The Tribune

Receivers: $1bn owed to Baha Mar lender

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s receivers have threatened to claim any damages awarded to Sarkis Izmirlian if he wins his battle with China Construction America (CCA) so they can repay $1bn to the project’s lender.

Darach Haughey, the Hong Kong-based accountant who was appointed as one of the project’s three receivers, argued in a July 30, 2020, affidavit that previous guarantees given by the original developer and his Baha Mar Properties vehicle meant they “could be entitled to claim the proceeds of any judgment” that Mr Izmirlian wins in the New York State Supreme Court.

He based this assertion on the fact that Baha Mar Properties pledged its shares in Baha Mar Ltd, the company ultimately placed into receivership, as security for the initial $2.45bn construction loan advanced by China Export-Import Bank.

The Chinese state-owned lender that appointed Mr Haughey and two others, including Raymond Winder, then-Deloitte & Touche (Bahamas) managing partner, as receivers for the Cable Beach-based resort project following the ill-fated Chapter 11 bankruptcy protection bid launched by Mr Izmirlian in 2015.

Although the mega resort was subsequently completed and is now under different ownership, Mr Haughey said the China Export-Import Bank has “not given up its rights” on collecting some $954.122m that it claims Baha Mar and Mr Izmirlian still owe it.

And, with Mr Izmirlian’s claims against CCA involving alleged breaches of the Chinese state-owned contractor’s obligations towards Baha Mar Ltd, rather than Baha Mar Properties, Mr Haughey alleged that any judgment proceeds won by the original developer should come to the receivers so they can settle what is owed to China Export-Import Bank.

Outlining his legal rationale, Mr Haughey alleged that “if claims do lie against CCA” and its affiliates “I believe they may properly belong to the company (Baha Mar Ltd) for the benefit of its secured creditor, China Export-Import Bank” rather than Mr Izmirlian.

“By a pledge of shares dated January 28, 2011, Baha Mar Properties and China State Construction (CCA’s parent) each pledged its shares in the Company as security for amounts owed to China Export-Import Bank,” he asserted.

“In the case of Baha Mar Properties, the pledge charged the shares owned by Baha Mar Properties in the company and all related rights in relation to the shares. The joint receiver/managers consider that such rights include rights in the investor agreement. Baha Mar Properties’ claims in the New York proceedings appear to be based on alleged breaches of the investor agreement.

“In particular, Baha Mar Properties alleges breaches of the investor agreement in failures by China State Construction to report to Baha Mar Properties as day-to-day manager of the company and breaches of China State Construction-appointed directors of the company,” Mr Haughey continued.

“Properly analysed, these alleged breaches do not appear to constitute breaches of independent duties owed to Baha Mar Properties. Rather they appear to be (allegedly) either breaches of duties owed to the company (Baha Mar Ltd) or owed to shareholders and the rights attaching to the shares.

“As Baha Mar Properties pledged the shares in the company pursuant to the pledge, and the joint receiver/managers were appointed to realise the assets subject to the pledge, the joint receiver/managers consider that if Baha Mar Properties is successful in the New York proceedings, the , the joint receiver/managers could be entitled to claim the proceeds of any judgment against the CCA parties which form part of the related rights accruing to the pledged shares.”

Mr Haughey’s assertions add a new twist to the near three-year legal battle between Mr Izmirlian and his former contractor over the former’s $2.25bn fraud and breach of contract claim, which relates to events that plunged the now-$4.2bn Baha Mar project into Chapter 11 bankruptcy protection and ultimately saw it sold to present owner, Chow Tai Fook Enterprises (CTFE).

Whether the former Baha Mar Ltd’s joint receivers/managers have any right to such judgment proceeds will likely be heavily contested in the courts. It is unclear what motivated Mr Haughey’s statement, which was contained in an affidavit filed with the New York courts last week, although some may interpret it as an effort to dissuade Mr Izmirlian from pursuing his case against CCA, which is currently in the final stages of completing construction on downtown Nassau’s $200m development, The Pointe.

Mr Haughey also asserted that Mr Izmirlian’s claims against CCA for failing to complete Baha Mar’s construction on time, and on budget, were worth just over a “net” $57m based on a valuation that the receivers commissioned from a US law firm.

Describing the China Export-Import Bank as the only entity “with an economic interest” in Baha Mar Ltd, he revealed: “The amount which remains owing to China Export-Import Bank was in excess of $954.122m excluding interest as at 30 June, 2020. China Export-Import Bank has not given up its rights to that shortfall.

“The maximum value of the construction claims, as advised by Chaffetz Lindsey, was only around $53.447m (net), and therefore, if it could be said that there was a loss in the value of the construction claims as a result of the disclosure of the construction opinions and/or the reports to CCA Bahamas, or any of the other CCA parties, it could only conceivably be of detriment to China Export-Import Bank.”