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Troubled Chinese Oil Trader Seeks US Bankruptcy Shield

Law360 (May 7, 2019, 6:40 PM EDT) — An oil trading unit of the Huaxin group of companies, an international conglomerate whose founder was arrested last year for alleged “economic crimes,” asked a New York bankruptcy court on Tuesday to recognize liquidation proceedings in China and protect residential property it owns at Trump World Tower.

Shanghai Huaxin Group (Hongkong) Ltd. is seeking protection under Chapter 15, a part of the Bankruptcy Code used by foreign debtors to protect assets held in the U.S. The company is a wholly-owned subsidiary of CEFC Shanghai International Group Ltd., which is connected to Chinese energy conglomerate CEFC China Energy Co. Ltd.

According to court documents, founder Ye Jianming was detained by Chinese authorities in 2018 for “alleged suspected economic crimes.” Additionally, a nonprofit boss affiliated with CEFC China Energy was convicted in New York federal court last year for bribing officials in Chad and Uganda to assist the Shanghai-based conglomerate win Africa energy- and banking-sector deals.

A PricewaterhouseCoopers Ltd. partner and a certified fraud examiner in Hong Kong appointed to liquidate Shanghai Huaxin Group said the debtor intends to use the Chapter 15 case to sell an approximately $7.6 million residential unit located at The Trump World Tower Condominium in Manhattan, as part of a broader wind-down of the business in China.

“The petitioner has been informed that it is necessary and desirable to seek recognition of the Hong Kong proceeding in the United States, on the basis that it would grant the petitioner certain powers under the Bankruptcy Code that would assist it in facilitating an orderly, competitive and value-maximizing sale process with respect to the U.S. property,” the foreign representative said in a court filing.

The liquidators described Shanghai Huaxin Group as a business unit that is “principally engaged in trading oil and other chemical products outside of China, and has a wide range of investments worldwide.” According to the company’s representatives, it has $4.9 billion worth of assets, comprised primarily of receivables arising from oil trading activities, and $3.9 billion worth of debt.

They said that since Ye’s arrest last year, the company’s operations have stalled while its employees have headed for the doors in a mass exodus. As of the filing of the Chapter 15 case, the majority of the receivables due to Shanghai Huaxin Group are overdue, the liquidators said, explaining that the parent company directed the “account debtors” to wait until they have received payment for delivered oil to pay those receivables. That payment has “not been forthcoming,” they said.

“As a result, the debtor began to face serious cash flow problems and was unable to repay its debts, which led to the winding-up proceedings in Hong Kong,” the liquidators said.

Since becoming provisional liquidators, the representatives said they have discovered that a large part of the company’s assets is a portfolio of real estate assets.

“In order to preserve the value of these assets, and to benefit from the interest already expressed by potential purchasers, the liquidators have been exploring the possibility of realizing these assets by way of sale or transfer,” they said.

An attorney for the liquidators at Latham & Watkins LLP did not immediately return a call placed Tuesday.

The foreign representative is represented by Caroline A. Reckler and Julian E. Bulaon of Latham & Watkins LLP.

The case is In re: Shanghai Huaxin Group (Hongkong) Limited (in Liquidation), case number 1:19-bk-11482, in the U.S. Bankruptcy Court for the Southern District of New York.

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By Alex Wolf

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