The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The long-running legal battle over an upscale, $7 million West Bay Street condominium project has reignited over attempts to place it into court-supervised liquidation, Tribune Business can reveal.

The ‘Allure’ or ‘The Palms’ project, located just east of Caves Heights on New Providence’s northern shore, is the subject of a winding-up Order that seeks to appoint Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez accountant and partner, as its liquidator.

The winding-up petition has been driven by the purchaser of a unit in ‘Allure’, who is alleging that, after failing to complete construction of the project, the first developer, North Andros Assets, has failed to return their $1.199 million despite demands to do so.

They have been backed by several other purchasers, who have also yet to receive their units or money back, and Allure (Bahamas), the developer that attempted to take over the project from North Andros Assets.

However, the winding-up Order and Mr Gomez’s appointment are being opposed by Miami-based financier, Cordell Funding, which - via a mortgage it allegedly held over the 5.295-acre property - obtained a previous Supreme Court Order for vacant possession and has since been trying to sell it.

Cordell’s challenge, which is seeking to either overturn Mr Gomez’s appointment or change its terms, is understood to be set down for July 25, 2013, before Chief Justice Sir Michael Barnett.

And, while the Supreme Court has approved placing ‘Allure’ into liquidation (at least for the moment), Tribune Business understands that the Order’s terms are still being perfected prior to Sir Michael signing it.

Tribune Business reported extensively on the Allure ‘controversy’ when it first reared its head in 2010, the situation ensnaring a number of prominent Bahamians including former PLP Senator and accountant, Philip Galanis; noted QC and attorney, Thomas Evans; and a host of Nassau’s most prominent commercial litigators representing various parties in the case.

There is nothing to suggest that Mr Galanis and Mr Evans have done anything wrong in relation to the ‘Allure’ issue, but it is yet another situation that threatens to damage the Bahamas’ reputation as an attractive second home and foreign direct investment (FDI) destination, with buyers not having units and yet to receive the return of $1 million-plus sums.

Legal papers relating to the winding-up petition, which have been seen by Tribune Business, allege that the Petitioner purchased two units at Allure - one for $875,000, the other for $765,000.

The purchase agreements were signed on March 7, 2008, and the papers allege: “North Andros Assets failure to deliver the conveyances to the petitioner for condominium units, after the fact that the petitioner paid the 10 per cent deposit on unit 2003 and $923,250 on unit 2001, established a debt owed to the petitioner, and to-date North Andros Assets has been unable to convey or to repay the debt to the creditor’s satisfaction.”

Alleging that North Andros Assets was insolvent, the legal papers said that even if it was not, the company’s failure to either convey the units or repay the monies was sufficient grounds to press for the company’s winding-up.

A demand letter for the $1.199 million was served on the Bahamian law firm that acted as North Andros’s registered agent on January 31, 2013, but this had prompted no action.

And “further evidence” that North Andros Assets was insolvent and unable to pay its debts came from the vacant possession Order that Cordell Funding obtained from the Supreme Court on May 4, 2012.

“Cordell has since secured the property, and it is apparent that they intend to exercise their power of sale,” it was alleged. “There is a website advertising the sale of the property, and there is a ‘For Sale’ sign erected on the property.”

An HG Christie appraisal report, dated October 20, 2010, said the ‘Allure’ property had an estimated market value ‘as is’ of $7 million, and a $8.75 million value ‘as complete’.

Cordell, for its part, had claimed it was owed $10.718 million, including $1.601 million in ‘add on fees’.

The legal papers said that via the winding-up Order and appointment of Mr Gomez, the petitioner would be able to investigate the vacant possession Order obtained by Cordell, challenge it and recover some of the funds owed.

The initial legal battle began after North Andros Assets acquired the 5.295 acres, with Cordell allegedly providing construction financing via a $4 million mortgage secured on the property.

Allure’ (Bahamas) then took over the project’s development, but alleged that North Andros’s beneficial owner, Florida-based Jack Simmons, “misrepresented” Cordell’s position, namely that the lender had agreed to release the property from the mortgage once it received $2.2 million, and that it would then “execute a declaration of condominium to induce a developer to build condominium improvements”.

Nor, Allure alleged, was it informed that the mortgage had been in default from October 2006 and that Cordell had filed a foreclosure lawsuit “until in excess of $7 million in improvements in 16 luxury condominiums were over 85 per cent complete.

Not surprisingly, Cordell stuck to its position that it simply commenced a foreclosure sure action in the Bahamas to recover the $4 million it advanced after North Andros Assets fell into default. It added that it was never a party to the contract between Allure (Bahamas) and North Andros Assets.

Cordell also alleged that Allure (Bahamas) and its principals never inquired of it whether the mortgage lien would be released “for the payment of a mere $2.2 million, far less than the debt owed”, a sum of about $6 million.

Effectively, Cordell was alleging that Allure (Bahamas) was a victim of its own failure to carry out proper due diligence before investing the $7 million.

The impact of the resulting impasse on ‘Allure’ property purchasers has been, in some cases, devastating.

An October 2011 damages ruling by the Supreme Court’s deputy registrar found that Julien Clement, a French national, purchased one unit for $675,000, while a Mr Equey, a Swiss national, acquired his for $1.45 million. Each paid 95 per cent of the purchase price, but neither received their property nor their money back.

“North Andros was unable to obtain title to the properties to Mr Clement and Mr Equey. This is because the properties were subject to a pre-existing legal mortgage granted by North Andros to Cordell Funding,” the ruling found.

“Pursuant to the agreements, Mr Clement paid $641,250 and Mr. Equey paid $1.378 million.”

The ruling added: “Mr Clement expected to move into his unit and occupy it as his home. Mr Clement remained essentially homeless for over a year not knowing when he might occupy his unit.

“Mr Equey suffered a loss of $331,301 as he transferred funds when the rate of exchange was favourable to the Swiss Franc and that is no longer the case.

“The second plaintiff [Mr Equey] further lost $20,000 travelling from Switzerland twice in 2008 and 2009 to visit the Allure Bahamas development site. The $20,000 must be assessed as a loss to him.

“Mr. Equey stated that he expected to rent his unit at approximately $9,000 per month as it was a penthouse unit, and over three years his rental income would be $324,000.

“Because the second defendants failed to disclose the mortgage on the property, Mr Equey states that he lost his opportunity to become a permanent resident of the Bahamas as the value of his unit would have entitled him to such status. The second plaintiff has provided no evidence to ground any loss he may have suffered in this head.”