The Tribune

• Top Okyanos creditors await decision on $14.3m

• Liquidator details ‘threats’, battle with landlord

• Recovers 37% of initial $4.6m Dorian claim

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Less than 3 percent of $16.5m in creditor claims against a Freeport business, once hailed for pioneering The Bahamas’ entry into the stem cell therapy industry, had been accepted as at end-May 2022.

Cheryl Simms, liquidator for the Okyanos Centre for Regenerative Medicine, revealed in her first report to the Supreme Court that just $448,883 worth of claims were valid at that date with a decision yet to be made on a further $14.336m.

The Kikivarakis & Company accountant, disclosing that she has rejected another $1.684m in creditor demands, said the $14.336m represents claims by just two creditors - one of whom, LS Enterprises, petitioned for Okyanos’ liquidation under Supreme Court supervision. As the stem cell therapy provider’s main financier, it is seeking to recover some $12.438m that was advanced as loans to cover multi-million dollar losses prior to the company’s closure.

The liquidator’s report, obtained by Tribune Business, details several battles that Ms Simms faced in seeking to progress the liquidation. Besides a “challenging” relationship with Okyanos’ landlord, the previously BISX-listed fund, Premier Real Estate Investment Corporation, which featured legal “threats” and payment demands, she also had to negotiate a settlement of the stem cell therapy provider’s Hurricane Dorian coverage claim with Insurance Management.

Ms Simms also detailed the struggle to sell-off Okyanos’ specialist medical equipment, and other assets, to a narrow range of buyers amid the lockdowns and various other restrictions imposed by the COVID-19 pandemic. In the first sales process, just 45 percent of promised payments from winning bidders were received, which forced the liquidator to stage a second bid that saw Doctors Hospital acquire the remaining equipment for $425,000.

Okyanos was suffering from a $7.553m solvency deficiency, with $5.667m in total assets dwarfed by $13.22m in liabilities, when it was placed into court-supervised liquidation on February 6, 2020. This means that creditors will only recover a portion of the total sum owed to them, known as “cents on the dollar”, once the winding-up is completed.

The liquidator’s report does not mention whether LS Enterprises, whose loan accounts for 87 percent of the claims yet to be determined, and 75.5 percent of total gross claims, ranks ahead of all other creditors by virtue of any security it possesses over Okyanos’ assets.

However, Ms Simms disclosed that many smaller creditors - amounting to two-thirds of potential claimants - have failed to demand due compensation. “In response to the request for submission of proof of debt forms, to-date the official liquidator has received proof of debt forms representing 97 percent of Okyanos’ total liabilities,” she wrote.

“This amount includes a proof of debt form submitted by LS Enterprises relative to the outstanding loan balance due from Okyanos. As it relates to the number of claims, the official liquidator has received proof of debt forms representing 34 percent of Okyanos’ creditors.

“From my agent’s examination of the company’s accounting records, we have identified 31 creditors with a total balance of $499,638 who have not submitted proof of claim forms. We have made contact with these creditors, but to-date no proof of debt forms have been submitted.” Many of these are likely to be small Bahamian-owned businesses who do not have the time and money to pursue such debts, and may well have written-off the sums owed.

Okyanos was among the first entities attracted to The Bahamas by the Stem Cell Research and Therapy Act passed by the last Christie administration around eight to nine years ago. The legislation was viewed as enabling The Bahamas to break into the medical tourism market, providing a platform to create jobs and a new industry that would aid economic diversification, as well as generate a valuable new foreign exchange earnings source.

However, Okyanos’ dream was soured by consistent multi-million dollar annual losses. It was sold by its initial owner, Okyanos Holding Company, on April 21, 2017, to New Research Ltd, a Bahamian international business company (IBC) that advanced the stem cell provider some $15.9m in loans over the following two years. The beneficial owners of New Research and LS Enterprises are not identified by the liquidator, although some are likely common to both entities.

Detailing the events that sparked Okyanos’ closure, Ms Simms said contamination of its First Commercial Centre medical facilities by Hurricane Dorian’s rain and flood waters resulted in its September 2019 closure.

“As a result of the length of time for the insurance claim to be reviewed, the need for an injection of funds to repair the facility and the poor economic conditions of Freeport, a decision was made by the major creditor of Okyanos, LS Enterprises, to petition the court for the company to be wound-up,” she added.

The First Commercial Centre was then-owned by Premier Commercial Real Estate Investment Fund, which was created by former Grand Bahama Port Authority (GBPA) chairman, Hannes Babak. Relations with Okyanos were already strained prior to Ms Simms’ appointment as liquidator since Premier had obtained a restraining order preventing the stem cell therapy provider from moving out its assets. An eviction notice had also been served.

Ms Simms and her team had to gain access to Okyanos’ facilities by manually opening the door as the electronic security system had been deactivated. “The landlord’s representative arrived shortly after we accessed the facility,” she reported. “A letter advising of my appointment as provisional liquidator was provided. However, my agents and I were accused of illegally attempting to gain access to the facility.

“The landlord and the liquidator’s relationship was challenging from the start. However, as official liquidator, I was fully aware that the occupation of the facility was critical to allow the conduct of my work and to safely secure the assets, which included a catherisation lab that was affixed to the building.”

Okyanos had previously been paying Premier a $32,551 monthly rent and $12,588 common area maintenance (CAM) charge, plus 41.07 percent of the First Commercial Centre’s monthly chiller fee. Ms Simms managed to negotiate a lower rate that, while the chiller fee remained the same, cut the monthly rent by 50 percent to $16,275 and the CAM charge to $9,857.

However, difficulties in selling Okyanos’ specialist equipment meant that the liquidator occupied its former space at the First Commercial Centre for longer than planned. “During 2021, as a result of cash flow challenges, we were unable to make the monthly required payments,” Ms Simms revealed. “Consequently, as of the date of the lease termination (August 31, 2021), we accumulated an outstanding rental balance of $355,015.

“By letter dated October 15, 2021, after receiving a number of demands for payment of rent, we requested a 30 percent discount on the outstanding rental amount and proposed to pay the remaining balance of $248,510 in two equal instalments of $124,255 with the first payment to be made on acceptance of the proposal and the last payment 60 days later.

“Through a letter dated March 9, 2022, the landlord rejected the settlement proposal and demanded a full payment of the outstanding rent of $355,015, which was paid on March 30, 2022, following the landlord’s demand for payment and threats of a court application compelling me to pay the same.”

As for Okyanos’ Hurricane Dorian insurance coverage, Ms Simms said the company had submitted a $4.573m total claim on a policy that was capped at $6.227m. Some $754,093 had been received as an “interim payment” from Insurance Management, of which $500,000 was for emergency repairs and the $254,093 balance to cover wages and benefits owed to staff.

Insurance Management submitted a settlement offer totalling $1.253m on July 15, 2020, which would have resulted in a net further recovery of $392,489 once the initial $754,093 payment and $106,040 deductible were taken into account. Ms Simms said she submitted a December 16, 2020, counter-offer that was close to three times’ higher at $3.382m.

Insurance Management subsequently revised its settlement offer to $1.558m in February 2021 in a bid to achieve “an amicable settlement”. Ms Simms said the Dorian claim was ultimately settled several months later at $750,000 for business interruption, and $357,594 to cover payroll due to staff from September 1, 2019, to February 6, 2020. This took the total insurance recovery to $1.714m - a sum equivalent to just 37 percent of the original claim.

Detailing the struggles to sell Okyanos’ medical and other assets, Ms Simms said she received legal advice that only “moveable” leasehold improvements could be disposed of - all others became the landlord’s property. After accepting bids totalling some $222,865, just three bidders came through with payments collectively worth $101,056 - some 45 percent of that amount.

The sales process was saved by the acquisition of the First Commercial Centre for Doctors Hospital’s Grand Bahama hospital, much made the BISX-listed healthcare provider a natural buyer for Okyanos’ remaining assets. The $425,000 deal was only finalised on February 22, 2022, due to Doctors Hospital’s desire that the building’s sale close first.

While Ms Simms has increased the liquidation estate’s cash balance by $177,102 during her two-year appointment, taking it from $337,526 at end-May 2020 to $514,618 at April 2022’s close, the latter sum will almost entirely be required to cover $459,482 in outstanding expenses. These include the liquidator’s fees of $203,854, plus funds owed to the Delaney Partners and McKinney, Bancroft & Hughes law firms.