The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A US judge yesterday agreed that Chapter 11 bankruptcy protection would have been “an ideal vehicle for restructuring” the $3.5 billion Baha Mar project had the Government and its Chinese partners not objected to using it.

Judge Kevin Carey, in dismissing the bankruptcy protection previously enjoyed by Baha Mar’s 14 Bahamian companies, found, though, that the developer’s ‘discriminatory’ Chapter 11 reorganisation plan would only “invite further dispute” via litigation in the US and elsewhere.

And, satisfied that the Bahamian Supreme Court was treating Baha Mar “fairly”, Judge Carey cited this, as well as the legitimate expectations of creditors that their claims would be dealt with in the Bahamas, as key reasons for dismissing the Chapter 11 actions.

Baha Mar yesterday put a brave face on the legal reversal suffered in the Delaware Bankruptcy Court, expressing disappointment that the dismissal motions filed by China Construction America (CCA) and China Export-Import Bank had largely been granted.

It resorted to ‘cherry picking’ parts of the judgment that were favourable to itself, noting “that the court affirmed that it was appropriate for Baha Mar to file for Chapter 11 in the US, and that the Chapter 11 filings were made in good faith”.

Judge Carey, in his ruling, described the $3.5 billion project as “truly an international case”, but centred around the unfinished resort project at Cable Beach.

And while the Bahamian Government had a “deep and important economic interest” in Baha Mar’s future, he added that it was “no more important that the right of a company incorporated in the US” to seek relief from creditors in the US bankruptcy courts.

“The debtors’ preference for restructuring under the protections of the US bankruptcy code is understandable and entitled to some weight,” Judge Carey found.

“Chapter 11, with all stakeholders participating, under these circumstances would be an ideal vehicle for the restructuring of this family of related companies, with the ultimate goal of finishing a project said to be 97 per cent complete and, upon its exit from Chapter 11, to be in sound financial footing with appropriate treatment of creditors.”

His comments will again reignite debate over whether the Government should have ‘joined forces’ with the Chinese in seeking to wrest control over Bah Mar back into the arms of the Bahamian courts, as opposed to allowing the developer’s proposed restructuring to play out under Chapter 11.

Either way, Justice Carey yesterday reiterated his disappointment at the inability of the Baha Mar dispute parties to agree a restructuring strategy, either via a confirmed Chapter 11 plan or dismissal of the cases as part of a commercial settlement.

He added that Baha Mar’s proposed Chapter 11 reorganisation involved making its Bahamian creditors (and the Government) whole by dealing with them outside the Delaware court, while leaving Chapter 11 procedures to determine the fate of the Chinese.

“The debtors’ proposed plan, in effect, only invites further dispute; that is, litigation in this forum and in others,” Judge Carey said of the Baha Mar plan.

“If I were convinced that denying the [Chinese] dismissal motions would have the effect desired by the debtors - bringing CCA, the China Export-Import Bank and the Government of the Bahamas back to the bargaining table, I might consider denying them.

“But the evidence does not reflect this, and I am not convinced this will happen in short order. I am convinced, however, that prompt judicial action will enhance the likelihood of a successful outcome.”

And, finding that Baha Mar’s 5,172 creditors, of whom 3,523 have a Bahamian address, had a legitimate expectation that any insolvency proceedings would take place in this nation, Judge Carey found: “In business transactions, particularly now in today’s global economy, the parties, as one goal, seek certainty.

“Expectations of various factors - including the expectations surrounding the question of where ultimately disputes will be resolved, are important, should be respected and not disrupted unless a greater good can be accomplished.

“Under these circumstances, I can perceive no greater good to be accomplished by exercising jurisdiction over these Chapter 11 cases....”

Baha Mar’s Chinese partners were thus successful in arguing that the case should be heard in the Bahamas on the rationale that, apart from the companies being incorporated here, the project’s assets and operations were based in this nation; the majority of creditors are located here; and monies invested in the project were put at risk under Bahamian law.

However, Judge Carey rejected the Chinese claims that Baha Mar’s Chapter 11 filing was merely a negotiating ploy designed to “gain a tactical advantage and maintain control over the project”.

In other words, the Chinese alleged that Baha Mar had acted “in bad faith”, but the US judge noted Baha Mar’s complaint that they and the Government owed it a collective $203 million at the time of the Chapter 11 filing.

Agreeing that Baha Mar was “on the edge of a financial precipice”, Judge Carey said the developer’s admission that it wanted to maintain control of the project and reorganise, rather than liquidate under Bahamian law, was not a bid to gain ‘bad faith’ tactical advantage.

“When considering the spectrum of good faith and bad faith filings, the debtors’ Chapter 11 filings do not fall in or near the range of ‘patently abusive’,” Judge Carey found.

“The totality of the facts and circumstances surrounding the debtors’ Chapter 11 filings do not support a determination of bad faith.”

Judge Carey’s judgment also cited an action by CIBC (Bahamas) over its $3 million loan to the Spanish Cay Resort. That development sought Chapter 11 protection in the US, which was also ultimately denied on the grounds that this nation’s judicial system would treat all sides fairly.

Baha Mar’s statement in response to the ruling, meanwhile, concluded: “Our priority continues to be ensuring Baha Mar is in a position to be completed properly and opened successfully as soon as possible.

“We are continuing to do all we realistically can, including working with the provisional liquidators appointed by the Bahamian Supreme Court, to try to resolve the issues that have prevented Baha Mar from opening.”