HSBC has alleged that Zenrock Commodities Trading Pte Ltd (Zenrock) has engaged in “highly dishonest transactions” including multiple financings of the same cargo, according to two sources with knowledge of the matter citing an affidavit filed by the bank on
May 4 for its judicial management application to the Singapore High Court against Zenrock.
Singapore oil trader Zenrock currently has around $49 million of debt outstanding with HSBC and is said to have around $165 million total debt with institutional lenders, the sources said, citing the affidavit. HSBC also states that Zenrock has little cash to meet its debt obligations and that it is “clearly insolvent”, the sources added.
According to the sources, through examples of past transactions involving the bank, HSBC elaborated in its affidavit that “there is reason to believe” that Zenrock has:
- Provided false and/or fraudulent transaction documents in relation to those transactions;.
- Wrongfully diverted payment of funds which should have been paid directly to the bank;
- Dissipated these funds beyond the reach of the bank.
One of the transactions elaborated in the affidavit involved Zenrock obtaining multiple financings on the same cargo while the second transaction showed that Zenrock had entered into an “offset agreement” with the buyer of its cargo without informing HSBC, breaching the terms of the facility agreements and security documents with the bank, as the receivables should not have been subject to any set-off or counter claims, the sources said.
HSBC had sent various letters of demand to the company since mid-April for immediate repayment of some of its outstanding facilities, but as of May 4, those demands were still unmet, the sources said, citing the affidavit.
As a result, HSBC stated that it has “lost all trust” in Zenrock’s management. The company has also been “unforthcoming and has withheld critical information” from the bank, including the list of other lenders the company has, the sources said.
HSBC also stated in the affidavit that it had lodged a police report on April 28 on Zenrock’s alleged “dishonest, fraudulent, and/or criminal conduct” with the Commercial Affairs Department of the Singapore Police Force, according to the sources.
IJM/JM Application
HSBC states in the affidavit that it believes that the appointment of a judicial manager is likely to lead to a more advantageous realisation of the company’s assets, as opposed to winding up, the sources said. HSBC believes that if the company were placed in liquidation, this would likely lead to a “fire-sale” of the company’s assets which, in the current economic climate, would be unlikely to recover any real value to creditors, they added.
Moreover, HSBC argues that the appointment of an interim judicial manager is necessary to review the company’s records and investigate its conduct, the sources said. It also believes that an IJM is necessary to ensure the preservation of evidence as the conduct of the company’s management thus far indicates that they are unlikely to be of assistance to the creditors, the sources added.
HSBC said it intends to appoint Messrs Wong Pheng Cheong Martin, Bob Yap Cheng Ghee and Toh Ai Ling of KPMG as the joint and several interim judicial managers and judicial managers, according to the sources. Shook Lin & Bok is HSBC’s legal counsel, as reported.
HSBC declined to comment. Zenrock could not be reached for comment.
-- Serla Rusli