The Tribune

A prominent QC yesterday predicted that his legal challenge to the GB Power buy-out will “send shockwaves through the foreign investor community”.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business his long-awaited Judicial Review action “strikes at the very root” of how the Government issues approvals and permits to overseas investors.

Legal papers, filed with the Supreme Court yesterday on behalf of Mr Smith’s company, SeSaChe, are seeking to quash the approvals that gave Emera the go-ahead to buy-out GB Power’s minority Bahamian shareholders.

SeSaChe, which has to obtain the Supreme Court’s permission to launch Judicial Review proceedings, is alleging that the Bahamas Investment Authority (BIA) and Central Bank approvals are “ultra vires, irrational and procedurally unfair”.

The company, which holds $300,000 worth of shares in BISX-listed ICD Utilities, the holding vehicle for 50 per cent of GB Power’s equity, is also seeking court Orders to block the Government from approving the buy-out without first consulting Bahamian shareholders and other “stakeholders”, such as the Grand Bahama Port Authority (GBPA).

It is arguing that since the BIA is not created by law it has “no authority over the personal shares owned by Bahamian citizens”, and thus has “no power” to approve Emera’s purchase of SeSaChe’s shares.

Mr Smith told Tribune Business that the Judicial Review was targeting the Government’s ongoing failure to follow statutory approvals processes, which he said it persistently bypasses through permits granted through the Office of the Prime Minister.

“It is going to create shockwaves in the foreign investor business community because it strikes at the very root of the foreign investor approval process in the Office of the Prime Minister,” he said.

“The continued practice of creating these non-statutory bodies like the BIA and the Bahamas Environment, Science and Technology Commission (BEST) are just recipes for litigation.”

Mr Smith added that Emera and GB Power executives had been “waving the approval from the BIA around as if it was a fait accompli” when they met minority ICD Utilities shareholders in late October to discuss the proposed buy-out.

“The Office of the Prime Minister is no lawful jurisdiction through which to be approving the sale of my shares, as a Bahamian, in a Bahamian company,” the well-known QC blasted.

“This is why it is so important to ensure businesses operate in accordance with laws passed by Parliament, and not short-cuts created by the executive arm of government like the BIA.

“We get foreign investors feeding into this alternative reality process, which just creates continued confusion and abuse,” Mr Smith continued. “They think they can go to the Prime Minister’s Office and get these approvals to forcibly take my shares. Hopefully, the courts will rule that in the Bahamas we don’t live in a dictatorship.”

Mr Smith’s Judicial Review was filed on the same day set by Emera/GB Power as the deadline for Bahamian shareholders to decide which buy-out option they will take - the all-cash payout; exchanging their ICD Utilities shares for Emera Depository Receipts (DRs); or a mixture of the previous two options.

The GB Power buy-out was approved by 89 per cent of Bahamian minority investors at a November 8 shareholders’ meeting but, despite the seemingly overwhelming vote in favour, Mr Smith and SeSaChe are arguing it should not deprive them of their GB Power equity interest.

The buy-out is scheduled for completion this month, and it now remains to be seen whether Mr Smith’s latest Judicial Review action will disrupt Emera’s plans.

“Notwithstanding that a majority of the other minority shareholders of ICD Utilities may have approved the transaction, SeSaChe does not accept that it should be forcibly divested of its shares in ICD Utilities or made to take a payment for its shares,” the company alleged.

“SeSaChe resists being forced to divest itself of its ownership in ICD Utilities, and the indirect ownership in GB Power, and to be thus prevented from capitalising on the future potential growth in value of GB Power as the Freeport and Grand Bahama economy grows, especially given the current government administration’s commitment to dramatically spur economic activity and resurrect the economy of Grand Bahama.

“If Emera or GP Power, as they say they do, wish to simplify their corporate structure, it is just as feasible - and, in fact, far simpler to exchange SeSaChe’s shares in ICD Utilities with an equivalent value of direct shares in GB Power. GB Power has already issued many millions of preference shares directly to Bahamians.”

Archibald Collins, GB Power’s chief executive, previously conceded to Tribune Business that issuing GB Power shares in exchange for the ICD Utilities shares held by Bahamians was an option, but this was never considered in determining the buy-out’s structure.

While Emera and GB Power are likely to dispute Mr Smith and SeSaChe’s claim that they are being “forcibly divested” of their shares, the latter’s Judicial Review reiterates that the buy-out’s effect - if it is completed - will be to make Grand Bahama’s monopoly energy provider 100 per cent foreign-owned “with no Bahamians having any direct or indirect stake”.

Moving to challenge the Government approvals, SeSaChe is alleging that the buy-out is contrary to the Central Bank’s mandate to protect the Bahamas’ external reserves and balance of payments because “it will result in 100 per cent of GB Power’s distributable profits going offshore”.

Branding the Central Bank’s ‘approval in principle’ as “irrational” on this aspect alone, SeSaChe added that the buy-out of all Bahamian ownership also countered the Electricity Act’s mandate that the energy sector provide “investment opportunities for citizens of the Bahamas”.

GB Power has challenged the Utilities Regulation and Competition Authority’s (URCA) ability to regulate it via the Electricity Act through the courts, and some are likely to see the irony in Mr Smith and SeSaChe using that legislation as one pillar of their case.

However, they are arguing that it was “imperative” for the Electricity Act and its provisions to be considered by the Central Bank when making its decision on whether to grant approval.

SeSaChe is also claiming that the exchange control approval was ‘procedurally unfair’, as shareholders and stakeholders should have been consulted beforehand given that the former were “in danger of being stripped against their will of their stake” in GB Power.

“In these circumstances, the protections offered to minority shareholders by the Companies Act (dissenting shareholders’ right to fair value for their shares) are insufficient, and shareholders have an interest in the decision being taken by the Central Bank/ Minister of Finance and a concomitant right to and expectation of consultation,” Mr Smith and SeSaChe alleged.

Turning to the BIA, they added: “The BIA’s decision is ultra vires because the BIA as an entity has no statutory foundation, no regulatory jurisdiction and as such has no authority over the purchase of personal shares owned by Bahamian citizens.

“The BIA is the administrative arm of the National Economic Council (NEC), operates from the Office of the Prime Minister and is an unofficial gatekeeper of foreign investment in the Bahamas. It has no power to grant approval for Emera’s purchase of SeSaChe’s shares.”

SeSaChe and Mr Smith are also asking the Supreme Court to Order that the BIA and Central Bank produce the approvals granted to Emera if their Judicial Review challenge proceeds.

The McKinney, Bancroft & Hughes law firm, acting for Emera and ICD Utilities, had told them to approach the Government for details on the approvals. “It is curious that Emera and ICD Utilities have refused to supply a shareholder with copies of the approvals issued to Emera, and upon which Emera/ICD Utilities relies so heavily in the press release, circular and proxy statement,” SeSaChe alleged.