The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian is accusing Baha Mar’s receivers of “failing to properly pursue” the company’s $192 million damages claim against its contractor’s Chinese parent.

The former Baha Mar developer’s Granite Ventures vehicle, in documents filed with the Supreme Court, is alleging that Deloitte & Touche is neglecting to chase one of the most valuable potential recovery sources for the project’s creditors.

These creditors include Bahamian contractors, vendors and Baha Mar’s former employees, and the February 18 legal filings imply that all may lose out unless the legal action against China State Construction Engineering Corporation (CSCEC) is advanced.

The documents, obtained by Tribune Business, reveal that Mr Izmirlian/Granite Ventures sought to acquire the rights to the legal claim against CSCEC on February 9, 2016.

However, their letter to the receivers and their ‘boss’, the China Export-Import Bank, has yet to spark a reply.

“The receiver-managers [Deloitte & Touche] have failed to pursue either adequately or at all the Baha Mar claim, and have rejected an offer by Granite to buy the Baha Mar claim and then pursue it, to the benefit of the respondent [Baha Mar],” Granite Ventures alleged in filings last Thursday.

A former Baha Mar executive, in an accompanying affidavit, said Mr Izmirlian and Granite Ventures believed pursuing CSCEC in the UK courts would “significantly improve” the recovery prospects for Baha Mar’s Bahamian creditors.

Whitney Thier, Baha Mar’s ex-general counsel, alleged: “Neither the receiver-managers nor the joint provisional liquidators have taken any material steps to realise the value of the Baha Mar claim, even though it is a significant asset in the company’s estate.

“Granite believes.... that realisation of the Baha Mar claim would significantly improve the prospects for recovery for the company’s Bahamian creditors.”

Ms Thier, now Granite Ventures’ corporate secretary, added: “Granite itself is a creditor of the company, and wishes to see the Baha Mar claim realised for the benefit of all the creditors of the company.

“Granite has made an offer to purchase the Baha Mar claim, but no response to that offer letter has been received at the date of my swearing this affidavit.

“The directions sought [from the court] will put in place a procedure by which the value of the Baha Mar claim will be realised for the benefit of the company’s creditors.”

Mr Izmirlian’s latest legal move is effectively a neat little strike at the heart of the cosy relationship that exists between the China Export-Import Bank, as project financier, and CSCEC as parent to its general contractor.

Given that both have the same owner in the Beijing government, the China Export-Import Bank will be reluctant to pursue any major legal claim against what is an affiliate, especially given that it will want - and be reliant upon - CSCEC to complete Baha Mar’s construction.

The legal filings also position Mr Izmirlian as someone who is standing up for the best interests of Bahamian creditors, especially as they are unlikely to be ‘made whole’ by the Chinese.

Granite Ventures is thus petitioning the Supreme Court to approve a process whereby the $192 million action can be pursued in the UK High Court without the involvement of Baha Mar’s financiers or Deloitte & Touche.

It is providing the court with two options that it says will result in ‘monetising’ the value of Baha Mar’s claim against its contractor for the benefit of all creditors, including itself.

Granite Ventures is seeking an Order that will place “custody and control” of the CSCEC action into the hands of either a Baha Mar creditors’ committee or the project’s joint provisional liquidators.

Whichever party is chosen, Granite Ventures’ summons for directions proposes that they must obtain an independent valuation of the CSCEC claim within one month of the Supreme Court granting the Order.

The creditors committee or joint provisional liquidators (Bahamian accountant Ed Rahming, and the UK duo of Alastair Beveridge and Nicholas Cropper) will then have another month to complete a tender process to sell the rights to Baha Mar’s legal claim.

The sale, according to Granite Ventures’ proposed Order, must be completed within six weeks of the tender’s end, although Deloitte & Touche - as Baha Mar’s receivers - will be allowed to object and attempt to block any sale via the courts.

The $192 million claim against CSCEC seeks to enforce its May 12, 2011, guarantee that China Construction America (CCA), its subsidiary, would perform all necessary obligations under the terms of its Baha Mar construction contract.

The action was filed in the UK High Court on June 30, 2015, one day after Baha Mar sought Chapter 11 bankruptcy protection - a move that was ultimately defeated in the Bahamian and Delaware Courts.

Ms Thier alleged in her affidavit that there was ample evidence (see other article on Page 1B) to show CCA was responsible for the failure to complete Baha Mar’s construction by the March 27, 2015, target date.

She said that previous evidence supplied by Baha Mar’s president, Thomas Dunlap, placed the blame for Baha Mar’s failure “squarely at the door of the project’s main contractor, CCA.

“Mr Dunlap describes a range of construction failures and delay, culminating in a catastrophic failure to comply with an agreement reached on November 19, 2014, to deliver the completed project on March 27, 2015 - CCA having given no prior warning to the company of its inability to complete at that time,” Ms Thier alleged.

She alleged how CCA had missed numerous construction deadline and performance milestones, and failed to abide by several agreements struck with Baha Mar over delivery dates and schedules.

Ms Thier also referred to adverse findings against CCA by the Dispute Resolution Board (DRB), which was created to resolve any disagreements between Baha Mar and its general contractor.

She alleged that “an important element” of Baha Mar’s recovery strategy, had its Chapter 11 bankruptcy protection continued, “was the pursuit” of the $192 million claim against CCA.

Implying that Baha Mar’s case against CSCEC for enforcement of its guarantee was a strong one, Ms Thier added: “Granite is increasingly concerned, given the high value and clear importance attributed to the Baha Mar claim by the [former] management of the company, that insufficient work has been done in order to appraise and monetise this asset since the appointment of the joint provisional liquidators over five months ago.

“The context of this concern is the absence of both any (or at least any apparent) momentum in terms of the protection of all, but particularly unsecured, creditors, and the close oversight by the court that would otherwise be present in a full-blown liquidation process.”

Baha Mar owed some $123 million to ‘trade creditors’ when it filed for Chapter 11, with 3,523 out of 5,172 creditors - around 73 per cent - located in the Bahamas.

Ms Thier alleged that Granite Ventures had offered to acquire Baha Mar’s $192 million claim for an immediate $250,000 payment, with the net proceeds from any successful litigation claim split 70/30 in its favour.

Granite Ventures’ February 9 letter to the receivers, Deloitte & Touch (Bahamas) managing partner, Ray Winder, and his two Hong Kong-based colleagues, argued that Baha Mar “may have vested in it damages claims against third parties”.

The letter, signed by director representative, Pascale Allen, called on the receivers to “conserve value for the creditors and other claimants of Baha Mar”.

“We understand that the receivers-managers intend to launch a formal sales process for Baha Mar,” Mr Allen wrote.

“Notwithstanding, by this letter we set out indicative terms on which Granite Ltd would be willing to acquire the third party claims vested in the company against CSCEC and its subsidiaries and affiliates.”

The letter was copied to Shao Di, the China Export-Import Bank’s representative; Brian Simms QC, the Lennox Paton attorney who represents both the bank and receivers; and the joint provisional liquidators.

Ms Thier, meanwhile, alleged that it was uncertain whether the receivers had reviewed all information relating to the CSCEC claim in the three months since their appointment.

“Given the value of the claim and implications for the project and creditors, it is important that at least the court and (I believe), in addition to the court, also the creditors are entitled to know what (if anything) has been done in this regard,” she claimed.

“Granite seeks an Order from this court establishing a procedure by which the value of the Baha Mar claim may be realised on behalf of the company and its creditors on the basis of an independent, objectively verifiable valuation.”

Ms Thier said Mr Izmirlian/Granite’s preferred route for accomplishing this was via the creditors’ committee, rather than the joint provisional liquidators, as the former was “better placed for effective realisation”.

“Granite believes that the joint provisional liquidators did not take steps to advance the Baha Mar claim during the period in which they were in control of it,” Ms Thier alleged.

“Subsequently, the joint provisional liquidators appear to have accepted that the receivers-managers were the appropriate person to control that asset.

“Whilst it would seem clear that the joint provisional liquidators are somewhat powerless as a result of lack of funds, for the reasons explained above, Granite considers that to have been a mis-judgment,” Ms Thier added.

“Given the joint provisional liquidators’ apparent lack of appetite for the Baha Mar claim in the past, Granite considers also that they may not be best placed effectively to appraise the value of, and then realise, the asset.”

Granite Ventures was initially created as the vehicle through which Mr Izmirlian would provide $80 million worth of debt financing to take Baha Mar through Chapter 11.

That was ultimately blocked by the Supreme Court, but Granite was able to provide financing to Baha Mar affiliate Northshore Mainland Services, the only US-domiciled entity in the group.

Northshore subsequently advanced money to Baha Mar’s Bahamian companies, and Ms Thier alleged that Granite Ventures came to own this money as of mid-August 2015.

As a result, Granite Ventures is now a Baha Mar creditor that is owed more than $2 million.