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Baha Mar’S Chapter 11 Filing ‘Severely Flawed’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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.

Comments

Well_mudda_take_sic 4 years, 2 months ago

WELL WORTH REPEATING: Our government never told Baha Mar and Sarkis Irzmirlian at the inception of the project, nor at any time before Baha Mar's Chapter 11 bankruptcy protection filing in Delaware and legal actions filed in the High Court in the UK, that Baha Mar would not be able to avail itself of laws in jurisdictions other than the Bahamas as a means of remedying major disputes that might arise during the development. If the agreements signed by Baha Mar with the Bahamian government and the Chinese enterprises concerned do not limit Baha Mar to seeking legal redress in the Bahamian courts for the claims relating to its grievances and its financial/liquidity needs attributable to those grievances, then the Christie-led PLP government is patently wrong in its application that Baha Mar be placed in liquidation by the Bahamian courts. Absent a limiting contractual undertaking, choosing the best jurisdiction for legal proceedings that must be initiated is a fundamental right of any private sector enterprise like Baha Mar. For the Bahamian government to now suggest, at this late stage of the development, that the project is a de facto public sector enterprise by virtue of being too large too fail, and therefore all legal proceedings relating to it must be brought before the Bahamian courts, is patently wrong and most harmful to the developer. As for the large sums currently owing by Baha Mar to the Bahamian government, the mere fact that the Bahamian government allowed these sums to become so large is prima facie evidence that the government was only too willing to extend significant sums of credit to Baha Mar to help out with the project's liquidity needs. In fact, it is generally well known that the Bahamian government has a well established history (rightly or wrongly) of extending very large amounts of credit to foreign developers. It is therefore a great travesty for the the Christie-led PLP government to now turn around and attempt in a most unjust way to pull the rug out from under Baha Mar. The behaviour of the Christie-led PLP government in this matter wreaks of vindictiveness and malicious intent, deviously masked by the pretense of concern for the sovereignty of the Bahamas. We can only hope that the impending ruling of Justice Winder will be seen as a most important step towards restoring the faith of the Bahamian people and the global community in the independence of our judicial system. We have a Constitution that expressly does not permit the "nationalisation" of privately owned assets by any means!

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Well_mudda_take_sic 4 years, 2 months ago

Hopefully Justice Winder knows only too well how receivership matters and liquidations drag on for many years in our Supreme Court because of the incompetency and/or shenanigans of the very highly paid Bahamian accountants and lawyers who, more often than not, are unable to set aside their enormous egos in order to best serve the interests of their clients as opposed to themselves. The Delaware Bankruptcy Court not only has great expertise and resources to handle large complex and important matters like the Baha Mar debacle, but also has a well-established track record for acting expeditiously. All of this is absolutely critical to the timely completion and ultimate financial success of the project at this critical and most time-sensitive juncture.

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TheMadHatter 4 years, 2 months ago

Yeah, the real funny thing here is that China is arguing that Baha Mar's action in Delaware only was meant to serve Baha Mar's self interest?

Really? Surprise?

I guess the surprise is that Baha Mar is the ONLY ONE who has a "self interest" in getting the resort opened up and operating. Bah Govt is clearly demonstrating it doesn't care whether the resort EVER opens up, and is taking great steps to pour glue all over the wheels of progress.

TheMadHatter

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Bahamian_in_London 4 years, 2 months ago

This statement is laughable: "...Bahamian insolvency proceedings would provide the most expeditious process...".

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Well_mudda_take_sic 4 years, 2 months ago

Re-posted from another article: Justice Winder fatally erred in his decision in as much as Baha Mar has never been technically insolvent under the insolvency laws of the Bahamas. As publicly admitted by the Christie-led PLP government, the concessions alone granted to the development have considerable value, upwards of the equivalent of US$1.2 billion. This is in addition to the circa $3.2 - $3.5 billion that has already been expended to bring the project to its publicly announced 97% completion state. A consolidated statement of financial position of the Baha Mar development prepared on a fair value basis immediately prior to the Bahamian government's announcement that it would petition for the liquidation of the project, would undoubtedly show that total assets exceeded total liabilities, in which case Baha Mar was technically solvent notwithstanding its liquidity problems. Much of this net asset value was immediately destroyed though upon the liquidation announcement by our government; and most of the destroyed value related to the Izmirlian family's equity stake in the project which has, for all intents and purposes, been wrongfully nationalized. The definition of bankruptcy under a Title 11 filing in Delaware is not the same as the definition of insolvency under the laws of the Bahamas. Therein lies the injustice of the petition for liquidation filed by our government. The Title 11 bankruptcy proceedings would have allowed for the liquidity problems to have been worked through by Baha Mar in an equitable way for all stakeholders; the same is not true of a liquidation proceeding in the Bahamas.

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