The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian asset manager’s bid to probe more deeply into a Nassau-based resort owner’s alleged $7.5m-$9m insolvency has been thwarted for a second time by the judicial system.

The Court of Appeal, in a unanimous verdict, upheld an earlier decision by Justice Ian Winder not to grant Sterling Asset Management, headed by prominent developer David Kosoy, an Order mandating the Courtyard by Marriott Nassau’s owner to release more documents and potential evidence.

Sunset Equities, which was recently said to have defaulted on its debt to another lender, and be in the process of selling the West Bay Street hotel to London Regional Hotels, a UK-based resort group, in a deal that was due to close on February 22, was initially loaned $12.5m by Sterling to acquire the property via a series of credit facilities.

Sterling took a 15 percent equity interest in Sunset Equities, with the majority 70 percent stake held by New York-based developer, Yaron Hershco. The 15 percent balance was owned by Parris Jordan.

The Bahamas-based asset manager then offered a further $1.83m to finance the former Nassau Palm Resort’s redevelopment into the Courtyard by Marriott, with a portion of the funds also intended to facilitate Sunset Equities’ repurchase of Sterling’s 15 percent stake. The offer was executed and signed by Mr Hershco.

However, just over one month later, on August 16, 2016, Sunset Equities entered into a new financing deal with a New York-based investment house, Stabilis Capital Management. A September 29, 2016, letter from its attorneys, Valentine Grimes & Company, asked the Central Bank’s exchange control department to approve a $12.848m loan from Stabilis.

Sterling alleged that this deal, which ultimately provided $23.5m in financing and was used to partially repay the credit it had advanced, breached the terms of its $1.83m loan. It also alleged that Sunset Equities was insolvent, and began proceedings to wind the hotel owner up.

Based on a series of appraisal reports, Sterling alleged that the Courtyard by Marriott’s “current value” was between $27.343m and $28.9m. This, it argued, was exceeded by $36.348m in liabilities, creating a solvency ‘gap’ of between $7.5m and $9m. Besides the $23.5m owed to Stabilis, the liabilities also included $12.848m in “outstanding shareholder loans”.

Sunset, in its initial April 6, 2017, winding-up petition called for the Supreme Court to appoint EY (Ernst & Young) duo, Roy Bailey and Igal Wizman, as liquidators of Sunset Equities. And it also sought an Order requiring Sunset Equities to hand over the Courtyard by Marriott’s profit and loss statements plus monthly, quarterly and annual reports.

Ross Brennan, Sterling Asset Management’s vice-president of credit, alleged in an affidavit that Stabilis is overseeing the Courtyard by Marriott’s sale, and that the deal will likely be complete by the time the full winding-up petition was heard.

“The Courtyard Marriott hotel, the main asset of the respondent, will likely be sold to a third party by the time the petition is heard on March 31 and April 1, 2022,” he asserted.

“I understand that the Courtyard Marriott Hotel is being sold under a power of sale by the lender.... I am advised by my attorneys that this is one of the reasons why discovery and inspection is needed.”

The Court of Appeal, in its verdict written by president Sir Michael Barnett, said “Sterling has no right to discovery” because the obligations imposed by the Supreme Court’s rules do not apply to winding-up proceedings. Discretion is thus left to the judge under the case management rules set out by the Companies Liquidation Rules.

“The judge, in refusing to order discovery, determined that it was not necessary for determining the issue raised by the winding-up petition. If Sunset was insolvent as Sterling alleges, then Sterling, as a contributory, has no tangible interest in its winding-up,” Sir Michael wrote.

“If Sterling is seeking discovery to prove that Sunset is insolvent, then it is an abuse of process, as Sterling has no interest as a contributory in winding-up an insolvent company. If Sterling is seeking information to show that it is a creditor, or that Sunset and its directors have acted oppressively toward it, the judge was right to refuse discovery because that was not an issue raised on this petition.”

Finding that Sterling wanted to prove Sunset Equities is insolvent, Sir Michael concluded: “The judge has set out his reasons for refusing to order discovery. In my judgment, those are valid reasons. The judge is clearly of the view that the discovery application was a transparent effort to further hold this petition over the head of Sunset.

“Sterling never sought to pursue the information sought through a section 68 application, pursuant to the IBC (International Business Companies) Act. This court should not set aside the exercise of that discretion unless it can be shown that it contained some error of principle or is plainly wrong.”