The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

International investors would “look more favourably” on the Bahamas if it had Chapter 11-style bankruptcy protection laws, a leading accountant yesterday suggesting Baha Mar’s woes had exposed legislative weaknesses.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business that many investors would be having “second thoughts” about their investment structures after Baha Mar highlighted the lack of protection available for struggling Bahamas-domiciled companies.

He explained that this would further encourage investors/businesses to structure their investments via offshore holding companies outside the Bahamas, something that may not be in the best interests of their local employees and this nation.

And, with the Bahamas branding itself as an ‘international business centre’, in an increasingly competitive world, Mr Winder said it was “very critical” for this nation to offer struggling businesses some protection while they attempted to restructure their finances.

“I think this is very important,” he told Tribune Business, “because when you look at any of the major countries around the world, they have realised through history the importance of having provisions for companies to re-organise.

“Take the US. When you look at many of the companies that have gone through bankruptcy protection, you realise that without many of those protective laws and provisions in place, those companies would not be existing today.”

The US Chapter 11 bankruptcy protection process allows companies to file for court protection from their creditors while they develop a plan to restructure their financial affairs and become viable concerns once again.

The restructuring plan must be approved by the court, and creditors have the opportunity to oppose it and submit their own alternative reorganisations.

Mr Winder said that while the Bahamas should not follow “precisely” the US Chapter 11 process, it was “very critical that we have something” that allows companies to restructure their financial affairs.

“If we had these laws I would think investors looking to do business in the Bahama would look more favourably on the Bahamas,” Mr Winder told Tribune Business.

“The Baha Mar situation has shown the rest of the world we don’t have these laws. Because of Baha Mar, a lot of investors are going to be giving second thoughts [to their investment structures].

“Realising the Bahamas does not have these provisions allowing them to reorganise a number of their structures, they will take that into consideration going forward,” he added.

“Why would a company seek to put a holding company in the Bahamas if we don’t have such laws in place? No company goes into business with the intent of having to go into a Chapter 11-type process, but every company would like to know such a process exists if they find the need for such a process.”

Many international investors and developments already structure their Bahamian investments via offshore holding companies, which are often domiciled in US states such as Delaware.

Many of the contracts/agreements they sign also often stipulate that foreign judicial systems, typically those in the US and UK, are the ones where any commercial disputes are to be adjudicated.

The Baha Mar affair may encourage overseas investors to increasingly employ offshore companies in their corporate structuring, something that Mr Winder said “may not be to the Bahamas’ best interests”.

This is because, as happened with Baha Mar’s Chapter 11 filing in the Delaware Bankruptcy Court, commercial disputes involving major Bahamas-based assets and employers will be decided in foreign jurisdictions unaware of the implications for this nation.

In the Bahamas, troubled businesses are typically dealt with under the Companies Act (Winding Up) Amendments 2011.

Compared to Chapter 11, these are a relatively blunt instrument that either place such firms into receivership/receivership management arrangements, or winding-up and liquidation.

This was acknowledged by Democratic National Alliance (DNA) leader, Branville McCartney, who is managing partner at the Halsbury Chambers law firm.

“Bankruptcy in the US acts as a shield,” Mr McCartney told Tribune Business. “It protects Baha Mar from its creditors. They have a lot of people they owe money to, and have gone to the Bankruptcy Court in the US for protection.

“In the Bahamas, it acts as a sword. Once you claim bankruptcy or are adjudicated bankrupt, you must be wound up and mortgages called in, the assets sold off and the resulting income distributed.”

Roy Sweeting, Baha Mar’s Bahamian attorney, told the Supreme Court last week that his client sought the Delaware Bankruptcy Court’s protection primarily because the same reliefs were not available under Bahamian law.

That move, had it been recognised by the Supreme Court and given legal effect in the Bahamas, would have ‘ring fenced’ the $3.5 billion project from its creditors; secured the ownership position of the Izmirlian family; and prevented the China Export-Import Bank from foreclosing on its security and placing the project into receivership.

Mr Winder told Tribune Business: “Baha Mar once again gives us an example of what happens when we don’t have adequate legislation to assist companies and organisations that find themselves in difficult situations.”

He emphasised that the US Chapter 11 process did “not dismiss” creditors, but noted that under present Bahamian law, those “with a very small claim” can apply to put businesses into receivership or liquidation.

Mr Winder said that even if a Bahamian company was in receivership, or receivership management, a creditor could still petition the courts for a winding-up and liquidation.

As a result, Bahamian law offers a company no protection from its creditors, and liquidation petitions, while it seeks to restructure and reorganise its finances. In short, it is given no time to “save itself”.

Mr Winder added that Chapter 11-style protection would also safeguard employment at the struggling company. He emphasised that other businesses are reluctant to do business with a company in receivership, because there is no guarantee they will be paid.