Aggrieved investors of the defunct restaurant operator Huy Vietnam are moving US courts for justice.
Liquidators, acting on behalf of the investors, have asked the Southern District Court of New York to recognise the alleged fraud committed by Huy Vietnam’s founder, Huy Nhat, against them, and treat the matter as a foreign proceeding under Chapter 15 of the US Bankruptcy Code.
Chapter 15 provides for cooperation between US courts and foreign courts when US financial interests are impacted by foreign bankruptcy proceedings. The court is also authorised to grant additional relief to a bankruptcy trustee.
A copy of the court filing by liquidators, dated February 24, was reviewed by DealStreetAsia.
The move by the investors is the latest in their 18-month-old legal battle against Huy Nhat, who they allege misappropriated $59 million of their funds since 2014.
Huy Vietnam’s PE investors based in the US and Asia — ADV Partners, Fortress Investments, F&H Fenghe, Gryphus Capital, Welkin Capital, and AIF Capital among others — have appointed Cosimo Borrelli and Mitchell Mansfield as the official liquidators.
In October 2019, when Huy Vietnam shareholders, initiated lawsuits against Nhat and his associates in the People’s Court of Ho Chi Minh City, the company shut its various businesses, including the Mon Hue, Pho Ong Hung, Com Tho Chay, Great Banh Mi, Pho 99, and TPTea brands.
In May 2020, DealStreetAsia reported that the PE investors filed another lawsuit against Nhat in the Ho Chi Minh City court for allegedly misappropriating $25 million.
In the latest filing to the US court, the misappropriated amount has been revised to $59 million, following investigations by the liquidators.
The liquidators also noted that the most recent accessible financial statements of Huy Vietnam were 2016 audited consolidated financial statements, unaudited management accounts of the group by the end of 2018, and unaudited management accounts of its onshore subsidiaries as of April 30, 2019.
“The liquidators remain largely in the dark given the paucity of available information, which is often actively withheld. Liquidators do not have sufficient information to assess the reliability and veracity of the statements and accounts. Moreover, the operations of the Huy Group in recent years appear to be permeated with self-dealing and asset dissipation,” the court filing stated.
Huy Vietnam’s liquidators have accused Huy Nhat of unauthorised conversion of inter-company debts, transferring funds to shell companies as payments for non-existent services, and real estate and intellectual property transactions at inflated values.
“Nhat and the Huy Group frequently transacted in US dollars, including… the disbursal of the intercompany loans, and to make payments directly between the Huy Group and Nhat’s wife. Moreover, Nhat owned at least one investment account that held millions of US dollars and invested in US equities,” the court filing said.
The PE investors had injected roughly $75 million in exchange for 43% of the preferred shares of Huy Vietnam since 2014.
Following this investment, Huy Vietnam and Huy Hong Kong (a Hong Kong-registered unit of the group) lent about $32 million to the group’s onshore subsidiaries via three inter-company loan agreements. “It appears that on multiple occasions, the onshore subsidiaries executed suspicious transactions concerning land use rights in Vietnam,” the liquidators claimed.
Two such transactions in 2017 saw Huy Vietnam pay a total of $20 million for land use rights in industrial zones in Long An and Hanoi, Vietnam, without shareholders’ approval. The prices were said to be up to 12 times the fair market value.
The liquidators also allege that Mon Hue, a restaurant brand Huy Vietnam operated, was involved in suspicious service contracts in 2018.
They noted that Mon Hue paid approximately $13 million to acquire trademark rights of the “Pho Ong Hung” and “Great Banh Mi” food brands without the PE investors’ consent, between August 2014 and May 2015. However, Mon Hue did not register the Pho Ong Hung Brand with the Vietnamese intellectual property authorities and was sued by Pho Hung Service Trading Company Limited for intellectual property rights infringement.
Meanwhile, the seller of the Great Banh Mi brand did not officially exist at the time of the brand acquisition. “The seller registered roughly a month after its brand acquisition,” the court document said.
The founder had also defrauded the PE funds “by misrepresenting the legitimacy of a bank account maintained by Huy Vietnam in Vietnam,” the filing said. Nhat had said that the account, with him as the sole signatory, held the majority of Huy Group’s assets. But it was discovered in September 2019 that the account was fake.
The Huy Vietnam group commenced its legal actions with an arbitration proceeding in Hong Kong against Nhat and his related persons in September 2019, before obtaining two presently enforceable Mareva injunctions against him in Hong Kong and Singapore a month later. Nhat’s assets, believed to amount to as much as $84.3 million, have since been frozen.
The investors also applied for an injunction against Nhat, Mon Hue, and two of the restaurant’s managers, to forbid them from leaving Vietnam, as well as to demand the disclosure of banking information with regard to the ten bank accounts maintained by Mon Hue in Vietnam.
In November 2019, the investors disseminated a denouement letter to the Ministry of Public Security in Vietnam requesting the opening of a criminal investigation into Nhat and his associates. “The authorities accepted the request and are presently investigating,” the liquidators said in the February 24 filing.