The Tribune

Neil Hartnell suggests how to exploit the breathing space provided by the Supreme Court and resolve the 10-month impasse

If Justice Ian Winder was trying to throw a bone to all parties embroiled in the Baha Mar dispute on Friday, he may have very nearly succeeded. Yet his decisions hardly represent a major step forward, particularly where the developer’s staff and Bahamian creditors are concerned.

In giving the four parties to the impasse what amounts to an extra two months to resolve their differences, the Supreme Court delivered a decision that allows both the Government and Sarkis Izmirlian to claim some kind of victory, however small.

From the Christie administration’s perspective, it can claim that its bid to have joint provisional liquidators appointed has succeeded. And there is little doubt that it will be hoping their appointment, and the threat of early November’s hearing on the full winding-up petition, will help increase the pressure on Mr Izmirlian to agree an out-of-court settlement.

But, perhaps in recognition that Friday’s developments fall far short of what it was seeking, the Government’s subsequent press release was pretty downbeat. Emphasising that it awaited today’s written ruling by Justice Winder, and the Order on the joint provisional liquidators’ powers, the administration said merely: “The Government is optimistic that this judgment moves the process one step forward toward its only aim, which is to get the resort up and running in the best interests of all Bahamians.”

This all masks the fact that the winding-up petition will be heard more than four months after Baha Mar filed for Chapter 11 bankruptcy protection on June 29, a timescale hardly in keeping with the Government’s pledge that this tactic was the quickest way to ensure the $3.5 billion project’s completion and opening. That will now not happen until the 2016 first half at earliest.

The joint provisional liquidators, Bahamian accountant Ed Rahming and two UK accountants, Mark Cropper and Alastair Beveridge of AlixPartners Services, are for the moment considerably ‘de-fanged’ in the sense the Supreme Court has charged them merely with the responsibility of protecting and preserving Baha Mar’s existing assets.

And Justice Winder, while allowing the winding-up petitions by the Bahamas Electricity Corporation (BEC) and the Treasurer to move forward, also struck out as “highly irregular” the Government’s initial ‘omnibus’ $59 million version.

Mr Izmirlian, for his part, was quick to the draw in stating that the court’s ruling had given Baha Mar “further confidence” that its chosen restructuring path would succeed. While acknowledging that the developer had hoped the joint provisional liquidators would not be appointed, Mr Izmirlian can rest more comfortably in the short-term at least, knowing that he and his managers will remain in control of the project alongside Mr Rahming and team.

Baha Mar now has some breathing space, and time, to negotiate an agreement with his Chinese partners over the development’s completion and opening. It again indicated its desire to move forward with its restructuring via the Chapter 11 process in the Delaware Bankruptcy Court, something that will likely have the Government and Chinese gnashing their teeth once again.

For China Export-Import Bank and China Construction America (CCA), along with Baha Mar’s employees and Bahamian creditors, are those whose respective causes were least aided by Friday’s decision.

Justice Winder’s postponement of the winding-up petition hearing, and restricting of the liquidators’ powers, means that Chinese hopes of getting rid of the Izmirlians and either working with Mr Rahming & Co or taking over Baha Mar themselves have to be put on ice a little while longer.

There is also no prospect, thanks to Justice Winder, that the provisional liquidators will be empowered - yet - to seek to withdraw the Chapter 11 proceedings. That is essential for the Chinese, as it would remove the biggest obstacle to the bank moving to realise on its own security and appoint its own Baha Mar receiver.

CCA and the China Export-Import Bank will now have to turn their attention, unwillingly, to Delaware and hope that Judge Kevin Carey rules later this month to dismiss the Chapter 11 action at their behest.

As for the Bahamian interests, Friday’s developments by themselves do not seem to be a major leap forward in bringing quick resolution to their situation. For Baha Mar’s 2,400 non-Melia staff, there is only more confusion and uncertainty as to whether they will still have a job in the medium and long-term.

Ditto the Bahamian contractors and retail/restaurant investors, who appear no closer to being fully paid or realising a return on their investments, despite Baha Mar’s promises in its Chapter 11 plan to make all local creditors whole.

Yet despite the jurisdictional tug-of-war between the Bahamas and Delaware over which country is the correct forum, Justice Winder and Judge Carey agree on one thing: That the parties to the Baha Mar dispute need to settle it in the Board room, not the court room.

A commercial agreement, negotiated out-of-court, remains a far better option than winding-up petitions and Chapter 11 reorganisations do for resolving Baha Mar’s future in ‘double quick’ time. Yet this has been beyond the developer and its Chinese partners for some 10 months, and they appear no closer to getting it done with the lawyers having taken over.

Time for Tribune Business to lend a hand with its own suggested remedy for how an out-of-court settlement might work, using the principle of KISS (Keep It Simple Stupid).

This newspaper suggests a tactic that might prove surprisingly effective: Separate the dispute between Baha Mar (the Izmirlians) and CCA, the root cause of all the trouble, from the agreement on the project’s financing, completion and opening.

COMPLETION AGREEMENT

The framework for this is largely in place, but will require some compromise from CCA and Mr Izmirlian and his father, Dikran.

If it is $400 million that is required, stick to the formula where China Export-Import Bank provides $200 million, and Baha Mar and CCA $100 million each. Baha Mar (the Izmirlians) and CCA both agree to guarantee $100 million, or 50 per cent, of the bank’s loan if it still insists. The idea of a Bahamian government guarantee should be dropped, as this nation’s strained finances cannot take further exposure.

CCA stops its ‘wriggling’, and commits to achieving a guaranteed completion date. It also commits to doing ‘whatever it takes’, in terms of extra manpower, resources and productivity, that it needs to achieve this.

That would mean fulfilling the November 19, 2014, ‘meeting minutes’ that documented the then-agreement with Baha Mar. CCA would also receive financial incentives for hitting the completion date and other milestones, and have to pay penalties for missing them. This could also involve the disputed $54.622 million sum that CCA was claiming.

The biggest obstacle here is the complete breakdown in trust between CCA and Baha Mar. Mr Izmirlian will also have to quadruple the existing $25 million guarantee he has set as his limit, and CCA, as stated, will have to ‘play ball’.

Prime Minister Perry Christie and his administration must also impress upon the Chinese, at the diplomatic level if necessary, the seriousness of the situation and how much damage is being done to the Bahamas through sovereign credit rating downgrades and the like. If necessary, the Chinese will have to adjust their cultural mindset when it comes to deal-making.

Justice Winder’s verdict also creates an opportunity to bring in professional international mediators and arbitrators from the likes of the International Chamber of Commerce (ICC). this is something the negotiations have thus far lacked, and could benefit from.

DISPUTE RESOLUTION

Would Mr Izmirlian be prepared to ‘up’ his guarantee if he still had the prospect of recovery from CCA? That is the difference between what Tribune Business is proposing, and what the parties have been wrestling with to-date.

The proposed solutions have, in this newspaper’s opinion, been too complex in that they have inextricably bound-up CCA and Baha Mar’s dispute with getting the resort completed. They are two different issues that need to be separated.

Right now, Tribune Business would propose ‘staying’ just two actions - the Government’s winding-up efforts, and Baha Mar’s Chapter 11 petition in Delaware. Should agreement be reached, they would then be discontinued when the $3.5 billion project is fully completed and open.

Once that milestone is achieved, Baha Mar and CCA can then do as they please because the former’s $192 million UK High Court claim is still alive, as are the various arbitration actions. Effectively, the two sides would ‘park’ their dispute until completion, and then be able to duke it out in these various settings should they so desire. The upside for Mr Izmirlian is that he can potentially recover more than his $100 million ‘guarantee’, especially if he is convinced his case is strong.

That’s our suggestion. Tear it apart, criticise it as you will. For despite the cumulative intelligence of the four parties involved, all of whom are well-endowed (financially, of course), we are no nearer to a resolution than when Baha Mar and its Chinese partners sat down in Beijing some 10 months ago. They’ve managed to make an almighty mess of it on behalf of the Bahamian people.