium Insurance in relation to an outstanding invoice (which was sent to Sargon’s office address) in respect of the insurance matter. The individuals acting on the matter included Rehana Box, Lisa Simmons, Con Tzerefos and Jared Lynch. This (small) invoice was missed due to an administrative oversight but Ashurst hadn’t followed up (presumably) because it was a very small balance for a strategic group client. I thought it was amusing how bad Ashurst’s conflict systems must be – this email said “Hope this email finds you well today and out of harm’s way”. No, I was not out of your firm’s harm’s way.

Trimantium and Sargon are not common names so you’d expect the conflict processes would notice them pretty quickly. Alas.

From January 2019, Ashurst’s Sydney office was engaged to act for the investment bank syndicate that had been appointed by Sargon as joint lead managers (JLMs) for Sargon’s IPO capital raising process (the JLMs having been appointed in December 2018 for a minimum period of 12 months). Ashurst likely obtained significant confidential and valuable information about Sargon throughout this process, particularly in respect of the capital structure of the company.

From Jan – May 2019, Ashurst also acted with Sargon’s and the JLM’s informed consent for a potential investor into Sargon which was a global banking group headquartered out of London. The deal was paused because the bank had a leadership change and put a pause on expansion initiatives. Sargon, Ashurst and the JLMs were all aware of, and cleared this conflict for the Global Bank.

James Marshall, award winner.

Here’s James Marshall acting for a potential Sargon institutional investor from May 2019. Ashurst sought Sargon’s consent to the appointment (due to their plethora of other roles, which Sargon provided). This was a collaborative investment conversation where James and Steve Smith likely obtained quite a lot of information about Sargon.

I wonder if this investor was ever asked for informed consent before James Marshall took on China Taiping’s retainer and decided to place Sargon into receivership. I know for a fact that this investor was continuing due diligence and structuring negotiations with Sargon while Ashurst was acting for China Taiping, and the investor had never indicated they’d changed lawyers, so for all I know Ashurst had never resigned from this investor’s brief before accepting instructions from a different party to cause an insolvency event on the investor’s prospective investment.

Concurrent client conflicts: 

11.2 If a solicitor or a law practice seeks to act for two or more clients in the same or related matters where the clients’ interests are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client, the solicitor or law practice must not act, except where permitted by Rule 11.3.

11.3 Where a solicitor or law practice seeks to act in the circumstances specified in Rule 11.2, the solicitor or law practice may, subject always to each solicitor discharging their duty to act in the best interests of their client, only act if each client:

11.3.1 is aware that the solicitor or law practice is also acting for another client; and

11.3.2 has given informed consent to the solicitor or law practice so acting

Australian Solicitors’ Conduct Rules

The crux of the conflict is that there’s no way for a law practice to fulfil their duty to act in the best interests of both clients in circumstances where the clients interests actually or potentially conflict. Even if the conflict is not immediately apparent at the time of appointment (for example, a negotiation between two clients on friendly terms), it may quickly deteriorate. As such, unless the clients are made aware of the conflict, and provide informed consent, a firm cannot act – information barriers alone are not enough. Even with informed consent, the law practice’s ability to act is “subject always to each solicitor discharging their duty to act in the best interests of their client”, and as such it’s practically impossible for a single solicitor within the practice (such as James Marshall) to act for both clients where their interests diverge

Successive client conflicts

Even if Ashurst had resigned from the bank, the institutional investor, Sargon/Sargon CT, Trimantium and JLM appointments, it’s well known that lawyers owe some residual duties to clients – most importantly, centred around preserving their confidential information. 

10.1 A solicitor and law practice must avoid conflicts between the duties owed to current and former clients, except as permitted by Rule 10.2. 

10.2 A solicitor or law practice who or which is in possession of information which is confidential to a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS: 

10.2.1 the former client has given informed written consent to the solicitor or law practice so acting; or 

10.2.2 an effective information barrier has been established.

Australian Solicitors’ Conduct Rules

It’s unknown to me whether Ashurst obtained informed written consent from all of these clients in 2019 regarding the Taiping appointment, but they certainly did not attempt to do so with respect to their direct engagements with Sargon or Trimantium. In the course of their engagements with Sargon, providing advice and due diligence on structured finance transactions in which Sargon acted as issuer and/or trustee, Ashurst was made intimately familiar with Sargon’s upstream finance and capital structure, in addition to material volumes of other commercially sensitive information.

If Ashurst did in fact resign from all Sargon-related financing and debt capital appointments prior to accepting the Taiping appointment, they would still have needed to establish an effective information barrier. The Law Society of New South Wales sets out comprehensive guidelines to what should be included in an effective information barrier (which they encourage firms to employ as ‘minimum standards’), including:

1. The existence of documented protocols for setting up and maintaining information barriers.
2. A nominated compliance officer to oversee each information barrier.
3. Obtaining acknowledgement in writing from the new client that the law practice’s duty of disclosure to the new client does not extend to any confidential information which may be held by the law practice as a result of earlier matters.
4. Clearly identifying all ‘screened persons’ (i.e. a person who possesses confidential information from a previous retainer which is relevant to another, current retainer), with the compliance officer keeping a record.
5. Obtaining undertakings from each screened person that the screened person will not have any involvement with the client or personnel involved with the current matter; has not disclosed and will not disclose any confidential information about the earlier matter to any person other than to a person in accordance with the instructions or consent of the client in the earlier matter, another screened person, or the compliance officer; and will, immediately upon becoming aware of any breach or possible breach of said undertaking, report so to the compliance officer.
6. Similarly, implementing controls so that personnel involved in the new matter don’t discuss the previous matter with, or seek any relevant confidential information about the earlier matter from, any screened person. Such personnel (on the new matter) should also provide undertakings similar to those made by screened persons. 
7. Contact between screened persons and personnel on the new matter should be appropriately limited.

The list goes on, but let’s take a pause there. Ashurst, as a ‘leading global law firm’, no doubt has some form of conflict management protocol and information barrier practice in place. After all, they did seek informed consent in the past, and have defended their “usual process” in other circumstances. Let’s consider how it may have been implemented in the current circumstances, starting by considering who would likely to be considered a ‘screened person’. 

James Marshall acted for a potential investor throughout the back half of 2019, in negotiations and due diligence for a prospective investment in Sargon. As far as I’m aware, the engagement had never been terminated prior to accepting instructions from Taiping, but even if I was to give Ashurst the benefit of the doubt and presume they resigned first, this would have been mere weeks before his advising Taiping to appoint Receivers over Sargon, and clearly required either informed consent or an effective information barrier – I imagine most prudent law firms would do both.  

I note, with some concern, that James Marshall’s side-kick, David Greenberg, revealed in the days after the Receivership Appointment (on or around 30th January 2020) to one of my lawyers that he understood that Sargon had $60 million of cash on its balance sheet. In fact, Sargon had closer to $22 million of cash which Ashurst would have known had they read the company’s 1HFY20 financials. This identifiable figure was a relic from the investor’s process (arising out of a modelled pro forma outcome of that investment had it proceeded) and could not have been known to Taiping or McGrathNicol other than through Ashurst. Remember this, it will become very important later 🙂

I ultimately have no idea what (if any) information barrier procedures Ashurst followed, but when an obvious ‘screened person’ in James Marshall is not only not restricted from interacting with the lawyers on the Taiping appointment, but is somehow the partner on the appointment, I really don’t have any confidence in Ashurst having adequately implemented an information barrier. As a practical matter, with so many Ashurst people working for or around Sargon in their Sydney office, I don’t know how you could practically enforce an information barrier even if you put one in place.

Obligations of confidentiality

At this point, it’s fair to ask whether Ashurst simply avoided the need for an information barrier by seeking informed consent from the investor (and everyone else). That seems unlikely – as you’d expect in a financing negotiation, all the information Sargon provided was provided under the strictest of confidentiality, and with the customary legal protections. It’s very difficult to think of a circumstance where the investor would consent to Ashurst acting for a different (hostile) shareholder and providing that investor any benefit from Ashurst’s work for the investor on a purely commercial basis, let alone when factoring in the potential liability exposure such consent could enliven in terms of the investor’s own confidentiality obligations to Sargon. In fact, the investor emerged as a potential bidder in the E&Y sale process (not supported by Ashurst/Taiping) – presumably, with new lawyers. 

Again, even when Ashurst acted for successive non-hostile parties, in the bank and then the investor, it sought consent not only from the bank (and the JLMs), but also Sargon – presumably both to cover off their existing appointments with Sargon CT and other subsidiaries, and also acknowledging that much of the confidential material in their brief was Sargon’s. 

No such consent was sought from Sargon prior to the Taiping appointment – perhaps they wanted to preserve the element of surprise. To be fair, there may be circumstances where seeking informed consent isn’t viable – that’s where a good information barrier can come in handy. James Marshall, as global co-head of Insolvency, Restructuring, and Special Situations, could have presumably handed the Taiping brief off to a different partner in a different office and minimised his contact as per the Information Barrier Guidelines – and should have, given his prior involvement with Sargon (which itself built off confidential information from the bank and the IPO JLMs). Instead, he took personal responsibility for the Taiping retainer. How neither he nor Ashurst’s risk and conflicts management team recognised the issues in doing so is entirely unclear.

More to come.

I am still bombarded with questions about Sargon from investigative journalists, shareholders and creditors. I have been silent on this saga publicly for the last year while I’ve been working with many Sargon shareholders and creditors on the best route for recovery, and litigation is ongoing so I am somewhat limited in the scope of what I can say.

tl;dr: Ashurst destroyed Sargon and its clients prospects of recovery with its recommendation to appoint receivers in the circumstances, and then sealed their client’s fate by completely botching the execution.

…

The basic facts

For those who haven’t studied the statutory reports resulting from the administration of Sargon, it’s not a complex story. Here is what happened from my perspective as one of only a handful of people with complete knowledge of the financing structure in Australia and Hong Kong:

1. Receivers were appointed by Ashurst (who were advising China Taiping – an investor in Sargon’s debt and equity) over Sargon on the 29 January 2020 “to get the company’s attention” (David Greenberg, Ashurst).
2. Interest on the facility was paid up to and including 31 January 2020 (and therefore paid up on the date of receivership). Sargon was fully up to date on all salaries, contractors, rent/leases, superannuation, taxes, etc. and Sargon was not in any kind of financial distress.
3. The facility with Taiping was not due to mature for another year or so.
4. The facility was part of an overall strategic relationship with Taiping that was delivering significant value to Taiping’s expansion ambitions outside of China including laying the groundwork for significantly growing their insurance premiums and assets under management.
5. Ashurst appointed receivers for what was stated by the receivers at the time as an “information-gathering exercise” and (while not mentioned by them to the company on their appointment) changed their story to be an appointment over a few weeks late interest. Ashurst subsequently said that an interest payment was missed on or around December 31st, 2019, meaning interest would have been approximately 29 days late on the date of receivership, in the least favourable interpretation of the facts. As explained here, the only way for this to be true mathematically is if Ashurst consciously misdirected funds paid into its trust account for a purpose other than instructed (as transit money). As mentioned above, interest was in fact paid up to 31 January 2020.
6. Despite claiming they wanted to resolve the situation, Ashurst and Taiping refused to provide even the bare minimum of cooperation to prevent Sargon’s subsidiaries from being left no choice but to enter voluntary administration. Presented with this likelihood, Ashurst dismissed it offhand as an idle threat (apparently ignoring the cross-defaults they had caused to arise). They then presented roadblocks to the voluntary administrators (E&Y) pursuing recoveries for the benefit of creditors and shareholders at every opportunity. Ashurst’s conduct has and continues to guarantee a net zero recovery to Taiping.

The larger story

It is apparent to me that Taiping would not have appointed receivers if not for Ashurst’s advice and it quickly became obvious to me that appointing receivers would have disastrous outcomes for everybody involved, but most of all for Taiping. Despite multiple opportunities to fix it, Ashurst stubbornly forged ahead, losing hundreds of millions of dollars of their client’s money in the process. 

There have been reports that Ashurst felt that there had been a ‘lack of communication’ from the company. I find this ironic given Ashurst specifically instructed me not to communicate with their clients, and then themselves ignored my responses to key correspondence. In particular, James Marshall wrote to me directly, and I responded with a number of important clarifications. Neither James nor anyone else at Ashurst acknowledged my letter in the three weeks between my sending it and their appointing receivers in late January 2020. I can only assume James was on holiday and didn’t bother to check his inbox. Even aside from that update, their client was expecting Sargon’s half-year financial accounts by the end of that week, yet Ashurst pulled the trigger on appointing receivers on the Wednesday evening. In fact, Taiping’s Sargon board appointee along with the rest of the board was sent the accounts mere hours before McGrath Nicol notified Sargon of their surprise appointment. These 1HFY20 accounts demonstrated Sargon’s best performing half-year since inception.

Lawyers do not normally cause loss, they usually come in afterwards to help stem it. In this case, however, James Marshall and David Greenberg turned a substantively performing financing arrangement between Sargon and Taiping’s entities generating millions a year of cash flow to Taiping on A$100+ million of invested funds (mostly equity-linked) to zero. By evidently failing to make any basic inquiries into their own client’s loan facilities and equity structures, they inadvertently destroyed their own client’s assets.

In all likelihood, they could have avoided this if they’d made a genuine attempt to understand the investment structure. Sargon was a guarantor of the facility, but the actual borrower was Trimantium Taiping Investment Management (now known as Trimantium Investment Management, which was also placed into receivership by Ashurst). Despite the borrowing entity bearing their own client’s name, to this day, they still haven’t enquired as to the beneficiaries of the fund it was set up to manage. In fact, the entities and the investments in it were Taiping’s own assets. Effectively, Ashurst appointed receivers over their own client’s investment vehicle. If their concern was with me being a director, they could have simply replaced me under the constitution.

As a result, Ashurst destroyed the very investments their client appointed them to advise on, along with Sargon as a whole.

In trying to determine why and how this happened, I have to refer to comments made to on the day of appointment; McGrath Nicol said that they had accepted the appointment, having been referred by Ashurst, “before they had a chance to get their feet under the table“ (Shaun Fraser, McGrath Nicol). They went on to say that “this is not a normal receivership appointment, we have been appointed to conduct an information gathering exercise” (Shaun Fraser, McGrath Nicol).

Sargon was in the business of owning regulated financial services businesses and trustee companies, in an industry where trust and stability are paramount, with those subsidiaries subject to a variety of regulatory capital requirements. It also had a variety of secured financing arrangements at the subsidiary level that – as is the norm in corporate finance – would cross-default upon an upstream receivership appointment.

These were all facts known to their client, who had a representative on Sargon’s board, and were facts that should have been obvious to professional insolvency lawyers. Yet, disturbingly, McGrath Nicol also indicated that in starting their “information-gathering exercise”, they weren’t aware of any other secured creditors in the Sargon group (senior to Taiping). Appointing receivers to gather information is the commercial equivalent of setting your house on fire to clean the carpet. Appointing receivers in ignorance of information already available to you is arson. 

Even if information gathering wasn’t the true purpose, and Taiping wanted to secure their investment at any cost and/or commit some form of hostile takeover, any competent lawyer in Ashurst’s shoes would have realised that receivership was the worst option available to Taiping in the circumstances. Alternatives included taking control of a significant holding in Sargon’s equity without business interruption.

Taiping was in possession of documents that would enable it to have taken control of Sargon, and then managed it to their liking (some options being: to have repaid their loan over time from Sargon’s positive operating cash-flow; to have sold assets; to have taken their equity upside; or have secured their principal exposure and entered the market as an insurer and asset manager and harvested a huge return). More restrained but similarly effective approaches also existed, which would have been obvious to Ashurst had they properly done any due diligence over the entities and contracts they were pursuing.

To top it all off, Ashurst executed the receivership appointment so haphazardly that they only locked down A$0.7 million of Sargon’s cash and left A$20 million+ outside of their appointment scope. A competent strategy would have locked down closer to A$22 million simultaneous to their appointment. If Ashurst had taken the time to read Sargon’s December 2019 half financial report when their client received it earlier that afternoon (or Sargon’s FY19 financial report), they would have realised this.

Further, Ashurst have created a significant liability for their client because of how much other loss was caused to third parties (including Westpac and OneVue) by the reckless and improper appointment. I understand actions are already being explored by various stakeholders in both Australia and Hong Kong. Sargon had its biggest ever financial half to December 2019 and was 10 times bigger than when Taiping originally invested only two years earlier so Ashurst are going to struggle to argue that company mismanagement or other post-hoc conveniences caused it to fail.

Given what I’ve observed, my view is that Ashurst thought they had a naive client which they could take advantage of, and have led them down the garden path on various, often self-contradictory, wild goose chases. So far, the only winners in all this have been Ashurst and (to a lesser extent) McGrath Nicol, through their sizeable fee harvests. 

Ashurst and McGrath Nicol then failed to manage the relationship with Ernst & Young (E&Y, the administrators of Sargon’s subsidiaries resulting from Ashurst’s botched appointment), and as a result E&Y was forced to walk away from at least 64 expressions of interest to acquire the assets of Sargon (leaving these bidders perplexed as to why they couldn’t access the data room and why there wasn’t a market-driven sale process).

It appears that Ashurst advised Taiping to not support the E&Y administration (where Taiping was in a position to assist with very short term professional indemnity insurance required for ongoing licencing compliance) which meant that E&Y was unable to conduct a proper bidding process. In administration, creditors should have received 100 cents in every dollar based on how much the value of the assets exceeded the value of the debts. Instead, EY had no choice but to accept cents in the dollar. The assets were sold for A$29.6 million, which included the group’s cash on hand – meaning the enterprise value obtained was around A$15 million, before millions of costs in the Federal Court of Australia.

Further, Ashurst’s incompetence has resulted in Taiping only having a tenuous claim to those proceeds.

By my estimate, China Taiping has, to date, lost at least A$100m, plus costs, as a direct result of the course of action Ashurst advised them to pursue. This figure doesn’t include any (now destroyed) upside on their equity exposure – which could have been realised as quickly as April 2020.

Beyond this, they’ve also burned the Taiping brand in Australia and China Taiping would struggle to enter the market now given how rightfully cautious APRA (and prospective domestic partners) would be. Not to mention their potential litigation exposure to everyone else harmed by the actions Ashurst advised they take.

Based on my assessment of how utterly negligent Ashurst’s advice has been to Taiping all along, I am now of the view that one of Taiping’s best courses of recovery for this mess is now against Ashurst itself.

It’s likely that a professional malpractice suit brought by Taiping against Ashurst could recover at least A$100 million of completely avoidable loss.

Ashurst will no doubt justify their conduct by saying they were just following their client’s instructions. At the end of the day, their client relied upon their supposed expertise with Australian insolvency and followed their advice to appoint receivers. Lawyers should not be absolved of their professional duties, or shielded from financial consequences when they failed to consider critical information (whether by design or incompetence) and steered their client down a fee-lucrative but inferior path causing wholesale destruction of value. To those with first-hand knowledge of the facts, there’s no credible scenario where Taiping would have gone down this path if they were competently advised. 

To add insult to injury, it seems that a good amount of this bad advice was given over the Australian summer holidays by Ashurst consultant David Greenberg, while Partner James Marshall was on holidays. How David Greenberg was allowed to cause so much damage unchecked, particularly when the file was supposedly under the responsibility of Ashurst’s global co-head of its Restructuring and Special Situations Group, James Marshall, is a question every lawyer and client of Ashurst will have to ask.

There is also the matter of the fact that Ashurst was acting for Sargon and Trimantium immediately prior to their acting for Taiping (and, I have to presume, continued on acting for them afterwards, considering they never wrote to Sargon or Trimantium identifying their conflicting appointments and resigning from their prior engagements).

Somewhat optimistically, Ashurst’s accounts payable team actually sent me a statement and invoice follow-up from work for Trimantium in mid/late 2019 after their insolvency team had just destroyed Sargon in the first weeks of 2020. Suffice to say that, realising their misstep, they haven’t followed me up since. As far as I’m aware, Ashurst continued to work for Sargon’s subsidiaries before, during and after receivership. Conflicts and ethics aside, it isn’t good business development practice to put your clients into receivership.

It truly takes a unique combination of unethical behaviour and incompetence to accept conflicting client appointments and then lose both clients everything.

Stay tuned.

Additional information for creditors and shareholders of Sargon and Trimantium investment vehicles available here.