The Tribune

• Finance chief: ‘No dispute’ $128m sale taxable

• Crystal Cruises lender fighting taxation swoop

• Nassau Cruise Port, creditors contest priority

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday asserted “there’s no dispute” that the Government should receive a near-$13m VAT windfall from the sale of two cruise ships despite a legal challenge by their secured lender.

Simon Wilson, the financial secretary, told Tribune Business “the law is clear” that the combined $128m sale of the Crystal Serenity and Crystal Symphony was a VAT-able transaction given that it occurred in this jurisdiction and involved Bahamian-domiciled entities.

Some $12.8m would be owing on the sale, based on the 10 percent rate, making this one of the single-largest VAT generating transactions seen in The Bahamas’ to-date. However, the vessels’ secured financier, DNB Bank, is fighting the application of VAT in a legal battle currently playing out before the Supreme Court as any payment would reduce its loan recovery.

This newspaper can reveal that legal arguments were made last week on both the Government and DNB Bank’s behalf before Justice Andrew Forbes, who is now considering his verdict. Mr Wilson yesterday voiced confidence that the Ministry of Finance and Department of Inland Revenue will prevail, arguing that all the elements to make it a taxable transaction are in play.

“There’s no dispute. The law is clear. That transaction is VAT-able,” the financial secretary told this newspaper. “I don’t think there’s any contest. There’s no basis to contest it. That transaction is VAT-able. That transaction was structured as a transaction by a Bahamian entity to a next Bahamian entity. That is clearly a VAT-able transaction, and it happened in this jurisdiction.

“It’s clearly VAT-able. There’s no reason for dispute. That’s clearly a VAT-able transaction. It was a transaction involving a sale.” Mr Wilson said he did not know the combined purchase price fetched by the two Crystal Cruises vessels, or the precise amount of VAT that could be generated, but added: “I heard it was a lot. It’s definitely a VAT-able transaction.”

A Bahamian legal source, speaking on condition of anonymity, confirmed that there was an “issue arising from the sale of the ships” that was heard by Justice Forbes in Freeport last week. “There’s a big VAT claim that the Government is asserting for VAT on the sale of the ships by the bank,” they added. “That’s a big VAT claim. The bank are disputing it; that obviously takes down, and reduces, their take home pay. The judge reserved his decision.”

Tribune Business last year reported that the Crystal Serenity and Crystal Symphony’s were sold by DNB Bank, acting as their secured financier and mortgage holder, for $103m and $25m respectively. These valuations have both been confirmed by a subsequent Supreme Court judgment.

The Crystal Serenity was bought by a company called CSE Ltd, and the Crystal Symphony by an entity named CSY Ltd. Both CSE Ltd and CSY Ltd were likely special purpose vehicles (SPVs) or entities specifically created to acquire, and hold, the two now-former Crystal Cruises vessels, with CSE standing for “Crystal Serenity” and CSY for “Crystal Symphony”.

One maritime industry professional, speaking on condition of anonymity, while agreeing that the Government may be entitled to VAT also voiced alarm that levying the tax on a vessel’s sale could harm The Bahamas’ ambitions to develop itself into a true maritime hub.

They pointed out that transactions involving the sale of high-end yachts and other vessels were frequently conducted in The Bahamas because of its perceived friendly taxation regime - an image that could be impacted if VAT is levied at the full rate on the Crystal Cruises sale.

“If they start doing this, this idea of creating a maritime hub, they’re going to drive all ship sales away,” the source said. “People come here, fly in from around the world, to do yacht and vessel closings in The Bahamas because The Bahamas has a favourable tax regime for the sale of yachts and vessels.

“They’re going to drive that away if they make that a policy. It will crush maritime sales. I get why they’re doing what they’re doing. The country needs money, but there’s got to be a better way of doing it than driving off everything the country has left.”

The Prime Minister is currently attending the seventh Summit of Heads of State and Government of the Community of Latin American and Caribbean states (CELAC), and has taken Jobeth Coleby-Davis, minister of transport and housing, plus Bahamas Maritime Authority (BMA) officials with him in a bid to push this nation’s credentials as a maritime centre. However, as the industry source acknowledged, the Government needs every cent it can get in taxes.

Meanwhile, aside from the VAT dispute, another legal battle has embroiled the Crystal Cruise vessels’ $128m sale - this time involving their other creditors, who are fighting over whose claims should gain priority and how much they should be entitled to.

The creditors include the Nassau Cruise Port, said to be owed just over $300,000 for dockage and other services provided to the former Genting-owned cruise line when it launched the cruise industry’s post-COVID rebound by home porting in, and cruising around, The Bahamas in summer 2021.

Others fighting for their share of the $128m sales proceeds are GPH (Global Ports Holding) Antigua, an entity owned by Nassau Cruise Port’s controlling shareholder, which is understood to be claiming around $30,000, plus the crew of bit vessels. The competing parties are rounded out by Peninsula Petroleum Far East, the two ships’ foreign fuel supplier, and SMS International Shore Operations US, their ex-port agent.

The details are revealed in a December 19, 2022, judgment by acting Supreme Court justice, Ntshonda Tynes, who confirmed the two former Crystal Cruises vessels were sold for a combined $128m in June 2022 after being arrested under warrants obtained by DNB Bank some four months prior. The proceeds were deposited into an escrow bank account where they were held while creditors came forward to submit claims for monies allegedly owed to them.

DNB Bank then applied for a Supreme Court ruling setting out the order in which the various creditors are to be paid. “As usually happens when there are insufficient funds to fully satisfy the respective claims of all claimants, a dispute has arisen between the claimants concerning their respective rights to be paid out of the proceeds of sale of the vessels Crystal Symphony and Crystal Serenity,” the judge noted.

Acting Justice Tynes said the two vessels’ former crews, Nassau Cruise Port, GPH Antigua and SMS had all taken the position that, as maritime creditors, their claims took priority over DNB Bank’s even though the latter held mortgage security over the ships. Yet they had obtained no judgments to support their case.

The Bahamas’ Merchant Shipping Act gives priority to maritime creditors, such as ship’s crew, over registered mortgage holders so as to ensure they are not left unpaid. As a result, the other creditors were all arguing that DNB Bank must wait until they are paid out before it can recover what it was owed even though it had obtained a default judgment in its favour.

Acting justice Tynes rejected their argument, finding that if correct “it would mean that an interested party can forgo normal court procedures whereby judgments are obtained (be it by default or otherwise) and forgo obtaining the consent of all claimants (whose interests would be affected by disbursement) yet expect to receive a payment out”.

She added: “Not only is this argument not supported by clear legal authority, it does not seem reasonable or in the interest of justice. Neither does it seem reasonable or in the interest of justice that a judgment creditor should be kept out of the fruits of its judgment because it ranks lower in priority than other claimants who are slow or reluctant to prosecute their claims.

“Nor is it necessary for a judgment creditor to await indefinitely payment to higher-ranking claimants when the court has at its disposal the ability to insure the protection of priority claimants by ordering that sufficient funds be reserved to satisfy future favourable judgments and any costs to be incurred in pursuit thereof.”

As a result, Acting justice Tynes “urged” that the crews, Nassau Cruise Port, GPH Antigua and SMS all “prosecute their respective claims with despatch should they so choose” as they needed to either obtain a judgment or consent of other creditors to claim against the $128m proceeds.

She also ordered that sufficient funds be set aside to ensure such creditor payouts can be met. Some $2m has been retained as “security for the potential future costs” that may be incurred in prosecuting claims by the crews, Nassau Cruise Port, GPH Antigua and SMS, as well as the Department of Inland Revenue. GPH Antigua was also to “rank in priority” as a maritime creditor and some $30,000 to be set aside to cover its potential claim.

Financial strife at its immediate parent caused Crystal Cruises, which pioneered home porting in The Bahamas alongside Royal Caribbean, to initially suspend operations early last year with the hope they could be restarted in April. This was to allow management to assess the company’s business, and determine its future options, as the parent was set to run out of cash by end-January 2022, but all rescue efforts proved futile and the cruise line was wound up.