The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known accountant has backed the withdrawal of PricewaterhouseCoopers (PwC) as Baha Mar’s potential provisional liquidators, given that this nation’s handling of the $3.5 billion dispute must be perceived as beyond reproach.

Paul ‘Andy’ Gomez, Grant Thornton (Bahamas) managing partner, told Tribune Business there was “merit” to the Government’s move to withdraw its nomination of PwC as provisional liquidators for the $3.5 billion project.

He added that the Bahamas’ handling of the Baha Mar dispute was “being watched the world over’, and this nation could ill-afford any perceived or real conflicts of interest to come to light - especially if they forced the Supreme Court to reverse a ruling previously made.

Attorneys for the Government obtained a Supreme Court adjournment of its winding-up petition on Friday, after receiving a letter late Thursday night from Baha Mar’s contractor, China Construction America (CCA), in which it raised concerns about PwC’s nomination as provisional liquidator.

The precise nature of those concerns was not revealed, but Tribune Business exclusively disclosed last week that PwC’s Chinese arm is the external auditor of CCA’s Beijing-based parent, China State Construction Engineering Corporation.

It is likely this relationship that prompted CCA to raise its concerns with the Government, albeit at ‘the 11th hour’, about the suitability of PwC being nominated as Baha Mar’s provisional liquidators.

This is because PwC’s appointment, if the winding-up petition was ever approved, could have been viewed as a ‘perceived’ or ‘real’ conflict of interest due to its Beijing affiliate’s relationship with China State Construction Engineering Corporation.

PwC could have been perceived as doing the bidding of the Chinese conglomerate and its parent, favouring them in how it handled its provisional liquidator assignment in return for retaining the parent audit - something that could have undermined both Baha Mar’s restructuring and confidence in the Bahamian judicial/insolvency systems.

“I think their concerns were well-founded,” Mr Gomez told Tribune Business. “What the contractor doesn’t want to happen is for something to be ruled in its favour and then subsequently reversed because it is discovered or disclosed.

“This is too important to have any side issues going on. This thing is being looked at the world over, and we want to do things the right way. In this case with Baha Mar, all the numbers are big numbers. We don’t want any issues with conflicts; they should be brought to the judge’s attention.

“The law has to be followed. The law specifically talks abolut related parties and independence, and what leads to conflicts of interest. There is merit to what they [the Government] have done.”

Gowon Bowe, who together with Prince Rahming and Garth Calow, would have formed the Pwc provisional liquidation team, did not return Tribune Business’s calls seeking comment before press time.

Yet he told this newspaper last week that “persons are making incorrect assumptions” when issues about PwC’s appointment, and potential ‘conflicts of interest’, first surfaced.

Pledging that PwC would “try to dispel the mischief” via its court filings, he added then: “If we have relationships with one of the parties or the other, we have to manage that through our independence and compliance protocols that exist. There is no matter of non-disclosure or compliance that is not known to the parties at this time.”

Mr Gomez, who in a July 24, 2015, letter asked the Bahamas Institute of Chartered Accountants (BICA) to clarify the law as it related to the Baha Mar situation and ‘conflicts of interest, said it was “nothing personal” against PwC or the partners named as potential provisional liquidators.

Nor was it a bid to help Grant Thornton (Bahamas) win the Baha Mar job, because Mr Gomez and his firm are in a similar situation to PwC.

“There’s always been this question about our firm,” he told Tribune Business. “We have absolutely, positively no interest in it simply because Grant Thornton in Beijing audits the China Export-Import Bank.”

Mr Gomez said his firm was thus immediately disqualified from acting in any capacity relating to Baha Mar by its affiliate’s role as the external auditor for the developer’s $2.45 billion debt financier.

And, while some had suggested that Grant Thornton (Bahamas) was ‘conflicted out’ because it acts as the external auditor for the Bahamas Electricity Corporation (BEC), one of Baha Mar’s main creditors, Mr Gomez “that doesn’t rise to the same level as long as it is disclosed”.

Meanwhile, several of Mr Gomez’s accounting colleagues are continuing to question the Government’s ‘winding-up petition strategy’, amid suggestions that Friday’s events in the Supreme Court over PwC had added further farce to proceedings.

In particular, several accountants - all speaking on condition of anonymity - questioned why it took the Government so long to learn of PwC’s potential ‘conflict’ as a result of its role as external auditor for CCA’s parent.

“The bottom line is this whole process, although putting on a nice face, is beginning to make us look ridiculous,” one accountant told this newspaper.

“They could not proceed today. You cannot walk into court with a petition without letting the other side know what you’re amending.”

Tribune Business understands that the Government’s advisers suggested that it name one of the so-called ‘Big Four’ accounting firms - PwC, Ernst & Young, KPMG or Deloitte & Touche - as the provisional liquidators for Baha Mar in the winding-up petition.

The difficulty, though, is that they - and many others - will be ‘conflicted out’ as a result of conducting audit and/or advisory work for Baha Mar or other parties to the dispute in the past.

And questions were raised about the Government’s choice of the Ernst & Young trio of Bahamas managing partner, Michele Thompson; Roy Bailey; and Karen Hutchinson to replace PwC.

Multiple accounting sources said Ernst & Young is an audit specialist, as opposed to having heavy involvement in liquidations, provisional liquidations and receiverships. They also pointed out that the Ernst & Young partners involved would have to detail their experience, and involvement in recent liquidation assignments, to the Supreme Court via an affidavit.

Tribune Business sources also suggested that two retired accountants, Graham Garner and ex-Ernst & Young (Bahamas) managing partner, Philip Stubbs, would be brought in to assist the trio named in the Supreme Court on Friday.

“It’s a strategy that’s simply not working,” one accountant said of the Government’s winding-up petition. “They were trying to use this process to shake up Izmirlian, and it’s not going to happen.

“The Government being paid is not an issue for him. It’s an easy bill for him to pay. If the Government fails in its liquidation bid, Maurice Glinton tears up the appointed liquidator, or Sarkis tears up the bill and says: ‘Get lost’, the process gets ridiculous.”

Mr Gomez’s July 24 letter to BICA raised concerns about PwC’s potential appointment as Baha Mar’s provisional liquidator in light of the fact one of its international affiliates acts as the external auditor for the Melia Hotels International chain.

“I believe that the appointment of PwC’s partners as Baha Mar’s liquidators represents a conflict of interest, and could result in significant social and financial ramifications, particularly if uncovered’ after important rulings by Justice Ian Winder,” Mr Gomez alleged.

Melia is the operating/brand partner for Baha Mar’s Melia Nassau Beach Resort, and has two affiliates among the developer’s creditors who are owed a collective $1.821 million.

Emphasising that his letter was not a ‘Professional Misconduct Complaint’, Mr Gomez wrote: “The appointment of PwC’s Bahamas partners [Prince Rahming and Gowon Bowe] raises significant conflict of interest and independence concerns that I believe fall well within BICA’s purview to address.

“There exists a ‘lessor-lessee’ relationship between Melia Bahamas and Baha Mar because Melia Bahamas operates from Baha Mar’s hotel on Cable Beach, and once an examination of the agreement between the two entities is conducted - and assuming that some type of profit sharing agreement exists - it is fair to conclude that Melia and Baha Mar are business partners.”

The holding company for Melia’s Bahamas interests, New Continent Ventures, is owed $1.012 million by Baha Mar. Another Melia entity, Prodigios Interactivos, is claiming $809,925.

Mr Gomez added: “In any event, should PwC’s partners be confirmed as Baha Mar’s liquidators, they will in effect have to negotiate with their ‘independent’ audit client (Melia) to resolve receivable/payable amounts, and should Melia file a legal action against Baha Mar (PwC’s joint liquidators) to recover amounts due by Baha Mar, Melia will have to sue its independent auditors (PwC).

“Furthermore, during the course of PwC’s annual audit of Melia, if it wishes to obtain written confirmations regarding the receivable and/or payable amounts with Baha Mar for the year ended 2015, PwC will have to confirm these balances with itself (PwC’s partners serving as joint liquidators).”

Mr Gomez quoted the Public Accountants (Rules of Professional Conduct) Regulations, which requires accountants and auditors to be free of conflicts of interest and disclose these to potential clients.

He also pointed out that accountants had to be ‘independent in appearance’, while the Insolvency Practitioners Rules 2012 mandated that liquidators had to be independent before the court could appoint them.

The same Rules also mandate that a liquidator cannot be regarded as independent if they, or their firm, have acted for the subject company during the previous three years.