The Tribune

• Judge rejects Galanis as receiver/manager

• Central Bank refused 49% loan conversion

• Regulator’s ‘no gaming-related entity’ policy

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sebas Bastian’s investment house yesterday saw its bid to seize control of a Bahamian digital payments provider blocked by the Supreme Court.

Justice Ian Winder, in a June 30, 2021, verdict, rejected Investar Securities attempt to have Philip Galanis, the HLB Galanis & Company managing partner, appointed as interim receiver/manager for Sun Island Transfers, which trades as Sun Cash.

Investar, which is the investment and financial services arm of Mr Bastian’s Brickell Management Group (BMG), had originally sought to convert a loan made to Sun Cash into a 49 percent equity ownership interest in the well-known electronic payments solution provider.

However, its plans were scuppered by the Central Bank of The Bahamas, which refused to approve Investar’s ownership move on the basis that it would violate “their policy of excluding gaming-related entities from the money transmission business”.

The “gaming” reference alludes to Mr Bastian’s ownership of the Island Luck web shop chain, which is widely regarded as the domestic gaming market leader. The Central Bank also mandated that Sun Cash seek a new investor to acquire that 49 percent shareholding by yesterday.

Barry Malcolm, Sun Cash’s principal, declined to comment on this aspect when contacted by Tribune Business yesterday, although this newspaper understands that a solution to the regulator’s demands has been developed in the timeframe required.

However, undeterred at being thwarted by the Central Bank, Investar just one month later sought the Supreme Court’s permission to appoint Mr Galanis as interim receiver/manager on the basis that Sun Cash had defaulted on its loan repayments.

The move appears to have been sparked by the Central Bank’s rejection of Investar’s purchase, and the default was denied by Sun Cash. It was backed by Justice Winder, who said it was “accepted” that the loan repayments were current. As a result, he ruled that appointing Mr Galanis to take over Sun Cash’s property and bank accounts at this time would not “be just and convenient”.

Detailing how the dispute arose, Justice Winder said Investar had secured loans advanced to Sun Cash through two debentures attached to the latter’s assets. These were issued on May 11, 2020, and May 21, 2020.

The terms permitted Investar, upon giving 30 days’ advance written notice to Sun Cash, to “require” the latter to convert its loans into a 49 percent equity stake in the money transmission services provider. This would have resulted in Mr Bastian’s investment house receiving 3,290 ordinary shares priced at $446.43 each, valuing its interest at $1.469m.

Investar sought to exercise this conversion option on May 20, 2020, just nine days after the first debenture was secured. However, the deal required approval from both the Central Bank and Securities Commission.

“They [Sun Cash] say that notwithstanding earlier informal verbal indications from the Central Bank that Investar would be suitable, the Central Bank subsequently, on August 7, 2020, denied the application on policy grounds,” Justice Winder wrote. 

“The Central Bank not only denied the application for Investar’s equity conversion, but imposed a deadline by which Sun Cash must secure a new shareholding or cessation of its business.” That deadline was ultimately extended to yesterday, with the Central Bank having warned that failure to find an acceptable buyer would result in the loss of Sun Cash’s licence and its transfer to another operator.

Charles Littrell, the Central Bank’s inspector of banks and trust companies, served notice of the Investar denial on January 25, 2021. Just one month later, on February 24, Investar served notice on Sun Cash’s parent that it was in default under the debenture and, two days after that, sought Supreme Court approval to appoint Mr Galanis as interim receiver/manager.

Mr Malcolm, who at one time was chair of Playtech Systems, the parent company for Mr Bastian’s Island Luck web shop chain, replied: “Sun Cash is not insolvent and is meeting all payment obligations as they become due.” 

He added that Sun Cash was never given notice or served with Mr Galanis’s appointment as receiver, but the money transfer business was willing to work with the HLB Galanis accountant to help “assess the value of the business, as a going concern” to help find a purchaser for the 49 percent stake.

The Central Bank, meanwhile, also sought to be joined as a party to the court action. Rochelle Deleveaux-McKinney, its in-house attorney, said in an April 21, 2021, affidavit that Investar’s receivership bid “materially impacts and/or has the potential to materially impact the ability of [the Central Bank] to properly conduct its oversight responsibilities”.

Investar argued that Sun Cash had defaulted under the debentures as a result of the Central Bank’s order to find an alternative buyer for the 49 percent stake, which it described as akin to “a winding-up petition”. It also claimed that the loan repayments were always paid in arrears, and that business plans, management accounts and two director appointments had not been forthcoming.

However, Sun Cash’s attorney, Courtney Pearce of Callenders & Co, argued that the debentures gave no power to appoint a receiver - something that was conceded by Investar’s attorney, Alfred Sears QC, the former attorney general.

That meant Mr Bastian’s investment house had to convince the Supreme Court that imposing Mr Galanis would be “just and fair”. Sun Cash, though, argued that this would be a “detriment to [its security] and seriously endanger its value”.

“Sun Cash denies that they are behind in their payments and says that no monies have become due. They say that where Sun Cash was late in making payments, Investar would have extended time for payment under the terms of the debenture,” Justice Winder wrote, accepting its submissions.

“Whilst it seems that some payments under the loan in the past were late in coming, there was some forebearance on the part of Investar in those instances. It is accepted that the payments are up to date and, but for the Central Bank’s directive, the issue would not have arisen. No formal demand has ever been levied for payment of any outstanding sums under the debenture.”

Rejecting the appointment of Mr Galanis, Justice Winder said that while the Central Bank order was “severe” it did not amount to any default”. He added that the “book value” of fixed assets covered by the debenture exceeded the outstanding debt owed to Investar, and also refused to join the Central Bank as a party.

The litigants are due back before Justice Winder on July 5 for a further hearing.