The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar allegedly owes the Government “at least” $59 million in unpaid taxes, fees and utility bills, including monies due to the National Insurance Board (NIB) and for work permit fees.

These details are contained in the Christie administration’s July 16 petition to wind-up Baha Mar’s 14 Bahamian-domiciled companies and appoint the PricewaterhouseCoopers (PwC) accounting firm as their provisional liquidators.

Justifying its action, the Government said the collective $58.845 million owed to it showed “it is clear that the respondents [the Baha Mar companies] are insolvent, and are unable to pay their debts as they fall due”.

It also questioned whether the developer has “sufficient funding” to pay all that would be due to the 2,400 employees who it may start making redundant within days.

The petition to the Supreme Court argues that a winding-up is “just and equitable” given that the Government had provided around $1.2 billion in tax, land and other concessions to the $3.5 billion Baha Mar project, and because of the “huge public interest” in the development succeeding.

The petition, which is attempting to wrest control of Baha Mar’s fate away from the Delaware Bankruptcy Court’s Chapter 11 proceedings, makes clear the Government’s fear that this nation’s creditworthiness faces an imminent downgrade by Standard & Poor’s due to the ongoing dispute between the $3.5 billion project’s stakeholders.

The Government and its agencies are collectively the second largest unsecured Baha Mar creditor behind China Construction America, the project’s contractor, which is owed some $72.6 million.

“As of the date of this petition, the respondents (collectively) are indebted to the petitioners in the sum of (at least) $58.845 million,” the Government’s petition alleged.

It implied that this sum could increase, as the Christie administration was “reserving its position” over how to recoup from Baha Mar the two weeks’ worth of salary payments that it made to the developer’s staff on July 7.

Breaking Baha Mar’s alleged debts to the Government down, the greatest sum - some $26.33 million or nearly 45 per cent - is owed to the Bahamas Electricity Corporation (BEC).

Other debts include:

• Some $3.087 million owed to the Water & Sewerage Corporation.

• $3.342 million in real property tax arrears

• $303,337 in Business Licence fees. This is broken down into $289,854 owing for the Wyndham hotel, and a further $13,482 due on the Cable Beach Golf course

The total owed for rea;l property taxes and Business Licence fees allegedly equals $3.646 million.

• Baha Mar also owes a total $697,446 in unpaid NIB contributions, including interest, on behalf of staff for the months April and May 2015.

And, according to the Government’s petition, Baha Mar’s bills do not stop there.

“The respondents [Baha Mar] are indebted to the Department of Immigration for non-payment of work permit fees,” the Government’s petition alleged. “The amount outstanding for non-payment of work permit fees as at July 3, 2015, totals $166,169.”

Questions are likely to be asked about how long this debt has been allowed to accrue, and whether the Department was issuing work permits without first receiving payment.

Elsewhere, Baha Mar allegedly owes the Gaming Board some $11.219 million in unpaid casino taxes. The winding-up petition breaks this down into $9.419 million worth of winnings arrears at the former Crystal Palace, with the $1.8 million balance consisting of ‘basic taxes’.

“In addition, the respondents are indebted to the Gaming Board of the Bahamas in the sum of $10.75 million (the deferred sum),” the winding-up petition alleged.

“The timing of payment of this was deferred pursuant to terms agreed between the respondents and the Gaming Board.

“However, on current facts, it seems highly unlikely that the respondents will be in a position to fulfil their obligations under those terms, and so the Gaming Board of the Bahamas reserves its rights in full in respect of the deferred sum.”

Then there are $2.604 million worth of hotel guest taxes allegedly due to the Ministry of Tourism.

“The respondents owe the Ministry of Tourism the total amount of $3.117 million,” the Government’s winding-up petition alleged.

“This outstanding amount represents outstanding hotel guest tax arrears for Melia Hotel for the period November and December 2014 in the amount of $351,103; Wyndham Hotel guest tax arrears in the amount of $2.253 million for the period November 2011-July 2014; and outstanding obligations for airlift subsidy totalling $512,500.

Emphasising that the Christie administration was justified in bringing the winding-up bid because it was itself a creditor, the petition alleged: “The Government of the Bahamas and its entities have provided an estimated $1.2 billion dollars’ worth of concessions to the respondents to facilitate the development.

“There is also a huge public interest in the project owing to the more than 2,000 employees employed in the project, and economic importance of the project to the Bahamas.

“The Government has a major stake in the Baha Mar project, and should the Order not be made the Government will suffer economically, particularly with its credit rating, which is under threat of being downgraded by Standard & Poor’s (S&P).”

The Government alleged that the 14 Baha Mar companies are “unable to pay their debts as they fall due”, as indicated by the $123 million owed to various unsecured trade creditors.

It suggested that Baha Mar would be unable to pay employees what they were due by law under the Employment Act should it execute plans to slash its 2,400-plus workforce to just 50 staff.

“The respondents have indicated that they intend to make redundancies in respect of almost their entire workforce,” the Government’s winding-up petition alleged.

“Based on current information, the respondents do not have sufficient funding to compensate employees. Compensation payments can only be made if the respondents are able to secure additional funding.”

Sarkis Izmirlian, Baha Mar’s chairman and chief executive, had put in place an $80 million financing facility to cover the project’s working capital needs, including redundancy payments, via the Chapter 11 proceedings.

However, opposition from the Government and Baha Mar’s Chinese partners to those proceedings being recognised in the Bahamas has, for the moment, blocked use of that $80 million facility.

The Government, meanwhile, argued that PwC’s appointment as provisional liquidators was “in the public interest”, and was “necessary to prevent the dissipation” of Baha Mar’s assets via the Chapter 11 proceedings.

The PwC Advisory (Bahamas) liquidators, who have been lined up to take over, are managing partner, Prince Rahming; Gowon Bowe (also the Bahamas Chamber of Commerce and Employers Confederation’s chairman); and Garth Calow.

PwC’s appointment as Baha Mar’s provisional liquidators still has to be approved by the Supreme Court before it can take effect, and the move is likely to be fiercely opposed by the developer and its principals, the Izmirlian family.

Tribune Business understands that the winding-up petition is set to be heard before Justice Ian Winder, the same judge who today will deal with Baha Mar’s application for the Delaware Chapter 11 proceedings to be recognised - and given legal effect - in the Bahamas.

It is unclear whether the winding-up petition will be heard today along with the Chapter 11 issue, but given that the two are inextricably linked this seems likely, time permitting.

Given what is at stake, and the deep-rooted, bitter nature of the dispute, there is a high probability both will make their way through the Bahamian legal system to the Privy Council.

The winding-up petition, meanwhile, says PwC will work with Baha Mar’s major stakeholders on proposals to restructure the development so that it can be completed and opened “within the shortest practicable timescale”.

The 14 Baha Mar companies subject to the winding-up petition are: Baha Mar Ltd; Baha Mar Land Holdings Ltd; Baha Mar Operating Company Ltd; Riviera Golf Ventures Ltd; Baha Mar Entertainment Ltd; Cable Beach Resorts Ltd; Baha Mar Enterprises Ltd; Baha Mar Support Services Ltd; Baha Mar Sales Company Ltd; Baha Mar Leasing Company; Baha Mar Properties Ltd; BMP Golf Ltd; BMP Three Ltd; BMP Properties Ltd.