Leopard Capital managing partner and Nautisco Seafood director Scott Lewis (right) leaves the Appeal Court following a hearing yesterday in Phnom Penh. Photograph: Heng Chivoan/Phnom Penh Post

Nautisco Seafood Manufacturing, once Cambodia’s premier seafood-processing company, will not undergo government-brokered restructuring after a Cambodian appeals court yesterday declared the company solvent.

The ruling was a first test for the law on corporate restructuring and insolvency.

The decision sounds positive for the company. But now the case will leave the courts and return to the boardroom, where the majority shareholders, a group of Canadian and Ukrainian citizens, must re-engage minority shareholder Leopard Capital after extended infighting.

A US$2 million debt and the future of the Sihanoukville-based seafood plant will also be on the agenda.

“We would like to do this under the jurisdiction of the Cambodian court because we would like all sides to respect Cambodian law,” Anatoliy Korobitsyn, a majority Nautisco shareholder, said during the hearing.

In January, the Phnom Penh Municipal Court ordered the company into a “plan of compromise” in which the court would work as an arbitrator to solve disputes.

Nautisco Inc, the majority shareholder of Nautisco Seafood Manufacturing, filed a criminal complaint against Leopard-controlled Nautisco HK earlier this year,.

It claimed Leopard had intentionally put the seafood operation in dire financial straits while establishing a competing operation a few kilometres from the Nautisco plant.

The criminal case, separate from the insolvency case, still stands. Leopard has reportedly applied for arbitration in a Hong Kong court.

Yesterday’s decision stated that about US$2.1 million in debt that Nautisco owed Leopard did not create the conditions for insolvency.

The presiding judge said Nautisco’s complaint did not include enough financial information or a date the debts were due, rejecting the claim for court protection.

“We believe the courts were abused in order to resolve a shareholder dispute rather than a true insolvency dispute,” Leopard managing partner and Nautisco Seafood director Scott Lewis said during the appeals hearing.

The majority shareholding party said the ruling failed to take into account what they called Leopard’s severe conflict of interest, as well as the complex financial arrangement that led to the private equity firm becoming Nautisco’s biggest creditor.

“The court appears to have acknowledged that a minority shareholder can [take over a company]. They have opened the door for this kind of operation in Cambodia,” Korobitsyn said after the ruling.

Lawyers at Vinick & Associates, a law firm that represented the majority shareholder yesterday, said the insolvency case should have been handled within weeks, not months. Both parties agreed Nautisco’s value had declined during the appeals process.

The court-appointed administrator that took control in January cost the company about $100,000.

“Insolvency cases should be taken as an emergency,” a Vinick lawyer said after the ruling. “This has completely destroyed the idea of the insolvency law because they did not allow the appointed restructuring process.”

The lawyer said the judge had focused on the liquidation of the company, not the potential for reconstruction.

Leopard’s request for compensation was rejected.

The criminal complaint against Leopard, obtained earlier this year by the Post, alleged the firm had not worked in the best interests of the seafood company.

Nautisco Seafood took on large sums of debt from Advanced Bank of Asia from 2010, according to the complaint.

Leopard then purchased this debt from ABA without board approval and charged a higher rate of interest on those loans. These moves, the complaint said, pushed the company towards insolvency.

According to a memo from Leopard consultant Gordian Gaeta addressed to Nautisco shareholders last summer, the company had already become insolvent at the time.

“The company is illiquid and thus technically insolvent. There are insufficient funds to . . . pay outstanding raw material suppliers or the operating costs and salaries due at the end of August,” Gaeta wrote in the memo obtained by the Post.

A board meeting held without the majority shareholder decided to halt operations in early November. By December, Nautisco had no senior management.

At the same time, Leopard was gearing up another seafood processing investment, Chenla Seafood, which recently began production in Sihanoukville, according to Leopard Capital’s newsletter this month.

Anatoliy Korobitsyn said that as Nautisco was wound down, Leopard used the company’s resources and attempted to poach customers, including Japan’s Hanwa Co Ltd.

The future of Nautisco Seafood was unclear yesterday. Scott Lewis said future operations were unlikely, but the firm was ready to engage the majority shareholders.

Korobitsyn said the operation could continue if Leopard agreed to “fair compensation”, which would not only include the loss of material assets, but also compensation for a loss of customers and for Nautisco’s financial model.

To contact the reporter on this story: Don Weinland at [email protected]