The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar's former expatriate staff are now at the China Export-Import Bank's mercy, after the Supreme Court ruled their compensation claims rank below those of the project's $2.45 billion secured creditor.

Justice Ian Winder, in a June 6 verdict, ruled in favour of the Chinese bank by finding that its debenture charge over Baha Mar's assets was superior to the severance pay/benefit claims of Baha Mar's foreign staff.

With no preferential creditors deemed to exist, expatriate Baha Mar staff who were terminated in October 2015 are unable to claim against the $3 million that was set aside for their compensation if the Supreme Court ruled in their favour.

As a result, their only remaining option lies in the China Export-Import Bank's goodwill, and willingness to use whatever remains from the $101 million fund set aside for Bahamian creditors to pay them some compensation.

While many Bahamians are unlikely to be too concerned by the expatriate staff's plight, legal sources yesterday warned that the situation threatened to undermine the Bahamas' reputation as a 'safe' jurisdiction for foreign direct investment (FDI) and workers to conduct business in.

They explained that the concerns stemmed from the discriminatory nature of the Baha Mar creditor payouts, which favoured former Bahamian staff, contractors and vendors over their foreign creditors. While Bahamian staff, and many companies, received 100 per cent of what was due to them, many foreign contractors, suppliers and vendors were offered 'cents on the dollar'.

This was made possible because the payouts took place outside the formal Baha Mar provisional liquidation and receivership processes, and outside the purview of the Supreme Court.

China Export-Import Bank provided a $101 million fund to compensate Bahamian creditors, which was billed as an 'ex-gratia' payment - something it had no obligation to do, as the debts were liabilities of Baha Mar, not the secured creditor.

Legal sources reiterated yesterday, though, that such discrimination in favour of Bahamian creditors would not have been possible had the payments been conducted under the supervision of Supreme Court-appointed liquidators/receivers.

"I would imagine that the Government would wish to have the China Export-Import Bank review it, because of the negative implications for the jurisdiction," one contact explained of the expatriate staff's fate.

"It's the whole issue of discrimination, and the implications for the jurisdiction. A liquidator has a duty to treat all creditors equally. If he can only afford to give people 10 cents on the dollar, that has to be given across the board.

"You can't carve out the Bahamian creditors and not pay the others."

They warned that the situation could undermine FDI and investor confidence that Bahamas-based investments will be secure, especially if Baha Mar's former expatriate staff were to start 'bad mouthing' the jurisdiction via social media and other avenues.

Ed Rahming, the Intelisys (Bahamas) partner and accountant, who is one of Baha Mar's three liquidators, told Tribune Business yesterday they did not plan to appeal Justice Winder's verdict.

"We don't plan to appeal it, and plan to move on with the liquidation," he confirmed.

This further confirms that Baha Mar's former expatriate staff have little choice but to look towards China Export-Import Bank for payment of what is due to them, especially given that the former Baha Mar companies are insolvent and have no assets.

Ex-employees contacted Tribune Business earlier this month to discover the fate of their demands, saying they had received "little to no information on our outstanding claims".

James Smith, the former Cabinet minister who headed the Baha Mar creditor payout committee, yesterday told Tribune Business it had set aside monies to pay the expatriate staff that were awaiting the Supreme Court's decision.

Hinting that this sum was not enough to make the former employees 'whole', Mr Smith said it would be up to the China Export-Import Bank to decide who to compensate, and by how much.

"There were still some funds being held in escrow pending the outcome of this [court] decision," he explained. "Bear in mind that what the committee did was reserve funds if the courts got involved.

"We were not given a mandate to deal with the expatriates one way or the other. If the Export-Import Bank decided something can be paid to them, that can happen. It was an amount that was felt could still give something to the expatriates."

Mr Smith said the payout committee, which had included representatives from the China Export-Import Bank, its Deloitte & Touche receivers and Baha Mar's contractors, had effectively served to carry out the secured creditor's instructions since it was providing the funding.

Explaining that the committee had told to only focus on Bahamian creditors, Mr Smith added that its work was complete, and it had submitted a report on its activities to the Government and China Export-Import Bank.

"I wish them luck," he said of Baha Mar's expatriate staff.

Justice Winder's verdict centred on the October 29, 2015, 'crystallisation notice' issued by Citibank's Bahamas branch, acting as China Export-Import Bank's agent. This converted the latter's $2.45 billion loan debenture into a fixed charge security over Baha Mar's assets, namely its properties and real estate.

The liquidators, Mr Rahming and his UK counterparts, Nicholas Cropper and Alastair Beveridge, argued that because Baha Mar's winding-up started in summer 2015 prior to the 'crystallisation' of the bank's security, the expatriate staff held "preferential debts" that ranked ahead of the China Export-Import Bank in the creditors' queue.

These debts included "preferential employee claims for salaries, wages and gratuities" that were payable for the four months immediately prior to the start of Baha Mar's winding-up.

This, though, was challenged by the Deloitte & Touche receivers on the bank's behalf. They argued that the 'crystallisation' occurred before the winding-up and, as a result, "there is no entitlement for preferential debts to be paid.... in priority" to the China Export-Import Bank via the Companies Winding-Up (Amendment) Act 2011.

Justice Winder found that the Baha Mar winding-up petitions were presented on August 7, 2015, prior to the 'crystallisation' notice. The liquidators argued that the winding-up started when the petitions were served, not when the Order was given, which was almost a year after the China Export-Import Bank's security became 'fixed' on Baha Mar's assets.

The Supreme Court, though, ruled that it was the timing of the winding-up Order, not the petition, that was critical in this case. Justice Winder ruled that a company was not being 'wound up' until a court Order was made, meaning that the law upon which the liquidators relied had "no effect".

"I am... not prepared to find that section 237 [of the Companies Winding-Up (Amendment) Act 2011] operates to negate the proper crystallisation of a floating charge under the terms of a debenture in the event this takes place prior to the company being placed in liquidation," Justice Winder found.

"Accordingly, if the floating charge has crystallised by the time that a company is in a winding-up, as occurred in this case, there is no scope for the preferential debts to be paid out of the secured assets, notwithstanding the making of the winding-up Order."

Justice Winder also rejected the liquidators' argument that the 'clock started running' when they were appointed as provisional liquidators in September 2015, as this meant they were "merely caretakers preserving the assets in the event the company is actually placed into liquidation".

"In all the circumstances, therefore, I am unable to find that preferential debts may be paid out of the assets in priority to the now-crystallised charge of China Export-Import Bank," he added.

The receivers were represented by Brian Simms QC and Sophia Rolle-Kapousouzoglou of Lennox Paton, while the liquidators were represented by Alfred Sears QC and V Moreno Hamilton.