By NEIL HARTNELL
Tribune Business Editor
Baha Mar’s contractor yesterday slammed its “severely flawed” bid for bankruptcy protection in the US, demanding that the case be dismissed because the “misuse” of Chapter 11 served only the developer’s interests.
China Construction America (CCA) has now launched the second arm of its two-pronged attack on Baha Mar’s Chapter 11 filing in the Delaware Bankruptcy Court, arguing that the Izmirlian family was “seeking to improperly” use the US court procedures to retain control of the project.
It further accused the developer and its principal, Sarkis Izmirlian, of filing the Chapter 11 petition “in bad faith” and “forum shopping” to “circumvent the effects of a Bahamian insolvency”.
Employing the same arguments as the Government in seeking to wrest control of Baha Mar’s fate from Delaware and bring it back to the Bahamas, China Construction America argued that the project had minimal nexus and connections with the US.
It emphasised that 14 of the 15 companies in the Baha Mar group were domiciled in the Bahamas, with only Northshore Mainland Services, the developer’s call centre operator, based in Delaware.
Arguing that the Bahamas should take precedence over Delaware as the legal jurisdiction in which Baha Mar’s future is resolved, the Chinese construction company alleged: “The Court should dismiss the Chapter 11 cases to enable the Bahamian courts to proceed.
“The debtors’ [Baha Mar] severely flawed pleadings and attempt to misuse the US bankruptcy system for their own benefit implicate three separate grounds for dismissal. First, these cases do not belong in a US Bankruptcy Court and should be dismissed.
“Second, because the debtors filed their petitions in bad faith, dismissal is appropriate under section 1112(b) of the Bankruptcy Code.... Finally, given the debtors’ attempts to abuse the US bankruptcy system, the court should dismiss the Chapter 11 Cases with prejudice.”
China Construction America’s arguments draw heavily on the Government’s own affidavits and supporting material for the Baha Mar winding-up petition filed with the Supreme Court, plus Prime Minister Perry Christie’s national address last week and a letter written by the Attorney General to its Beijing-based parent (see other article on Page 1B).
Parroting the Government’s line, China Construction America’s filings with the Delaware court yesterday argued: “These proceedings belong in the Bahamas, not the United States.
“Although Bahamian insolvency proceedings would provide the most expeditious process and the best protection for all parties’ interests, the debtors have sacrificed these interests by seeking to improperly use the Chapter 11 process to retain control over a project which has no connection to the US.
“The debtors’ only motivation for filing for bankruptcy protection in the US was to retain control over the project as ‘debtors in possession’. at the expense of their creditors and their own estates.”
China Construction America’s filing correctly identifies the key issue as ‘control’. Under Chapter 11 procedures, Mr Izmirlian and his family will remain in the driver’s seat. But if the Government’s winding-up petition succeeds, and the Chapter 11 recognition is rejected, control will pass to the provisional liquidators named by the Supreme Court.
The contractor yesterday alleged that Baha Mar and Mr Izmirlian were attempting to use the Chapter 11 filing as “a bargaining chip”, and to strengthen their negotiating hand in talks with their Chinese partners to resolve the dispute.
China Construction America accused Baha Mar of using the Delaware action “as a bargaining chip in contractual and other negotiations with the Government of the Bahamas, CCA Bahamas and other creditors.
“In their attempt to safeguard their position as owners of the project, the debtors have sacrificed the interests of their creditors, the project, the Bahamian people and all other parties-in-interest.
“Indeed, the debtors’ own pleadings suggest that if the debtors were permitted to continue their insolvency proceedings in the US, the completion of the project will be substantially delayed and the ultimate outcome of the project will be uncertain,” the contractor added.
“The project is one of the largest of its kind in the Western Hemisphere and has significant implications for the economy and people of the sovereign nation of the Bahamas.
“The rapid completion of the project is critical for all parties-in-interest and is the only path to maximise the value of these estates’ assets.
“The Bahamas, which has the most significant interests in the project, offers a more efficient ‘corporate rescue regime’ that will better protect the creditors and the assets of the debtors’ estates.”
China Construction America continued: “The debtors here should not be permitted to use Chapter 11 as a ‘sword’ in their dispute with CCA Bahamas, the Bahamian Government, and the Bahamian creditors.
“The debtors are merely attempting to retain control over the project and to modify or avoid their obligations to their creditors, including the Bahamian Government, to which they owe $59 million.
“Retaining control over reorganisation in a Chapter 11 proceeding certainly would be in the interests of Baha Mar’s management and the developer. A forum that benefits Baha Mar’s management, however, does not necessarily benefit the debtors or their creditors.”
China Construction America alleged that Baha Mar’s plans to downsize to a 50-strong ‘skeleton’ staff if the dispute was not resolved soon “demonstrates” how the developer was using Chapter 11 as “a bargaining chip”.
Tribune Business reported yesterday how China Export-Import Bank was reluctant to exercise the powers it possesses under its $2.45 billion debt security due to the ongoing Chapter 11 proceedings and associated orders that have already been made.
Because both itself and China Construction America possess interests and assets in the US, the bank is worried that it could be held in ‘contempt of court’ and subject to sanctions if it contravenes the Delaware court orders.
That is why Baha Mar’s Chinese partners want the winding-up petition by the Government to succeed, as the provisional liquidator will then cease the Chapter 11 case, paving the way for them to exercise their own remedies.
The contractor also effectively ‘joined forces’ with the Government and China Export-Import Bank, Baha Mar’s debt financier, in the Supreme Court yesterday to oppose recognition of the Chapter 11 proceedings in the Bahamas.
China Construction America has also filed a motion asking the Delaware Bankruptcy Court to “defer” any decisions on Baha Mar’s Chapter 11 procedure until its motion to dismiss the proceedings is heard on August 17.