The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s liquidators yesterday made no criticisms of Sarkis Izmirlian and his fellow directors, despite revealing the project had been left insolvent with multi-billion dollar liabilities.

Their final report to the Supreme Court, obtained by Tribune Business, contains no adverse findings regarding the original Baha Mar developer’s conduct from the time he elected to place the then-$3.5 billion project into Chapter 11 bankruptcy protection.

Baha Mar’s liquidators, in a November 25, 2016, letter to remaining creditors, had pledged they would “conduct summary investigations into the conduct of the directors of the companies” prior to their appointment last year.

However, their final report dated August 25, 2017, stops well short of this, making no mention of any such probe and the findings that may have flowed from it. It only states that the liquidators “have undertaken their statutory investigation work”, referring merely to a review of all bank transactions six months prior to their appointment.

Bahamian accountant Ed Rahming, who teamed with UK-based Nicholas Cropper and Alastair Beveridge on the liquidation, yesterday declined to make “a conclusionary statement” regarding Mr Izmirlian and the former Board.

“I would say they were co-operative and provided us with the information we needed to conduct our review,” Mr Rahming told Tribune Business. “When me met the companies it was self-evident, given the account balances, that they were insolvent. They were no longer a going concern.”

Ministers in the former Christie administration would likely argue that Mr Izmirlian was the ‘author of his downfall’, and that he has to take responsibility for Baha Mar’s insolvency because he initiated the flawed Chapter 11 bankruptcy protection strategy in a bid to protect his family’s $850 million equity and retain ownership/control of the project.

Others, though, will counter that Mr Izmirlian’s actions - and Baha Mar’s eventual fall into receivership and insolvency - stemmed from the repeated failure of China Construction America (CCA), the project’s main contractor, to complete the development on time and on budget.

Apart from Mr Izmirlian, Baha Mar’s original Board included now-tourism minister, Dionisio D’Aguilar, and a high-level CCA representative in Tiger Wu. Mr D’Aguilar, responding to the liquidators’ ‘summary investigation’ announcement last year, argued then that they will “not find one bloody thing” that the former directors did wrong.

The bland nature of the liquidators’ report backs Mr D’Aguilar’s initial confidence, although Mr Rahming yesterday argued that Baha Mar’s receivership and liquidation, and subsequent sale to Chow Tai Fook Enterprises (CTFE), was the best outcome for the Bahamas in the circumstances.

“It’s probably the best play for everybody,” he told Tribune Business. “One could say it’s unfortunate it [Baha Mar’s receivership] happened, but given the process and time it took up, and the difficulties faced, I want to say it was successful, but that’s probably too strong a word.

“We’ve been able to progress the liquidation fairly quickly, and the property is open with people working. The majority of creditors, Bahamian and non-Bahamian, have been paid the majority of what was owed to them, and it has happened as quickly as possible given the size and complexity of the matter.”

Mr Rahming said the China Export-Import Bank, Baha Mar’s $2.45 billion secured creditor, deserved credit for making $101 million available to pay the project’s unsecured Bahamian creditors even though it had no obligation to do so.

He and his UK counterparts took over the seven Baha Mar companies subject to the bank’s mortgage security in late 2016, after their assets - chiefly the project’s resorts and real estate - had been ‘purchased’ by the latter’s Perfect Luck special purpose vehicle (SPV).

Given that the sale details were ‘sealed’ by the Supreme Court, the liquidators’ report confirms they are unable to conclude that the purchase price represents ‘fair value’.

“The [then] joint provisional liquidators, however, reviewed the supporting application and understand (based on the limited information provided to them) that the sale price represented a fair value for the project,” the August 25 report states. “It has been noted that the secured creditor [China Export-Import Bank] suffered a significant shortfall in its lending from the sale.”

Following their December 9, 2016, appointment as full liquidators, Mr Rahming and his UK colleagues obtained Supreme Court approval to take over 17 other Baha Mar group companies not covered by the China Export-Import Bank’s mortgage security.

One of these was BM Leasing, from which Scotiabank (Bahamas) and Fidelity Bank (Bahamas) lease their Cable Beach bank branches. The liquidators revealed that Baha Mar’s receivers, Deloitte & Touche, transferred $767,600 from BM Leasing to companies their controlled without their permission.

“It should be noted that the joint receiver/managers transferred funds from the BM Leasing bank account on four separate occasions, three of which occurred subsequent to our appointment as official liquidators,” the latter said.

“The first transfer occurred on August 30, 2016, in the amount of $540,000. The second transfer occurred on October 12, 2016, in the amount of $77,600; the third transfer was $88,000 on December 7, 2016, and the fourth transfer was for $62,018.53 on March 17, 2017.

“The amounts were transferred to Baha Mar Ltd by the joint receiver/managers. The amounts relate to rental receipts from Scotiabank and Fidelity Bank for BM Land Holdings, a joint receiver/manager group entity.”

The liquidators, though, said there was no trust or management agreement to facilitate money transfers between BM Land Holdings and BM Leasing.

To resolve the matter, they said: “In March 2017, we agreed with the joint receiver/managers not to pursue the return of the funds removed without our authorisation from the BM Leasing bank account.

“It was agreed that liquidation costs to the extent of the transfers from the BM Leasing bank account would be paid by China Export-Import Bank to the liquidators.” The receivers are Raymond Winder, Deloitte & Touche (Bahamas) managing partner, and two Hong Kong-based colleagues.

Mr Rahming and his UK counterparts also confirmed that had obtained Supreme Court approvals to facilitate the land swap transactions with SuperClubs Breezes that would end the all-inclusive resort’s ownership of Baha Mar’s “casino floor”.

“In April and May 2017, the liquidators sought and obtained court sanction to enter into Novation and Mutual Release Agreements to address the Breezes resort land litigation and land swap matter,” the liquidators’ report said.

“Agreements were executed on May 12, 2017. The Breezes resort land litigation matter was a long-standing dispute involving land the project is located upon. The resolution, which included the agreements executed by the liquidators, was necessary for the project’s operation moving forward.”

“To the best of my knowledge, that has been settled,” Mr Rahming told Tribune Business. “We’ve signed off on all the agreements, as have the receivers.

“We’re talking about property that sat in the middle of the project. I understand it was in the middle of the casino floor. It needed to happen.”

Tribune Business sources yesterday confirmed that the litigation between Baha Mar and Breezes had ended, and transaction/conveyancing attorneys were now completing the final details on the land swap.

Mr Rahming added that the liquidators “now really need to sit down with the Government and agree their portion of the fees to be paid [to us], having done similar with the China Export-Import Bank already.

Their report pegs the liquidation costs at $1.4 million from September 30, 2016, to July 31 this year, with just $800,000 received to-date from the bank and the Government. This leaves a $600,000 shortfall to be covered, although Mr Rahming added: “We don’t see it as an issue.”

The winding-up of Mr Izmirlian’s Baha Mar entities will be completed at a final September 20, 2017, creditors meeting. The financials suggest that the seven companies covered by the China Export-Import Bank’s security were insolvent to the tune of $9.95 billion at December 6, 2016, although this figure is inflated by monies owed between these entities.

It was the same for the 17 other companies subsequently taken under the liquidators’ care, where the total shortfall to creditors was calculated as $5.048 billion.