A Deloitte report which was used as the main evidence in a Cayman Islands court ruling on the liquidation of Chinese dairy group Hunan Taizinai Group is not legally valid, cb.com.cn reported Thursday.
The website claimed that Deloitte told Taizinai it had never produced any legally binding auditing report on the company. It also reported that an unnamed Taizinai executive said Taizinai will hold a press conference later this month to clarify details to the public about how the company was being liquidated.
Morgan Stanley, Goldman and private equity firm Actis Capital had paid $73 million for a 31 percent stake in Cayman Islands-registered Taizinai in 2007, with Morgan Stanley providing $18 million, Goldman $15 million and Actis Capital $40 million, according to a Reuters report in April.
Citigroup, Taizinai's biggest lender, filed a lawsuit against Taizinai at the Grand Court of the Cayman Islands, which appointed Hong Kong accountant Borrelli Walsh as provisional liquidator, the South China Morning Post reported on April 14.
Taizinai could have left around 3 billion yuan ($440 million) in unpaid debt, the Post said.
Shortly after the ruling, Taizinai said that the company's operations were normal, with a reasonable debt structure, and that the Cayman Islands court ruling had no legally binding effect in China.
Another source with Taizinai told cb.com.cn that the main evidence against the company was a due diligence report produced by Deloitte in mid 2008, and the 3 billion yuan debt figure also came from that same report.
The source said Chang Zhuhui, vice president of Taizinai, met with two partners from Deloitte on April 27. Deloitte said the accounting firm was hired by Actis Capital, in 2008 to made a due diligence investigation on Taizinai, but only turned out a preliminary report which was never finished.
Deloitte added that the draft was only provided as a reference and had no legal effects since it was not a legal auditing repot on Taizinai and was unable to reflect the true financial conditions of the company.
Once an IPO candidate, Taizinai expanded quickly, but was hit hard by China's tainted-milk scandal in 2008. Taizinai did not sell any melamine-contaminated products, but fell a victim of the industry downturn, and was taken over by the Hunan provincial government in December 2008.
