Chinese company Shanghai Pengxin's bid to buy the Crafar dairy farms will face a high-powered legal challenge from a rival group of buyers led by businessman Sir Michael Fay if it gains Overseas Investment Office approval.

However, Labour MP Trevor Mallard says a decision whether to approve the deal may be deliberately delayed until after a January 31 deadline imposed by Crafar farms receiver Michael Stiassny in order to spare the Government the diplomatic embarrassment of knocking back an offer said to be backed by the Chinese Government.

Nine months after it was first lodged, the Overseas Investment Office is still considering Shanghai Pengxin's $200 million offer for 16 dairy farms formerly owned by the Crafar family which were placed in receivership two years ago. Since Shanghai Pengxin made its offer, a consortium led by Sir Michael has emerged with a competing offer which, while lower, has been touted as better as it would keep the land under local ownership.

Yesterday, Sir Michael's consortium said it had hired leading Queen's Counsel Alan Galbraith and law firm Bell Gully to lead a legal challenge if the OIO approves Shanghai Pengxin's offer.


"Our view is that there's no way that Shanghai Pengxin meets the test in the OIO legislation which basically says the buyer must have business acumen and experience relevant to the investment," said Alan McDonald, spokesman for Sir Michael's Crafar Farms Purchase Group.

Meanwhile, Crafar receiver Mr Stiassny yesterday said he was sticking with the January 31 deadline he has set for Shanghai Pengxin to come up with an unconditional offer - which effectively means it must have OIO approval by then.

Shanghai Pengxin spokesman Cedric Allan said the company was likely to seek an extension of that deadline if an OIO decision was not forthcoming by then.

Mr Mallard said it might suit the Government to allow that deadline to pass without a decision from the OIO which must then be endorsed by ministers.

Mr Mallard this week said he understood ministers had been told Shanghai Pengxin was effectively owned by the Chinese Government.

Similarly, Mr McDonald said Sir Michael's consortium had been told by a minister that Shanghai Pengxin was "backed" by the Chinese Government.

Finance Minister Bill English yesterday would not say whether he was aware of any Chinese Government interest in Shanghai Pengxin or its offer but advised through a spokesman: "That question would be best directed to the company itself."

Mr Allan yesterday denied any Chinese Government involvement with Shanghai Pengxin and said the issue had already been extensively probed by the OIO.


But Mr Mallard said he understood the Chinese Embassy had been involved in discussions about the offer. Whether China's Government owned Shanghai Pengxin or was simply supporting its bid for the farms, it made the situation a difficult one for the New Zealand Government.

"With backing, and even more so if it's owned, it makes it harder diplomatically for people to tell them to piss off.

"Clearly the Government is under some sort of pressure, how much we don't know, but the fact that they must have knowledge of the Chinese Government's interest in it must in itself constitute pressure so they'll have that in their mind when they're making their decision."

Mr Mallard suggested Government ministers might have instructed the OIO to delay its decision until after Mr Stiassny's deadline.

"That might be the easiest way to deal with it - if it's left to Stiassny to deal with rather than the ministers."