The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Supreme Court yesterday ruled it had no authority to create an insolvency regime tailor-made to Baha Mar’s requirements, even though it agreed that the $3.5 billion developer “could not be faulted for forum shopping”.

Justice Ian Winder, in refusing to grant an Order that would recognise Baha Mar’s Chapter 11 case in Delaware as the “primary insolvency proceedings”, seemed to acknowledge that the developer had every right to seek the best possible option for securing its “survival”.

Yet his written ruling found that there was nothing in Bahamian statute law to give Baha Mar and its principals, the Izmirlian family, the relief and protections they were seeking.

Justice Winder also ruled that the 2011 passage of the Companies Winding-Up (Amendment) Act effectively knocked out any common law remedies that could have assisted Baha Mar.

And the relief being sought was “contrary to public policy”, in that it interfered with the statutory rights of Baha Mar’s $2.45 billion secured creditor, the China Export-Import Bank, to realise upon its security while simultaneously demoting it behind the Government in the creditors’ list.

Justice Winder, in what appeared to be a careful, considered ruling designed to cover all bases, delivered a comprehensive defeat to Baha Mar’s application, although he yesterday permitted the developer to appeal to the Court of Appeal.

Outlining the rationale for his verdict, Justice Winder said of Baha Mar: “The applicants have admitted to forum shopping, but probably could not be faulted for doing all that they thought possible to ensure their survival.

“Despite the attractiveness of the laws of our neighbours, it is not for the court to advance matters which are the exclusive purview of the legislature.”

Justice Winder said Baha Mar had sought an Order recognising the Chapter 11 bankruptcy protection case as the “primary insolvency proceedings”, and giving these - and all decisions flowing from them - legal effect in the Bahamas.

The developer also wanted the Supreme Court to enforce the “automatic stays” under section 362 of the US Bankruptcy Code, which prevent creditors from acting against it, although it conceded that the Bahamian government would not be bound by this.

Justice Winder agreed with the “observations” of the China Export-Import Bank’s attorney, Brian Simms QC, that Baha Mar’s application was “misconceived” because it was asking the Supreme Court to recognise “the foreign insolvency proceedings themselves”.

Mr Simms had pointed out that standard procedure was to ask the Supreme Court to recognise the authority of a liquidator appointed by a foreign court.

Yet no liquidator had been appointed for Baha Mar, and Mr Simms argued that the developer (Izmirlian family) was effectively asking Justice Winder to “give effect to the US Bankruptcy Code” and “apply US insolvency legislation in the Bahamas”.

US law does not apply in the Bahamas, and Justice Winder said the 14 Bahamian-domiciled companies appeared to have been “improperly joined”.

He suggested that Northshore Mainland Services, Baha Mar’s one Delaware-domiciled company, should have instead applied to the Supreme Court for recognition of its appointment by the Delaware court as the foreign representative for all 15 of the developer’s companies.

Justice Winder, though, said he was prepared to overlook this and the complaint by Baha Mar’s creditors - the Government, the bank, China Construction America and Cable Bahamas - that the developer’s application was “procedurally flawed”.

Focusing on the merits, Justice Winder agreed with the Government and creditors that the Companies Winding-Up (Amendment) Act had “abrogated” and common law powers that could be used to recognise and assist Baha Mar’s application.

“I find it to be an untenable proposition that a statutory scheme created by the Companies Winding-Up (Amendment) Act, which limits the power of the court to grant recognition and assistance only to the countries which have been designated to receive assistance, could expect to co-exist with a parallel regime providing assistance to countries which are not designated to receive assistance,” Justice Winder wrote.

“Such co-existence would clearly undermine the statutory framework and render its entire application otiose. Parliament could not have intended such an absurd result, and must therefore have, by necessary implication, repealed it [common law].”

Baha Mar argued that the Companies Winding-Up (Amendment) Act was not designed to affect Bahamian companies that were the subject of foreign proceedings, such as its own.

Justice Winder, though, said he found it “difficult to accept” the notion that the Act will not help a foreign court winding-up a company not incorporated in its jurisdiction.

Describing Baha Mar’s argument as an “absurdity”, he added: “Why would Parliament find it distasteful for a foreign court to permit insolvency proceedings against corporations which are not incorporated in that jurisdiction, yet permit this in respect of Bahamian corporations.”

Given that no ‘savings clause’ to protect common law was included in the Companies Winding-Up (Amendment) Act, Justice Winder said this reflected Parliament’s intention that such remedies were not to survive the law’s 2011 enactment.

He then moved to deal with Baha Mar’s argument that the principles of ‘universalism’ required that insolvency proceedings be held in a single jurisdiction, and that courts in other nations simply recognised and assisted them.

Justice Winder backed the arguments by the Government and Baha Mar’s creditors that “a Bahamian liquidation of a Bahamian incorporated company” should be the main proceedings.

And he agreed that there was “considerable force” to their arguments that Baha Mar’s 2,500 employees and thousands of creditors had a legitimate expectation that any insolvency proceedings would take place in the Bahamas, not Delaware.

This was especially given that 14 of the 15 Baha Mar companies, and all the project’s assets, are located in the Bahamas and not the US - something admitted by the developer.

“The only insolvency proceedings which can give true effect to the principal of modified universality would be a unitary insolvency proceeding in the Bahamas,” Justice Winder found, adding that Delaware did not afford this even if it offered “an attractive restructuring regime”.

Justice Winder then agreed with Mr Simms and the China Export-Import Bank that the Supreme Court had no power under Bahamian law to enforce Delaware’s ‘global stay’ on secured lenders such as itself.

“For the court to extend this automatic stay to a foreign insolvency in the absence of a winding-up Order or appointment of a provisional liquidator, in the context of this matter, would amount to adjusting the legislation to suit the applicants’ case in a manner not permitted by the legislation,” Justice Winder found.

“In the exercise of the court’s power to assist, I cannot treat the US Bankruptcy as a domestic insolvency and thereby access statutory provisions, which were created for the purposes of a domestic insolvency.”

Justice Winder added that the stay sought by Baha Mar was also “contrary to public policy”, as the ‘carve out’ of the Government effectively enabled it to leapfrog China Export-Import Bank, the secured creditor, in the creditors’ queue.

This is contrary to the provisions of the Companies Winding-Up (Amendment) Act, and would “create an inequitable result which skews the usual priorities in the distribution process.

“This exception would also appear to offend public policy by according preferential treatment to an unsecured creditor,’ Justice Winder found.