By NATARIO McKENZIE
Tribune Business Reporter
Baha Mar has urged a Delaware Court to strike out a motion by China Construction America (CCA) Bahamas and China Export-Import (CEXIM) Bank calling for the dismissal of its Chapter 11 bankruptcy cases, stating that it was “baffling” that both parties have failed to explain how the creditors would fare better in a winding-up action in this jurisdiction.
Baha Mar said yesterday that CCA’s dismissal motion is “nothing more than an attempt to avoid the prospects of having CCA’s contract rejected, its conduct investigated under Bankruptcy Rule 2004, and the assertion of substantial claims against it determined by the Court overseeing the Chapter 11 Cases.”
In the case of the CEXIM Bank, the developer described its dismissal motion as “an effort to avoid the stay of proceedings that precludes it from foreclosing on its security interests (and thus holding a hammer over other parties to the negotiating process) and to circumvent the possibility of being crammed down under a plan of reorganisation.”
Baha Mar Ltd - through its affiliate Northshore Mainland Services, a Delaware company - filed for bankruptcy protection on June 28. In July, CCA Bahamas had filed motion to dismiss with prejudice the resort developer’s Chapter 11 bankruptcy cases, maintaining that the Bahamian Supreme Court is the only acceptable forum for resolution. It also asserted that Baha Mar Ltd had failed to demonstrate any of the debtors with alleged US ties had conducted any business or held any property or asset in the US and further argued that Baha Mar sought US bankruptcy protection solely to avoid bankruptcy proceedings in The Bahamas.
Outlining its objections in court documents filed yesterday however, Baha Mar urged the court to deny the deny the dismissal motions, arguing that, the Delaware court has proper jurisdiction over the debtors and their assets; that the dismissal would not be in the best interests of all creditors and the estates.
“As to jurisdiction, all of the Debtors own assets in the United States. In addition, Northshore was incorporated and operates in the United States, and the entire enterprise regularly conducts business in the United States. Moreover, approximately 60 per cent in number and nearly 70 per cent in amount of the unsecured claims against the Debtors (excluding CCA’s alleged claims) are held by creditors located in the United States,” the developer said.
“As to the best interests of creditors and the estates, it is baffling how CCA and CEXIM Bank completely fail to explain how both the creditors and the estates would fare better in a liquidation under The Companies (Winding Up Amendment) Act, 2011, assuming the Bahamian Court even granted such relief as to all of the Debtors (which is not a foregone conclusion), than in the Chapter 11 Cases.
“The Winding Up Act simply does not provide for restructuring (for if it did, the Chapter 11 Cases may not have been necessary in the first place) nor does it contain the tools necessary to permit an effective restructuring to take place (like a stay on secured creditors or the ability to confirm a plan over the objection of certain creditors). Indeed, under the Winding Up Act, the Debtors would not be able to affect the rights of secured creditors and, thus, the most likely outcome would be a foreclosure by CEXIM Bank that would wipe out the claims and interests of all other parties in interest,” the developer argued.
Baha Mar said that contrary to CCA’s and CEXIM Bank’s “bald allegations” it had not commenced the Chapter 11 Cases for some unspecified tactical advantage and in bad faith, but had done so because of, among other reasons; the failure of CCA, China State Construction Engineering Corporation (CSCEC), CEXIM Bank, the Government of The Bahamas, and others to fund their respective outstanding obligations to the Debtors, totalling approximately $203 million and CCA’s inability to complete construction.
“Such failures - particularly by CCA and CEXIM Bank themselves - led to liquidity constraints and the possibility of action by various parties that could have precluded any restructuring. Seen for what it really is, the CCA Dismissal Motion is nothing more than an attempt to avoid the prospects of having CCA’s contract rejected, its conduct investigated under Bankruptcy Rule 2004, and the assertion of substantial claims against it determined by the Court overseeing the Chapter 11 Cases,” said the developer.
It added: “In the case of CEXIM Bank, the CEXIM Dismissal Motion is an effort to avoid the stay of proceedings that precludes it from foreclosing on its security interests (and thus holding a hammer over other parties to the negotiating process) and to circumvent the possibility of being crammed down under a plan of reorganisation. In bringing the Dismissal Motions, CCA and CEXIM Bank conveniently ignore that the Court can confirm a plan of reorganisation, assuming the Debtors otherwise satisfy the requirements of section 1129 of the Bankruptcy Code, because (a) the Court has jurisdiction over the Debtors and their assets, (b) CCA and CEXIM Bank, the estates’ largest purported creditors, have now appeared in the Chapter 11 Cases and, thus, are subject to the jurisdiction of the Court, (c) many other creditors, including most of the estates’ have appeared in the Chapter 11 Cases or are otherwise subject to the Delaware court’s reach, and (d) most of the estate’s creditors, in number and dollar amount, as well as the counter parties to Debtors’ contracts, are located outside of the Bahamas.”
Baha Mar, argued that the the “debtors” Northshore and the affiliated companies have satisfied the eligibility requirements under section 109(a) of the bankruptcy code and further that both CCA and CEXIM ignore the fact that significant ties exists between both the debtors and their creditors and the United States. The developer has also argued that CCA and CEXIM Bank fail to establish that cause exists to dismiss the Chapter 11 cases as “bad faith” filings pursuant to Section 1112 (b) of the Bankruptcy Code based on the totality of the circumstances.
Baha Mar has also argued that CCA has failed to prove that the Debtors filed the Chapter 11 cases to obtain a tactical litigation advantage. “CCA contends that the Chapter 11 Cases ‘should be dismissed because the Debtors filed Chapter 11 in the United States for the primary purpose of obtaining a tactical advantage’. Once again, however, CCA offers no evidence to support that mistaken contention.” Baha Mar said that CCA was “severely misguided in its characterisation of the Debtors’ motives”.
The developer concluded that CCA and CEXIM Bank were seeking the dismissal of the Chapter 11 cases to “further their own pecuniary interests”.
“In the case of CCA, the CCA Dismissal Motion is nothing more than an attempt to escape the possible rejection of the Master Construction Contract, the Bankruptcy Rule 2004 investigation into their conduct, and possible affirmative claims against them. In the case of CEXIM Bank, the CEXIM Dismissal Motion is an endeavour to do away with the continued imposition of the stay that precludes it from owning the Project free and clear by foreclosing on its security interests and eliminating all other claims and interests.
“CCA and CEXIM, however, fail to establish that jurisdiction in this Court is improper or that dismissal would be in the best interest of creditors - for it is not. Only the Chapter 11 Cases provide a fully developed, time-tested, often-used scheme that permits the orderly restructuring of a company with protections and tools provided to all parties in interest. Indeed, dismissal of the Chapter 11 Cases would be harmful to creditors and the Debtors and benefit no one other than CCA and CEXIM.”