The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A huge battle over who should wind-up an alleged multi-million dollar fraud, a case that has embroiled a BISX-listed company, has ended with the Supreme Court appointing a combination of PricewaterhouseCoopers (Bahamas) and the US receiver as liquidators.

In a November 12, 2012, ruling, Chief Justice Sir Michael Barnett backed an application by investors claiming to be owed $99.4 million, and appointed PwC (Bahamas) accountants Kevin Seymour and Kevin Cambridge as official liquidators for BC Capital Group and its International affiliate.

They, together with Brick Kane, the US receiver from Robb Evans & Associates, have replaced Bahamian accountant James Gomez, who was appointed as BC Capital Group’s original liquidator by the company’s principals.

The PwC duo and Mr Kane also had to fend off a rival application by another BC Capital creditor group, who alleged they were owed a collective $77.6 million and wanted the KPMG (Bahamas) pairing of Simon Townend and Juan Lopez to act as the liquidators.

That group, represented by Brian Simms QC, senior partner in charge of litigation at Lennox Paton, had opposed Mr Kane on the grounds that his duties as receiver in the US, and liquidator in the Bahamas, represented a potential conflict of interest.

They also argued that Maven, the creditor pushing for his appointment, and that of the PwC duo, was a BC Capital Group affiliate and should not be listened to. The Chief Justice, though, shot down both arguments.

Detailing the background to the liquidator dispute, the Chief Justice noted that BC Capital Group’s principals, Abel Pacheco and Nikolai Battoo, resolved at an extraordinary general meeting (EGM) on July 27, 2012, to appoint Mr Gomez liquidator and voluntarily wind-up the firm and its principals.

“It is common ground that although the companies were incorporated in Panama, all of their businesses were conducted from the Bahamas,” Sir Michael wrote.

“It is apparent from the shareholders resolution that the winding up was intended to be conducted pursuant to the laws of the Bahamas.”

On September 20, 2012, Mr Gomez announced he was petitioning the Supreme Court to make BC Capital Group’s winding-up court supervised and he be the appointed liquidator.

This generated the counter-applications for who should be the liquidator, although all involved backed the liquidation becoming Supreme Court-supervised.

Court documents filed in the US, and previously disclosed by Tribune Business, detailed how BC Capital Group operated in the Bahamas through Alliance Investment Management, the broker/dealer subsidiary of Benchmark (Bahamas).

US regulators have described Alliance Investment Management as BC Capital Group’s “pliant custodian”, with the Securities & Exchange Commission (SEC) alleging: “Battoo enjoys a cozy relationship with Alliance, with whom over the years he has shared a Bahamian office space, a PO Box, a telephone number, and a fax number.

“The principal of Alliance [Julian Brown] also sits on PIWM’s ‘investment advisory board’ and its ‘professional executive board’.”

There is nothing to suggest that Mr Brown, Alliance, Benchmark and their officers/directors have done anything wrong in relation to the BC Capital Group affair, but the situation recently prompted Benchmark to effectively issue a profits warning to its Bahamian shareholders for 2013.

An October 31, 2012, report by Mr Gomez concluded from an initial review of the files and records at Alliance Investment Management that BC Capita Group’s “assets will be insufficient to satisfy liabilities”, and acknowledged the allegations of fraud and potential competing claims against the company from different nations.

In his ruling, Sir Michael repeated the liquidation petition, which read: “Although incorporated in Panama, the company maintained significant cash assets within the Bahamas and transacts no business from Panama, nor does it have operations in any Spanish-speaklng country.

“The company’s principal custodian, Alliance Investment Management (AIM), carries on business in Nassau, Bahamas, and a number of mutual funds in which the company has invested are registered in the name of AIM on behalf of the BC Capital Group of companies. Further, it appears AIM’s Nassau offices serve at the hub of the company’s business activities.”

Mr Gomez had asked the Supreme Court to confirm him as the official, court-supervised liquidator, saying he had the backing of BC Capital Group clients claiming to be owed $22.8 million.

KPMG’s partners, meanwhile, said they could not act as joint liquidators with Mr Kane. Yet the investors pushing the KPMG duo said they would favour PwC over Mr Gomez, with those promoting PwC adding that they would take KPMG if their application was rejected.

Mr Gomez had offered to act as a joint liquidator, and his attorney, John Wilson of McKinney, Bancroft & Hughes, argued that as the firms involved were Panamanian, only his client - as the one appointed voluntarily - could become the court-supervised liquidator.

Sir Michael dismissed this, saying the Supreme Court could appoint who it liked as liquidator.

He added: “As can be seen, the majority of creditors and investors do not wish for Mr Gomez to be appointed the official liquidator. Mr Gomez argues that he should not be removed. How then should the court determine this issue?”

Mr Gomez argued that he had done nothing wrong since being appointed, the only complaint against him being that he was appointed by the BC Capital Group principals.

But, while Mr Gomez said it would not be in the liquidation’s interests to disrupt work he had already started, Sir Michael conceded that the investors were “less than comfortable” that he would have to pursue their claims against the man who appointed him.

In rejecting the arguments put forward by Mr Simms’s clients, Sir Michael said he was not convinced that a conflict between Mr Kane’s US and Bahamian obligations would arise when it came time to distribute recovered assets to creditors.

“I am not satisfied that such a conflict will exist or, if it arises, that the court cannot resolve such conflicts if and when they arise,” he ruled.

“Further, I do not regard as material the fact that Mr Kane is being proposed by Maven. Even if Maven is an affiliate of BC Capital, Mr Kane was appointed by the US District Court at the instance of the CFTC. That court had confidence in Mr Kane, and I am confident that he is not a nominee of Maven.”

And, also rejecting Mr Simms’ submission that Mr Kane was not qualified to act under the Insolvency Practitioners Act, Sir Michael concluded: “In my judgment it is in the interest of the companies that there should be cooperation between the work of the receiver and that of the liquidator.

“It serves no purpose for both of them to be going after assets separately. The creditors are not served by two different persons seeking to recover the same assets, one in the capacity of a receiver and another in the capacity as a liquidator.”

Philip Dunkley QC, of Higgs & Johnson, acted for Maven.