There has been a new twist in the Sargon saga with documents tabled in federal parliament by Liberal MP Tim Wilson showing the payment was deliberately misdirected by the Chinese state-owned insurer to trigger an event of default for the Australia's largest fintech's extraordinary collapse last year.
Advertising itself as offering “next-generation trustee cloud infrastructure” with more than $55 billion in assets under trusteeship and supervision, Sargon Capital had reportedly engaged brokers to float on the Australian sharemarket at a reported valuation of A$1 billion just before it had to appoint voluntary administrators Ernst & Young (EY) to several of its holding companies to defend itself from an attack by Taiping.
The high-profile company was placed into receivership by a Chinese state-owned insurance company China Taiping in January, 2020 over alleged default on interests due (about A $1.7 million each in October and December 2019) on a ~A $100 million loan facility.
Eventually, the business was ripped apart and its wreckage was acquired by two New York-based private equity players Matthew Kibble and Teddy Wasserman under the Pacific Infrastructure Partners (PIP) banner before rebranding to Certes Corporation.
Back in April 2021, former Sargon Capital founder and CEO Phillip Kingston broke his silence, describing the wholesale destruction of value as "the commercial equivalent of setting your house on fire to clean the carpet”.
“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,” he said.
At that time, he particularly blamed the legal advice, saying "there’s no credible scenario where Taiping would have gone down this path if they were competently advised".
It is not clear if Mr Kingston was then aware of the documents revealed by MP Tim Wilson.
New Revelations
“The documents that have come into my possession appear to indicate that there has been a deliberate campaign to trigger the receivership of Sargon by China Taiping,” Mr Wilson told Federal Parliament on Tuesday.
"If an Australian company were maliciously liquidated at the direction of a Chinese state-linked entity, this House would rightly be outraged, and it should be."
The documents further show China Taiping engaged an Australian public relations firm to advise on media control when it launched a "takeover" of Sargon.
As the receivership unfolded, Sargon and its top management were given massive negative media coverage, including by some of Australia's high profile media outlets who had lined up to praise every success of the same company during its ascend. It is not clear the smear campaign was part of what has been revealed now.
"The documents allude to the fact that, using a PR firm, stories were deliberately seeded to raise doubts about the sustainability of an Australian company, to the advancement of the Chinese linked interests.
"The allegations are that the interest payments on finance were deliberately redirected to present a failure to service debt.
"Consequently, contractual terms would be triggered, allowing for the appointment of an administrator, who would appoint a liquidator for Sargon. By triggering such terms, ASIC did not scrutinise the claims of creditors. The allegation is that, in doing so, it allowed China Taiping to take control of Sargon and its interests, physical and intellectual."
"Like many members, in tabling the documents, I say that the documents presented form only part of a complex picture, but there is a public benefit in the allegations being investigated and made out.
"The documents include financial statements and other important matters. These are serious allegations. In the interests of Australian companies that might secure finance from Chinese state-linked entities, the documents are tabled to ensure scrutiny and, should the claims be made out, a warning. "
Default or No Default
Since April 2021, Mr Kingston has written his perspective of the dramatic events, insisting no default subsisted, all interest on the facility was paid up to 31 January 2020 and the loan facility itself was not due to mature for another year or so.
'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” '.
"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".
The two events of default claimed by China Taiping were about alleged failure to pay interests in October and December 2019 when Sargon was allegedly (see below) sent notices of the "Event of Default" for under A $2 million each.
Subsequently, Ashurst acting for China Taiping allegedly sent a letter to Sargon in late January 2020, requiring immediate payment of the principal and all interests due to the default.
However, in April, in response to our enquiry, Mr Kingston described the sequence of events which appeared to be a deliberate trap, saying Sargon had transferred A $4.4 million, as requested, to the trust account to be on the safe side (even though Sargon didn't consider there subsisted any default), which meant the claimed default could not be "true mathematically" unless the funds had been misdirected.
In early May 2021, screenshots of the internal correspondence we received from insider sources revealed Ashurst had indeed informed China Taiping about the receipt of payment from Sargon.
However, due to the lack of cooperation and refusal to provide publishable response by Ashurst and China Taiping, we couldn't get to the bottom of why things developed in the wrong direction if the funds had been received.
Mr Kingston told us Sargon had not been sent any formal letters of default, nor was formally requested to make any payment.
He described a confusing trap, saying China Taiping was asking him to ignore any requests and not present to the company board.
"Letters were only sent to my personal email address, not to Sargon officially, nor my Sargon email address or to any other companies addresses.
"They were not sent along any official channel e.g. not along the notice provisions of the underlying agreements which set out email addresses and postal addresses for event of default notices.
"China Taiping over the phone and WeChat told me explicitly to ignore the letters that were just for "audit purposes", to not share them with the Sargon board or company (because it was not Taiping's actual position - Taiping actually said if they wanted Sargon to know, they would have used their board member to tell the board or sent it via official channels) and apologised for aggressive lawyers throwing their weight around and they had no intention of acting on them.
"The letters were so out of touch with reality they were difficult to actually respond to substantively.
"By this I mean confusing different facilities between different parties in different jurisdictions. The letters would not constitute notice under any Australian agreement because of the incoherence."
And then...
Mr Kingston described the sudden assault as devastating and unexpected.
"Everyone was on leave in late Dec/early Jan".
"The damage was done, devastating and irreversible within 24 hours. "
"Other debt facilities immediately cross-defaulted and accelerated (tens of millions), licences in breach, insurance was voided, clients giving notice, etc".
"Ashurst were unwilling to remove receivers unless millions was paid to them immediately despite no money owing and being told the reality that they were to recover nothing if they pursued this path and instead should work with Sargon to find an amicable solution to whatever the problem was."
"We had no choice but to go into voluntary administration . Our accounts were frozen, cross-defaults everywhere, Ashurst were extremely hostile and escalating."
