Xihe Holdings placed under IJM, accuses OCBC of 'abuse of process'

Singapore

XIHE Holdings, the exempt private company owned by Hin Leong founder OK Lim and his son, has been placed under interim judical managers (IJMs), after more creditors threw their support behind OCBC Bank's application to take control over Xihe's restructuring out of the Lim family's hands.

A Singapore High Court appointed Grant Thornton Singapore as IJMs for Xihe Holdings during a chambers hearing on Thursday, The Business Times has learnt.

In an affidavit last week, ntan Corporate Advisory, the adviser to the Lim family and Xihe, wrote that aside from OCBC, which filed the IJM application in July, the Xihe Group "is very close to reaching a constructive agreement with a majority of the Xihe lenders" on the terms of a consensual restructuring.

But that majority appears to have swung the other way. OCBC's IJM application also drew letters of support from the IJMs and creditors of sister company Hin Leong Trading. Hin Leong was one of Singapore's biggest shipping-fuel suppliers before it went insolvent in April.

In court filings seen by BT, OCBC argued that the consensual restructuring envisioned by the Xihe Group "appears to amount to little more than a controlled sale of vessels, while seeking financing and charters to tide over the interim period".

Xihe Holdings, the entity under IJM, is the holding company for 60 per cent of the Xihe Group's fleet of 136 vessels as at July 22.

The remaining 40 per cent of the Xihe Group's vessels are owned by Xihe Capital's subsidiaries and special purpose vehicles which are directly owned by the Lim family. It remains to be seen if Xihe Capital's lenders will file for IJM too.

OCBC had applied for IJMs to take charge of Xihe Holdings on the grounds that it cannot trust Xihe's management, led by the Lim family, to protect creditors' interests after evidence of fraud was uncovered at sister companies Hin Leong Trading and Ocean Tankers in April.

The bank noted that Xihe has since taken steps to address these concerns, though its actions appear to "give the veneer of independence and new management instead of the actual independence guaranteed by JM".

After OK Lim and his children had either resigned or agreed to resign from Xihe Holdings and Xihe Capital, Kenny Lim Oon Cheng, the brother of OK Lim, was appointed executive director of both companies on July 1. He has since stepped down on July 23 "in the spirit of increased transparency", but remains interim chief executive.

Patrick Daniel, former deputy chief executive of Singapore Press Holdings and Tan Huay Lim, former audit partner of KPMG, were also appointed independent directors of Xihe Capital and Xihe Holdings on July 1.

While Mr Kenny Lim was not previously involved in any of his brother's companies, OCBC noted that the man had previously been subject to civil penalty action by the Monetary Authority of Singapore in the sum of S$9.6 million for insider trading and false trading in 2015.

It added: "OCBC strongly distrusts Kenny Lim or any appointee by the Lims, and does not see how the Lims' installation of their own appointees lends Xihe Holdings any genuine independence from the Lims."

Mr Kenny Lim has also failed to respond to any of the fraud allegations raised in the reports produced by the IJMs of Hin Leong and Ocean Tankers, OCBC said: "Despite claiming that these reports suffer 'a number of shortcomings', the debtor's affidavits seem incapable of responding to any of its conclusions."

Ernst & Young, the IJM for Ocean Tankers, previously reported that Xihe entities had transferred some US$208.1 million to Hin Leong before its collapse, routing the payments through Ocean Tankers "for no valid commercial purpose".

Mr Kenny Lim replied in a July 28 filing that the payments were intercompany loans to Ocean Tankers in the ordinary course of business: "There was no prohibition on such intercompany lending."

OCBC said: "Xihe is in the business of ship-owning, not in the business of lending money to related companies. Instead, the purpose of the 'loan' appears to be to cover up for the massive losses that Hin Leong incurred in the course of its trading over the years."

Ernst & Young recently commenced proceedings against the Lim family in court to claw back some US$19 million in payments made to them shortly before Ocean Tankers filed for a debt moratorium. But this development is "completely irrelevant" to the IJM application, Mr Kenny Lim had argued.

Separately, Xihe Holdings questioned OCBC's true objectives for putting it under IJM.

Xihe's counsel, Haridass Ho & Partners, said: "One thought that will continue to recur is why is OCBC, which has security over the vessels whose value is sufficient to pay it off, choosing not to enforce its security (and) why is it instead seeking to take control of the debtor companies, including Xihe Holdings, when it can have no conceivable interest in what happens to these companies once it is paid.

"There is clearly more to these applications than meets the eye, and it is that this is a backdoor attempt to obtain security over the Lim family's assets for its claims against Hin Leong Trading and Ocean Tankers. This is an abuse of process and is in any event a deeply troubling feature that this Court must have regard to."