By NEIL HARTNELL
Tribune Business Editor
Ansbacher (Bahamas) year-long efforts to acquire a rival Bahamian bank have been impacted by a bitter shareholder dispute at its target, a Court of Appeal ruling has revealed.
The Hottinger and Vernes families, respectively majority and minority shareholders of the former Hottinger Bank & Trust, are battling over the best purchaser to sell the renamed institution to.
While the Hottingers and their Lyford Holdings vehicle, which holds a 77.44 percent equity stake, prefer Ansbacher (Bahamas) as Lyford International Bank's new owners, the Vernes family's Vernes Holdings is pushing their rival deal with an entity called "The Amber Group".
Describing the two families' falling-out as "really a dispute about money", the Court of Appeal said the legal fight - which has already made it to arbitration and the Supreme Court - centred on a so-called "drag along" clause in the July 2014 shareholders' agreement that governs the two sides' relationship.
The section covering the sale/transfer of shares in Lyford International Bank enabled the Hottingers to exercise a "drag along" option where, if they decided to sell, they could compel other shareholders - namely the Vernes family vehicle - to part with an equal proportion of their shares on the same terms and conditions as themselves.
This clause was put to the test within three years, the Court of Appeal finding: "In or around mid to late 2017, Lyford Holdings [the Hottingers] commenced informal discussions with a proposed purchaser, Ansbacher (Bahamas), for the sale to Ansbacher of all (100 percent) of the issued and outstanding shares in Lyford International Bank.
"The discussions with Ansbacher were complicated and prolonged, but eventually led to Lyford Holdings and Ansbacher entering into formal negotiations and, later, agreeing the terms of a Share Purchase Agreement (SPA).
The Hottingers then moved to secure the Vernes family's agreement to sell all of their 22.56 percent equity stake in the bank, sending their attorney a final draft of the deal on June 21, 2018, with a request that they respond within four days.
When Vernes Holdings failed to sign the sales agreement with Ansbacher (Bahamas), an institution owned by AF Holdings, the former Colina Financial Group (CFG), on the agreed date, the Hottingers moved to invoke the "drag along" option and compel the minority investor to part with its 22.56 percent.
"In other words, Lyford Holdings (as majority shareholder) exercised the drag along option contained in Clause 14.1 of the shareholders' agreement," the Court of Appeal said, "triggering a compulsory sale to a purchaser of Lyford Holdings' choosing and requiring Vernes to transfer its shareholding in Lyford International Bank to Ansbacher on the same terms and conditions under which Lyford Holdings was transferring its shares to Ansbacher."
The Vernes family, though, responded on June 29, 2018, by offering to acquire the Hottingers' majority equity interest on terms set out in its letter.
"Under its proposal, Vernes Holdings advised that following the acquisition of Lyford Holdings' shares it would, in a back-to-back transaction, simultaneously sell the entire 100 percent shareholding in Lyford International Bank to two entities collectively called the Amber Group," the Court of Appeal verdict said.
"Vernes' offer letter was closely followed by two letters from Vernes' attorneys, which are of some significance. The first, dated July 3, 2018, advised Lyford Holdings that as the minority shareholder Vernes did not consider the Ansbacher sale to be in its best interests.
"It expressed the view that the Ansbacher sale was at an undervalue, and that its interests would be prejudiced by the forced sale of its shares on corresponding terms offered to Lyford Holdings in the Ansbacher offer. Vernes formally advised Lyford Holdings that it would not consent voluntarily to accept the Ansbacher offer."
Vernes Holdings also warned it would mount a legal challenge to the "drag along" option, arguing that the Ansbacher deal breached the protections set out in the shareholders' agreement and would force it to adopt numerous "liabilities and obligations".
The Hottingers, meanwhile, signed the sales agreement with Ansbacher (Bahamas) on July 2, 2018, and committed to ensuring the latter acquired 100 percent ownership of Lyford International Bank - meaning it would force the Vernes family to sell too.
The latter launched arbitration proceedings, with the Hottingers responding with a Supreme Court action on September 11, 2018, in bid to obtain an "interim injunction to compel Vernes to sell its shares to Ansbacher" under the 'drag along' provision.
The Vernes family countered by seeking a "stay" of that action while arbitration proceedings were underway, but Justice Indra Charles ruled in favour of the majority shareholder in the Supreme Court.
John Wilson, the McKinney, Bancroft & Hughes attorney and partner, argued on the Hottingers' behalf that an urgent order compelling the Vernes family to sell was necessary given that the deal with Ansbacher (Bahamas) was supposed to have completed on October 2, 2018.
He added that the Supreme Court correctly found that "any further delay would adversely affect the value of the sale to Ansbacher", while the latter's withdrawal would "result in a significant loss of opportunity" for his clients along with the "significant legal and other professional fees" spent in negotiating and preparing the sale documents.
And the Central Bank, in a letter agreeing that Lyford International Bank's sale was "in the best interest of all parties", warned that the deal needed to be concluded in a way that avoided "potential reputational risk to [the bank] as well as the Bahamian jurisdiction at large".
The Court of Appeal, backing Mr Wilson and the Supreme Court, agreed that "Ansbacher could not be expected to wait indefinitely" for the two warring shareholders to come to an agreement.
"Both shareholders are desirous of selling and their disputes are largely about money," it ruled. "But, in the meantime, unless Lyford Holdings was placed in a position to nail down the transfer to Ansbacher of the 100 percent shareholding in Lyford International Bank which Lyford Holdings had negotiated over a lengthy period, the entire transaction was in danger of unravelling.
"Clearly, Lyford Holdings' contractual rights (both as between itself and Vernes, as well as its rights under the share deal) needed to be preserved and protected by an urgent interim mandatory injunction which (as the judge thought) was necessary to support the pending arbitral proceedings.
"The judge was also satisfied that further delay in the sale to Ansbacher of the 100 percent shareholding in the bank also exposed Lyford International Bank to serious reputational harm and substantial impairment to Lyford International Bank's client base," the Court of Appeal continued.
"In our view, she was also entitled to rely on the caution set out in the letter from [the Central Bank] that the sale be executed in a manner that mitigates potential reputational risk to Lyford International Bank, as well as to the Bahamian jurisdiction at large."
Backing the Supreme Court's decision, the Court of Appeal said the interim order was necessary to protect the Hottingers' contractual rights under the deal with Ansbacher (Bahamas) until the arbitration proceedings were finished.