17 April 2023

Sham: Maryland Bassett Co. v. Taihe Innovation

Auckland mortgage funder Taihe Innovation Management Ltd is in receivership with receiver Chris McCullagh left trying to enforce a deal which appears to have Taihe director Lei Zhang party to a sham transaction with a third party used as trustee to hide Zhang’s increased equity investment in Australian listed company MIE Pay paid for with Taihe’s money.

Allegations of a sham loan were front and centre when the receiver had Taihe Innovation sue Weidong He’s Auckland company Maryland Bassett Company Ltd for nearly $660,000 claimed to be principal and interest due on a loan made by Taihe Innovation in October 2019.  Maryland said the loan was a sham, disguising Zhang’s increased investment in MIE Pay Ltd just prior to its listing.

The High Court was told Taihe Innovation’s Zhang and Maryland Bassett’s He had a business relationship stretching back to 2015 when Alibaba’s online payment platform got underway in New Zealand.  Zhang gifted He an equity interest in his business then known as IE Money in appreciation of He having helped him obtain a New Zealand licence for Alipay.  

Plans to list IE Money on the then secondary NXT market in New Zealand later morphed into a listing as MIE Pay on the Australian National Stock Exchange.

He told the High Court that as part of MIE Pay’s listing process, he was asked to buy shares on Zhang’s behalf with money provided by Zhang.  Zhang wanted to keep this increased equity investment hidden from fellow MIE directors to avoid revealing his increased voting power, He said.

This proposal was documented as a loan from Zhang’s Taihe Innovation to He’s Maryland Bassett with Maryland acknowledging it was holding the shares purchased as bare trustee for Zhang.  Backup documentation required Zhang to indemnify Maryland Bassett for its costs.

Receiver Chris McCullagh told the High Court he had no evidence of any backdoor deal between Taihe Innovation and Maryland Bassett. As far as he was concerned, the loan was a straight-forward commercial debt owed by Maryland Bassett to Taihe Innovation. Taihe’s director Zhang had been uncooperative, the receiver disclosed.  Zhang did not give evidence.

Associate judge Sussock ruled it was arguable that the loan was a sham transaction.  The disputed debt could not be used as part of fast-track summary judgment procedure to have Maryland Bassett Ltd forced into liquidation.

Maryland Bassett Company Ltd v. Taihe Innovation Management Ltd – High Court (17.04.23)

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