The Tribune

• Local liquidators move for Chapter 11 dismissal

• And bring ‘hundreds of millions’ in assets home

• Placing in Chapter 11 illegal under Bahamas law

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A major legal battle was brewing last night for control of $256.3m worth of Bahamian real estate assets as FTX’s local liquidators sought to extract them from Chapter 11 bankruptcy proceedings in the US.

Brian Simms KC, the Lennox Paton senior partner, and the PricewaterhouseCoopers (PwC) accounting duo of Kevin Cambridge and Peter Greaves, are arguing that the proper forum for winding-up “hundreds of millions of dollars worth of Bahamian real estate” is this country’s Supreme Court rather than the Delaware federal bankruptcy court.

FTX Property Holdings, the entity holding 35 high-end properties purchased in developments such as Albany and GoldWynn, was among those placed into Chapter 11 bankruptcy protection in Delaware by the crypto currency exchange’s founder, Sam Bankman-Fried, who was last night arrested pending his extradition to the US to face criminal charges over its implosion.

However, the Bahamian provisional liquidators are arguing that FTX Property Holdings has no connection to the US as all its assets and creditors are located in this nation. And, as the company has only done business in The Bahamas, it should naturally be wound-up here as such a process will be “extremely difficult, if not impossible, to administer” from Delaware.

The trio are also asserting that FTX Property Holdings’ placement into Chapter 11 protection violated Bahamian law. They allege that the consent of its second director, FTX Digital Markets chief Ryan Salame, was also required for this but there is “no evidence” it was forthcoming.

The eventual sale of FTX’s Bahamian real estate assets, all of which are concentrated in western New Providence, represent a major source of recovery for the collapsed crypto exchange’s investors and creditors - including those based locally. Among FTX Property Holdings’ creditors is the Albany development in south-western New Providence, which was said to be owed some $1.163m

Mr Simms, describing FTX Property Holdings as an International Business Company (IBC), last night said its sole purpose had been to “purchase and hold properties on the island of New Providence in The Bahamas as offices for the benefit of FTX Digital Markets and dwellings for employees of FTX Digital Markets”.

He added: “FTX Property Holdings conducted no business other than the purchase and ownership of real property. Immediately following our appointment, the joint provisional liquidators began investigating all aspects of FTX Digital Markets’ business, including its business dealings with FTX Property Holdings. As part of this investigation, we have identified 35 properties owned by FTX Property Holdings, all located on the island of New Providence in The Bahamas.”

These included no less than 16 properties at Albany, 15 of which were condominiums, valued between $4.75m and $30m. A further seven units were acquired in the GoldWynn project at Goodman’s Bay, which is scheduled to open in early 2023, valued between $563,520 and $1.449m. 

Another four units, varying in value from $975,000 to $1.54m, were purchased in the One Cable Beach project developed by Jason Kinsale’s Aristo Development. Some $26.34m was spent on acquiring multiple units at the Veridian Corporate Centre developed by Sebas Bastian, with further outlays of $17.435m, $9m and $1.8m on property at Ocean Terrace, Old Fort Bay and Pineapple House respectively.

“FTX Property Holdings did not have a bank account and did not pay for any of the properties that it owns,” Mr Simms asserted. “It did not pay for the maintenance of these properties. Based on the information available to the joint provisional liquidators, the purchase price for each of these properties was paid to attorneys for the vendors on the closing of the purchases by FTX Digital Markets, as was the ongoing fees and costs for the maintenance of the properties.

“For 32 of the 35 properties identified above, the joint provisional liquidators’ investigation has been able to trace the funds used for each purchase from a FTX Digital Markets bank account. There are only three properties where we could not trace the flow of funds.

“The purchase price for those three properties totalled approximately $11.8m. Our investigation has identified approximately $14.3m of payments by FTX Digital Markets on behalf of FTX Property Holdings that we could not trace to a particular property. We believe those payments represent the purchase price and related fees for the purchase of the three remaining properties,” the Lennox Paton senior partner continued.

“The payments by FTX Digital Markets for FTX Property Holdings’ properties were accounted for as loans from FTX Digital to FTX Property Holdings. According to the financial records I have reviewed, the total amount recorded as owed by FTX Property Holdings to FTX Digital was, as of October 5, 2022, at least $256.3m.

“FTX Digital Markets is the largest creditor, by far, of FTX Property Holdings. FTX Property Holdings’ only known creditors are FTX Digital Markets and much smaller creditors in The Bahamas. We are not aware of FTX Property Holdings having any assets or creditors in the US.”

Having set out the case for FTX Property Holdings’ liquidation to be transferred from Delaware to The Bahamas, the joint provisional liquidators called for the Chapter 11 proceedings against it to be dismissed. “Abstention in favour of a provisional liquidation proceeding that the joint provisional liquidators of FTX Digital (the creditor that holds the overwhelming majority of FTX Property Holdings’ debt) will commence in The Bahamas is appropriate,” the trio argued.

“FTX Property Holdings is a Bahamian corporation that does only one thing, own real property located in The Bahamas. All of its known assets and creditors are located in The Bahamas. It has no connection whatsoever to the US. It has no assets here, no creditors here, and it never has done business here. Respectfully, this court [Delaware] is not the best forum to resolve the issues this case would present.

“This case is essentially the liquidation of hundreds of millions of dollars’ worth of Bahamian real estate. It will be extremely difficult, if not impossible, to administer that liquidation in this court. The Bahamian courts that have jurisdiction over the real estate cannot recognise this court’s orders because Bahamian law does not allow recognition of a foreign insolvency proceeding for a Bahamian company. Dismissal is therefore appropriate.”

Mr Simms also asserted that placing FTX Property Holdings into Chapter 11 proceedings violated both Bahamian law and the company’s Articles of Association, as they required Mr Salame as well as Mr Bankman-Fried to agree to this. 

“A review of the documents filed by the US debtors in support of the Chapter 11 filing provides no indication that Mr Salame authorised the Chapter 11 petition for FTX Property Holdings,” he added. “The joint provisional liquidators are not aware of any evidence that Mr Salame approved, or was even informed of, the FTX Property Holdings’ Chapter 11 filing. An action of one director is a nullity under Bahamian law when the consent of two directors is required.”