Chen Zhi Wins Court Victory, Raising New Risks for Cuban Cigar Distributors

A court ruling in the British Virgin Islands paves the way for companies linked to the Chinese-Cambodian businessman to be returned to their directors — a development that could further complicate operations across the Cuban cigar industry.

It is a victory for Chen Zhi. But not necessarily good news for distributors of Cuban cigars. On October 21, a judge in the British Virgin Islands (BVI) announced his intention to dismiss winding-up petitions against 30 companies linked to the Chinese-Cambodian businessman, including a holding company with an indirect stake in Habanos S.A.

The decision opens the door for control of these companies to be returned to their directors. However, Chen Zhi, who is currently detained in China, remains subject to US, UK and EU sanctions. Returning the companies to the management of individuals he appointed could therefore make their banking relationships even more difficult.

Justice Gerhard Wallbank found that the BVI authorities had failed to present sufficient admissible evidence to justify winding up the companies. The ruling does not, however, address the merits of the allegations against Chen Zhi in the United States.

Control Has Not Yet Been Restored

For now, the companies’ directors have not regained control.

“No order has yet been made dismissing the applications or discharging the provisional liquidators,” Paul Kennedy and Grant Carroll of law firm Campbells, which represents 25 of the 30 companies, told L’Amateur de Cigare.

The joint provisional liquidators (JPL), appointed in January to safeguard the companies’ assets, remain in office, as they confirmed to us on October 29. The written judgment is expected to be released after November 6, while a further hearing, provisionally scheduled for December 8–9, will determine the arrangements for their departure.

The defense intends for management of the companies to be entrusted to Cosimo Borrelli, whom it describes as an independent fiduciary.

“The Court has expressly requested an orderly transition. It is intended that Cosimo Borrelli […] would be the independent fiduciary in charge of all of these companies going forward,” the two lawyers said.

Borrelli already identifies himself as a director of 25 companies, including Simply Advanced Limited. However, his representatives declined to provide the documents establishing the authority under which he was appointed.

Simply Advanced Limited occupies a significant position in the ownership structure of the Cuban cigar industry. The BVI company, owned by Chen Zhi, indirectly controls 57.1% of Allied Cigar, the group that owns Tabacalera. The Spanish company is one of the Cuban government’s principal partners in Habanos S.A., in which it holds an indirect stake.

The group also holds majority or minority interests in companies responsible for distributing Cuban cigars across Europe, a region that accounts for more than half of Habanos’ revenue. A substantial part of the distribution network is therefore indirectly affected by the proceedings involving Chen Zhi.

A Delicate Transition

Returning the companies to Borrelli’s management would not, in itself, change the ownership structure of Habanos and its distributors, nor would it lift the sanctions against Chen Zhi.

More importantly, replacing the provisional liquidators with a director appointed by Chen Zhi, even one described as independent, could prompt renewed reluctance among banks to deal with the companies. The licenses granted in the UK to Hunters & Frankau and in the US to Tabacalera USA could also come under review.

The BVI judge himself appears mindful of these risks. During the October 21 hearing, he warned that an immediate departure of the liquidators could lead to job losses and the closure of some businesses. He therefore called for a gradual, orderly transition.

Nevertheless, on November 2, Borrelli’s lawyers filed a motion with a New York court seeking to terminate the powers granted to the liquidators in the United States under Chapter 15 of the US Bankruptcy Code. They also accused the liquidators of failing to begin preparations to hand back control of the companies.

Asked about the practical implications of this transition for Allied Cigar and Tabacalera, particularly their banking relationships and day-to-day operations, the defense lawyers provided no specific answers.

One thing is clear: Chen Zhi’s legal victory will not unblock the bank accounts of Cuban cigar distributors. And, at least initially, it could make their operations even more difficult.

Laurent Mimouni