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Sarkis’ fight to get evidence to aid Nassau hotel Wind-up

Baha Mar’s original developer Sarkis Izmirlian.

Baha Mar’s original developer Sarkis Izmirlian.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s contractor is fighting to prevent Sarkis Izmirlian from using evidence disclosed in US legal proceedings to help with his bid to wind-up its two Nassau-based hotels.

Their latest battle was revealed yesterday by the original Baha Mar developer’s push for the New Jersey bankruptcy court to appoint an “independent examiner”, who would be charged with investigating dealings between China Construction America’s (CCA) US subsidiary and other affiliates for alleged “fraud, dishonesty, incompetence, misconduct, mismanagement” or other irregularities prior to its Chapter 11 filing.

Mr Izmirlian and his BML Properties vehicle, in filings with the New Jersey court, argued that the examiner’s appointment is justified because CCA Construction Inc has shown “clear bias” against themselves even though the $1.642bn damages awarded against the Chinese state-owned contractor makes them its largest creditor by far.

With no official creditors committee likely to be appointed, and China Construction Inc purportedly “stonewalling” Mr Izmirlian’s information requests following its December 22, 2024, filing for Chapter 11 bankruptcy protection, Baha Mar’s original developer argued that appointing an independent examiner would be the best way to protect all creditors given the contractor’s “history of serious - and already proven - fraud claims”.  

Mr Izmirlian’s independent examiner move appears to be part of a concerted strategy to build on his New York State Supreme Court victory, and the multi-billion damages award in his favour, by keeping the pressure on CCA’s affiliates in the Bahamas and US as he seeks to enforce the judgment against them.

Another part of this plan is the winding-up petitions filed in the Bahamian Supreme Court against CCA (Bahamas) and CSCEC (Bahamas) on the basis that they are insolvent. These petitions were advertised in Tribune Business yesterday to give the Chinese-state owned contractor and any other creditors an opportunity to appear before the Supreme Court in the case.

CCA (Bahamas) and CSCEC (Bahamas) are the other two CCA-related defendants liable to pay Mr Izmirlian’s judgment award, and the former is the immediate parent entity for both the contractor’s Bahamian resort interests - the British Colonial and Margaritaville Beach Resort, which are located adjacent to each other in downtown Nassau.

Documents filed yesterday with Mr Izmirlian’s independent examiner bid reveal that the two sides have been negotiating a so-called “protective order” governing how confidential documents and other evidence - disclosed as part of the Chapter 11 bankruptcy protection process involving China Construction Inc - will be treated.

However, they are at odds over the issue of whether any evidence disclosed in the Chapter 11 proceedings could then be used by Mr Izmirlian and BML Properties to aid other legal actions against CCA including the Bahamian winding-up proceedings involving the two resorts. Not surprisingly, Baha Mar’s original developer wants the ability to do this, while the Chinese state-owned contractor is adamantly opposed.

Setting out CCA’s position, Erica Weisgerber, attorney and partner with the US law firm, Debevoise & Plimpton, wrote on January 13, 2025: “We do not agree that it is appropriate to use the Chapter 11 case as a means to get discovery for ‘any proceeding in furtherance of enforcing, executing or otherwise satisfying the Baha Mar judgment and/or BML Properties’ creditor rights.”

Brett Theisen, vice-chair of financial restructuring and creditors’ rights groups at the Gibbons law firm, hit back a day later on Mr Izmirlian’s behalf by asserting: “While a use restriction may be appropriate in more conventional bankruptcy cases, it is inappropriate here.

“Your clients have not paid the judgment, and BML Properties is thus required to pursue its enforcement against CCA’s non-debtor co-defendants, CCA Bahamas and CSCEC Bahamas, in proceedings outside of the bankruptcy case. As you know, those enforcement proceedings against non-debtors CCA Bahamas and CSCE Bahamas are not stayed by virtue of CCA’s bankruptcy filing.....

“The mere fact that BML Properties ‘intend[s] to use these materials outside of this litigation is not ‘good cause’ to support the protective order, unless defendants can establish that the discovery was not procured in good faith for the purposes of this litigation’.”

Amid the subsequent back-and-forth negotiations between the two sides, Mr Theisen made clear his objections to the restrictions CCA was seeking to impose in a January 20, 2025, e-mail, in which he branded them “not practical” and unworkable.

“As just one example, your proposal would mean that, before BML Properties goes to the US Bankruptcy Court to seek permission to use a document in a Bahamian proceeding, BML Properties cannot even seek advice from its outside Bahamian counsel about whether it ought to do so, as sharing summaries or excerpts that ‘might reveal’ the confidential information with non-Chapter 11 counsel would breach the order,” he wrote.

However, Ms Weisgerber warned the same day that CCA was not budging. “Neither CCA nor the DIP (debtor-in-possession) lender agrees that any materials produced in this case may be used outside of the Chapter 11 case, and both CCA and the DIP lender will oppose any use of materials for any other purpose,” she added. The DIP lender is CCA’s parent, China State Construction and Engineering Corporation (CSCEC).

Mr Theisen, though, again objected to CCA’s position as the ‘protective order’ it was seeking would effectively require Mr Izmirlian and BML Properties “to disclose the litigation strategies it is considering by way of delivering acknowledgements of the protective order directly to CCA and the DIP lender.

“Your new provision would require BML Properties to disclose to CCA and the DIP lender (and thus the non-debtor affiliates) as-yet undisclosed strategies that BML Propeties is exploring, impinging on its ability to obtain advice of counsel and infringing on its attorney work-product protections,” he added.

“For example, if BML Properties identifies evidence of dissipation by CCA Bahamas in Bolivia, then BML Properties would need to consult with counsel in Bolivia, and then decide whether to seek permission to use the documents in Bolivia.

“BML Properties should not have to disclose that it is exploring any particular strategy any sooner than absolutely necessary, and the requirement of sharing acknowledgements with CCA and the DIP lender will prejudice BML Properties’ enforcement efforts against non-debtors” such as CCA Bahamas and its two Nassau-based resorts.

As for an independent examiner’s appointment, Mr Izmirlian pointed out that the New York State Supreme Court had “rejected CCA’s feigned corporate separateness” in “piercing the corporate veil” and made the two Bahamian affiliates as well as CCA Construction Inc liable for the $1.642bn damages award.

“Now in bankruptcy, CCA remains inextricably linked to its affiliates and its Chinese state-owned parent, China State Construction Engineering Corporation,” Baha Mar’s original developer asserted. He also argued that of the initial $8m tranche in Chapter 11 financing to be provided to CCA Construction by its parent, the majority or $5.9m appeared to be earmarked for other affiliates via “shared services” transfers.

“Based on CCA’s clear bias against BML Properties - its largest creditor by orders of magnitude - it is apparent that CCA is not acting as a true fiduciary for its estate,” Mr Izmirlian argued. “Exacerbating the situation, no official creditors’ committee will be formed by the Office of the United States Trustee for this district, and CCA has stonewalled BML Properties’ requests for information.....

“CCA’s insistence that all future requests for information go through formal discovery, rather than freely disclosing the information requested by the estate’s largest creditor, bespeaks the level of obstruction that CCA (likely acting at the behest of CSCEC) will impose on these proceedings. Rather than efficiently providing information, CCA insists on making BML Properties’ efforts to obtain information as complicated and costly as possible.

“For these reasons, BML Properties seeks the appointment of an independent examiner to investigate.. the dealings between CCA and its nominal affiliates to identify instances of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the management of CCA’s affairs in the lead up to, and throughout, this Chapter 11 case.”

And Baha Mar’s original developer further argued: “An examiner will serve at least three important functions. One, allowing an independent investigation into claims that CCA’s estate may possess that could significantly enhance creditor recoveries, including potential avoidance actions, alter ego claims and breach of fiduciary duty claims.

“Two, protecting the interests of creditors and the public at large, and three, providing stakeholders, the US trustee and the court with much needed transparency that the debtor has resisted in this Chapter 11 case. Because CCA’s fixed, liquidated and unsecured debts well exceed $5m, the appointment of an examiner is mandatory under binding third circuit precedent.

“Moreover, an examiner is in the best interests of CCA’s creditors given the history of serious - and already proven - allegations of fraud. An examiner should thus be appointed, and BML Properties respectfully requests that it be granted broad investigatory powers.” 

 

Comments

TalRussell 2 weeks, 4 days ago

THE more the winding-up stall....allows time to cast a wider net that will allow time to finish" talkin' about what was variously known to have attempted to drink from the 'Baha Mar fountain of 'you better pay up' in $100,000++....by certain cabinet members and others connected to the then premiership(s').-- It was not** just a single premiership. -- We have lots of unsettled to discuss when it comes to Cable Beach. -- Yes?

ExposedU2C 2 weeks, 1 day ago

Trump will be fixing all of this for his good golfing buddy Sarkis. Membership in The Mar-a-Lago Club comes with privileges that most can only dream of these days. Comeuppance for Vomit, the greedy Wicked Witch, the Bag Man, and a few others like them, is not too far off now.

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