ARC confirms £48m legal action against ex-trust manager

ARC Capital Holdings has confirmed it is seeking damages of RMB480m (£48m) from the former manager of the suspended $135m (£82m) ARC Capital trust, ARC Capital Partners.

ARC Capital Partners resigned as manager in February after ARC CH became frustrated over a failed equity purchase agreement in 2010. ARC CP officially stopped management on 7 August.

ARC CH had not previously taken legal action over the dispute and the two firms have remained in conversations since February around repayment.

In 2010, Capital Partners had arranged an equity purchase agreement for RMB480m of stock in Orient Home, a majority stake in the company, making this company the trust’s second largest holding.

However, the deal fell through and Orient Home failed to repay the capital to the trust. Arbitration was started in May 2013 between the China International Economic and Trade Arbitration Commission and Orient Home, with the Beijing First Immediate Perople’s Court granting a property preservation order that was then challenged by Orient Home.

ARCH CH says ARC CP acted negligently because it released the purchase payment to Orient Home without any security or escrow arrangements on the basis of only a “contractual promise” from Orient to transfer shares to the trust.

A stock exchange announcement by ARC says: “The company and the investment manager have been engaged in pre-action correspondence since February 2014. On 17 June 2014, the parties entered into a short standstill agreement.

“The exchange of correspondence has however not led to a resolution of the dispute. Having considered the position with its legal advisers, the board announces that the company has now issued legal proceedings against the investment manager for negligence and/or breach of the investment management agreement.

“The company is claiming damages in the sum of RMB 480m for the loss of the Orient Home payment and other losses, including the professional fees and other costs the company has incurred in attempting to secure repayment of the Orient Home payment from Orient Home Co.”