Published On:Wednesday, December 09, 2009

By NEIL HARTNELL

Tribune Business Editor

A judge has found the Board of Trustees for one of the British Colonial Hilton's owners "failed in their duty" to supervise investments in that property and their other Bahamian holding, the South Ocean resort, with members of its investments committee also guilty of breaching regulatory guidelines.

Canadian Supreme Court Justice Beverly Brown, in a December 7 judgment, found three members of the Canadian Commercial Workers Industry Pension Plan's (CCWIPP) investment committee - Bernard Christophe, Gordy Cannady and Clifford Evans - guilty of breaching "the 10 per cent quantitative limits" rule that limited the amount of plan funds they could invest in one asset - namely the British Colonial Hilton and South Ocean.

The three were also members of the plan's Board of Trustees, who were all found guilty of "failing in their duty to supervise the members of the investment committee as was prudent and reasonable" as it related to the investment limits established in the Canadian Pension Benefits Act and its regulations.

Detailing the case brought against the CCWIPP trustees by the Canadian state, Judge Brown said two counts brought against the trustees "relate t the investments by the plan in the British Colonial property in the Bahamas, which is a hotel and commercial complex". A further two counts related to the South Ocean Resort, the other New Providence-based property in which CCWIPP is still invested.

The judgment recalled how CCWIPP, through its PRK Holdings vehicle, was forced to take over the British Colonial Hilton and South Ocean after former owner Ron Kelly, and his RHK Capital vehicle, defaulted on their debt repayments to the pension plan, forcing a restructuring.

"Various loans were made to resort and hotel properties in the Caribbean prior to the offence period," Justice Brown wrote. "Additional funds were advanced during the offence period for British Colonial [Hilton], in the Bahamas, which is a hotel and commercial complex, and for the South Ocean property in the Bahamas, which is a golf and beach resort.

"The total outstanding loans at the time of the restructuring in December 2000 was in excess of $92 million." CCWIPP's PRK Holdings took over ownership of both South Ocean and the British Colonial Hilton.

CCWIPP was forced, as a result of its exposures and the multi-million dollar losses being suffered by its two Bahamian resort properties, to seek potential purchasers or joint venture partners for them. It also had to support the two hotels' operations and "provide ongoing funding".

"Further advances were made in April 2002 in the amount of $4.7 million, January of 2003 for $2 million, in March 2003 for $24,000 and a retainer of $25,000 for PricewaterhouseCoopers to act as brokers and investment bankers to facilitate the sale of the Caribbean properties," the judgment recorded.

"Additional funding was approved in April 2003 for slightly above $4 million. In September 2003, the investment committee approved funding of $3.45 million. Finally, in December of 2003, an additional loan in excess of $5.6 million was approved."

This meant that almost $20 million - some $19.554 million - was pumped into the British Colonial Hilton and South Ocean over a one-year period, both to keep them afloat and find a solution to its predicament. Ultimately, some $16.42 million was received due to delays in paying advances.

Indeed, some might say CCWIPP has never found a solution to its Bahamian over-exposure, as it is now mired in disputes over both the British Colonial Hilton and South Ocean, unable to exit because it cannot recoup the full value of its investments - something sure to attract regulatory attention back in Canada.

At the former resort, CCWIPP has initiated arbitration proceedings against its joint venture partner Adurion, to whom it sold a controlling 71 per cent interest less than three years ago. CCWIPP is attempting to prevent Adurion from calling in, or refinancing, a $22 million loan on the grounds that the British Colonial Hilton is unable to repay it.

And at South Ocean, where it has a $75 million first mortgage debenture on the property, CCWIPP's attempt to foreclose and bring an early end to the dispute between its partners, RHS Ventures and Plainfield, was thwarted on a technical point in the Bahamian Supreme Court.