The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Baha Mar creditor payout process “bodes ill for the Bahamian economy’s future” because it discriminates against foreign investors and businesses, an outspoken QC has warned.

Fred Smith, the Callenders & Co attorney and partner, told Tribune Business that the decision to favour Baha Mar’s Bahamian creditors over their foreign counterparts was “a terrifying prospect” that could ultimately deter foreign direct investment (FDI) - the lifeblood for much of this nation’s economy.

“I am shocked at the attempt to impose a discriminatory, quasi-judicial process in the Baha Mar fiasco,” Mr Smith said.

“It is completely unconstitutional, it is patently discriminatory and all it does is highlight the Bahamas as a most undesirable, dangerous and risky environment for foreign direct investment (FDI) and foreign businesses.”

He added: “It is unbelievable that the Government would agree to set up such a construct.... This sends a very negative international message to potential foreign investors.

“The message is that no foreigner or investor from abroad is safe in the Bahamas. It is a terrifying prospect for the future of the Bahamian economy, and bodes ill for any legitimate, positive economic future.”

Few Bahamian creditors are likely to care about Mr Smith’s concerns, which have been echoed by others, so long as they receive at least a substantial portion of what they are owed as a result of the agreement to complete Baha Mar’s physical construction.

However, the well-known QC’s concerns have already been echoed by others, such as Democratic National Alliance (DNA) leader, Branville McCartney, who agreed that the preferential treatment being afforded Bahamians is likely to “open the floodgates” to litigation by foreign claimants.

This was echoed by a Bahamian attorney, speaking on condition of anonymity, who confirmed they had been retained by several of Baha Mar’s foreign creditors in case legal action was necessary to safeguard their rights.

These creditors will be submitting their claims, and associated proof of the sums owed, to the Baha Mar creditor payout committee, before settling back to watch how they will be treated.

The Government’s priority in the agreement with the China Export-Import Bank was for Bahamian creditors, namely local contractors, vendors and the 2,000-plus former staff, to receive what they were due. Claims valued at $500,000 or less are likely to be made ‘whole’, while those owed higher sums are likely to receive a substantial portion of what is outstanding.

Nobody would object to Bahamian creditors being paid what they are due. However, by agreeing to a claims process that discriminates in favour of locals over foreigners, the Government may have opened up some unintended consequences - namely the potential for collateral damage to this nation’s investment reputation.

In a normal receivership/liquidation claims process, whether under the supervision of the Supreme Court or not, secured creditors (in Baha Mar’s case, the China Export-Import Bank) get first picking over the remaining assets.

Next behind them in the creditors’ queue are the Government and former employees’ claims, with all other creditor groups further down the line.

There is, though, no discrimination on the grounds of nationality, and it will be interesting to see how Baha Mar’s former foreign employees are treated in the claims payouts that are expected to begin at month’s end. Several former Baha Mar workers spoken to by Tribune Business yesterday said they had yet to be contacted by the payout committee, even though this was supposed to occur by Friday.

The Government and China Export-Import Bank have been able to structure the claims payout process such because the $100 million to fund it is coming from the latter, not Baha Mar and its group of companies, meaning that it can take place outside the ongoing receivership/provisional liquidation process.

Mr Smith, meanwhile, suggested that the treatment of Baha Mar’s foreign creditors and employees was “a frightening prospect”, and a dangerous precedent, “for any Bahamian citizen that may have a joint venture partnership and agreement in collaboration with foreign investors”.

“No foreign investor can have any comfort in the security of their investment in the Bahamas,” he told Tribune Business. “We have become a Central American, 1960s style, banana republic.

“The corruption is endemic, cronyism is rife, discrimination and abuse is rampant, and were it not for the efforts of the courts in persistently resurrecting the rule of law and respect for constitutional rights, the Bahamas would be completely lost at sea.

“I know that I am a Bahamian, and I do not wish ill for my country, but the truth is the truth.”