ConsolFreight CF4-Pool Update August 2023 Important Notice

Dear Valued Investors and Community Members,

I am writing to provide more details concerning the investments you have made in the ConsolFreight Series 4 pool(ConsolFreight Series 4 DROP or TIN Tokens). It is with regret that I must inform you that there is a significant risk of total or partial loss of funds related to the amounts owed to us by Hanhwa AUS Pty Ltd and Hanwha New Zealand Pty Ltd. Both entities, being significant clients, have faced legal complications which have in turn adversely affected their operational capabilities and, by extension, our shared business interests.

Since September 2021, Hanhwa AUS Pty Ltd and Hanhwa New Zealand Pty Ltd have utilized our trade finance facility for their business activities. We successfully completed transactions totaling over US$20,000,000.- The current market situation involving entities like Celsius, BlockFi, 3Arrows, FTX and liquidity contractions on M2 has contributed to challenging conditions. These factors have collectively led to a scenario where many investors, including those associated with Consolfreight´s pool, have been withdrawing funds. Consequently, this heightened demand for liquidity has created a situation of increased concentration of ConsolFreight ́s facilities within Hanhwa AUS Pty Ltd, exacerbating the potential risks associated with their legal complications and operational limitations.

Regrettably, Hanwha AUS Pty Ltd informed us that, due to an intellectual property dispute brought by a competitor, the Australian Supreme Court has frozen all pending deliveries to their ultimate debtors. As a result, a liquidator was appointed to unwind Hanwha AUS Pty Ltd’s activities, putting ConsolFreight’s inventory and security interest at risk.

  • The ConsolFreight Series 4 pool has an total exposure of DAI 1,792,471.00 to the borrowers Hanwha Australia and Hanwha New Zealand.

ConsolFreight participates as a Junior (TIN token holder) investor to protect the Senior investors (DROP token holders) holding more than 54% of the TIN tokens with an amount of DAI 387,878.97.

Please rest assured that we are taking this situation very seriously and are actively working to address the challenges. ConsolFreight has engaged an Australian legal counsel and is working swiftly and diligently to activate recovery efforts. Our top priority is to protect your investments and to ensure that we navigate this situation responsibly and transparently.

We will provide prompt updates as more information becomes available. In the meantime, please address any inquiries or questions to operations@consolfreight.com. We are committed to responding to all inquiries promptly and providing the information and support you need during this time.

We understand the concerns and uncertainties that you may have. Please know that we value your trust and support and are doing everything in our power to safeguard your interests and the future of ConsolFreight.

Thank you for your understanding and patience during this challenging time.

Sincerely,

Jose Tovar

CEO of ConsolFreight LLC

operations@consolfreight.com

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An unfortunate development for ConsolFreight.

A few preliminary observations:

According to ASIC Notices (a service of the Australian government), Directed Electronics OE Pty Ltd commenced a case for liquidation against Hanhwa Aus Pty Ltd. on May 31, 2023.

The Australian court issued an order for liquidation on July 3, 2023.

Notices

Question: Why are we only hearing about this in late August?

Can you please confirm that this is the relevant IP case? Trade Secrets Case

Where do the TIN and DROP token holders stand in relation to the plaintiff and other creditors in terms of recovery?

What other assets are available for recovery?

What is the status of the New Zealand entity and does it have assets to satisfy the debt obligation to the TIN and DROP token holders?

The Centrifuge community and Credit Group needs to use this unfortunate development as an opportunity to improve the quality of the offerings on Centrifuge. What is immediately clear is the lack of real time information and reporting (unless I have missed something in a general search for Consol Freight in the Forum).

DeFi needs to move away from “trust” originator (even with TIN subordination). We need more real time data collection and transparency.

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I thought the DROP token holders were protected against this kind of situations

Hi @Lucrum. There is an excellent medium article which explains the outcome in case of a default of an asset: :point_down:

As well explained in this recent blog post.

Very good questions from Christian, it would be great if ConsolFreight replies on those questions in this forum.

In addition: Can Consolfreight give a first (very) rough estimate on expected impact on TIN and DROP token, but also a maximum risk exposure (in USD) for TIN and DROP token holders?

I have another question, but let me explain a fictive situation to explain my question. Let’s assume the final ‘default’ in USD is 500.000 USD. Let’s assume the total TIN buffer of this pool is 800.000 USD, of which 50% was added by Consolfreight themselves (400.000 USD). What would be the situation then:

  • The 500.000 USD default costs will be evenly split over all TIN token holders. That would mean that all TIN token holders have a loss of 62,5% of their capital.
  • The 500.000 USD default costs will be first covered with as much as possible from the Consolfreight TIN part (that’s 400.000 USD). The remaining part will be evenly split of the remaining TIN token holders. That would mean that Consolfreight loses their full TIN capital (400.000 USD), and the remaining TIN token holders will lose only 25% of their capital.

Thanks in advance for your reply.

Roy

I second everything stated/questioned here by Christian.

Relevant conversation for the ConsolFreight pool on MakerDAO can be found here.

Some takeaways of the discussion:

  • MakerDAO will vote on 8/30/2023 to (1) reduce the debt ceiling of RWA003-A (ConsolFreight) pool to 0 DAI (2) use the tell command on the RWA liquidation Oracle to allow Centrifuge to begin the unwinding process of this pool

  • Some questions have been raised about this Ethereum address. It has been selling CF4TIN multiple times (starting July 7) since a liquidator was appointed for Hanhwa AUS Pty Ltd (on July 3). These are the only instances of TIN being redeemed by the address.

Some users, such as GFXlabs on the MakerDAO forum, have suggested that the address to belongs to ConsolFreight. This seems likely given that ConsolFreight has admitted to owning 54% of the CF4TIN (as mentioned by Consol above)

GFXlabs asked a poignant question: “Given that TIN is supposed to represent junior capital, and ConsolFreight as the originator withdrew this from the pool after a public notice of liquidation was made, will this approximately 180k DAI be returned to the pool for DROP holders (such as MakerDAO)?”

  • Another thing to note is that in October 2022, ConsolFreight highlighted on the MakerDAO forums that repayments were being made late. Unfortunately, this post was not active or discussed in the forum.

  • Lastly, Jose Tovar made this announcement as the standing CEO of ConsolFreight LLC, however, on the website/Crunchbase it lists Ernesto Velo as previously the long-standing CEO.

Dear Valued Investors and Community Members,

We are writing to provide you with an important update regarding our ongoing efforts to address the challenges posed by the situation involving Hanhwa AUS Pty Ltd and Hanhwa New Zealand Pty Ltd. As previously communicated, these entities have faced legal complications, which have impacted our shared business interests and the investments made in the Consol Freight Pools.

We want to inform you that we are taking decisive steps to pursue our claims and seek resolution in the most robust manner possible. We have initiated the formal legal process against Hanhwa. This step has been carefully planned to ensure that we present a solid case. To this end, we have diligently prepared an extensive file of documents and contracts that have been signed with Hanhwa. These materials will serve as crucial evidence to support our claims and assert our position as a principal party in the process of recovering our debt.

In accordance with the legal process in Australia, once our claim is filed, the Supreme Court typically requires two to three weeks to evaluate our claim and respond accordingly. Subsequently, the defended, in this case, Hanhwa, will have 28 days to respond if they choose to appeal and defend themselves. Following these initial stages, the court will set trial dates, allowing us to present our case and seek a favorable resolution.

Please rest assured that Consol Freight continues to act proactively and with the utmost diligence in this matter. We are resolute in our commitment to recovering our assets and debts, thereby safeguarding the investments entrusted to us by our valued investors.
We understand the importance of transparency and will continue to provide regular updates as significant developments unfold. For any inquiries or questions, please do not hesitate to contact us at operations@consolfreight.com.

Sincerely
José Tovar
CEO, Consolfreight LLC
operations@consolfreight.com

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