The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Supreme Court will be asked to determine if a Cavalier Construction affiliate must pay an outstanding $54,161 VAT bill owed by the insolvent contractor, it has been disclosed.

Liquidators for Bobcat Bahamas, which is also being wound-up, disclosed in a July 31, 2022, report to the Supreme Court that the fate of the Government’s VAT claim will be critical to deciding how much termination pay and associated benefits the construction equipment supplier’s employees will recover.

Andrew Davies and Kendrick Christie, the Crowe Bahamas accountants and partners, said the Department of Inland Revenue/Ministry of Finance had submitted the VAT claim in the Bobcat Bahamas liquidation - even though the sum was owed by Cavalier - on the basis of joint liability.

The Government’s argument is that, since Cavalier and Bobcat were part of the same tax-paying group under the VAT Act, all become liable to pay outstanding taxes if one entity fails to make the necessary payments that are owing. The liquidators, though, have yet to approve and accept the Government’s claim, and will instead seek the Supreme Court’s direction on the matter.

“The joint official liquidators received a preferred creditor claim from the Government for VAT relating to unpaid VAT due from Cavalier Construction in the amount of $54,161. The basis of the claim was that as Bobcat Bahamas and Cavalier Construction were part of a VAT group, as allowed under the VAT Act, each member is jointly and severally liable for any amounts owed where the a member of the group contravenes or fails to comply with a provision or requirement of the VAT Act, regulations or rules,” the Crowe Bahamas duo revealed. 

“The joint official liquidators sought the opinion of their legal counsel on this claim but have not approved this claim to date. Given its relative complexity and the overall impact for recoveries for creditors, the joint official liquidators intend to seek directions from the court on the Government’s claim at the next hearing.”

The outcome is especially critical for Bobcat’s former staff, given that the company is insolvent and that they are owed a collective $148,842 in unpaid severance and other benefits that came due when it closed its doors more than two-and-a-half years ago in January 2020 just before COVID struck.

Of the net $180,489 cash that will likely be left when all liquidation expenses are paid, some 61.8 percent or $111,590 will go to CIBC FirstCaribbean International Bank (Bahamas) - as Bobcat’s secured creditor - to repay an overdraft facility that was secured via a debenture that imposed fixed and floating charges over the equipment supplier’s assets.

That leaves the preferred creditors, namely the former Bobcat employees and the Government with its unpaid taxes, to fight over the remaining $68,899. Should the unpaid VAT claim be accepted, the total sum due to the preferred creditors would be $203,002. Distributing the former sum equally would see the ex-staff and government gaining 33.9 cents of every $1 they are owed.

However, if the Government’s claim was rejected, the employees will receive a bigger share of the remaining pot. This would increase to 46.3 percent, or close to half of what they are owed.

Bobcat’s total solvency deficiency, once unsecured creditor claims worth $133,735 are accounted for, is estimated at $267,839. The liquidators have informed each of the unsecured creditors, who their report does not name, that they will not receive a cent of what is owed to them.

“Since the date of the first interim report, the joint official liquidators received two new creditor claims which they approved, and resolved a specific claim relating to an amount of $71,328, which formed part of a larger $80,124 claim submitted by the only non-Bahamian based creditor,” Messrs Davies and Christie wrote.

“Based on realisations to-date and associated expenses, the joint official liquidators are of the opinion that the unsecured creditors will not receive a dividend in the liquidation after distributions are made to the secured creditor and preferred creditor group. This is not uncommon in insolvent liquidation scenarios.”

Of the $136,008 in liquidation expenses incurred in the near two-and-a-half years between February 2020 and end-July 2022, some $107,627 or 79 percent represented fees paid to the liquidators and their attorneys, the McKinney, Bancroft & Hughes law firm. Just over $64,000 in additional fees are expected to be billed before Bobcat’s liquidation is completed and a single, final dividend paid out to creditors.

Despite making profits in each of its last four years in existence, Bobcat was placed into liquidation because of its heavy reliance on Cavalier for revenues as well as back office and operational support, and the fact that arguably the leading name in Bahamian construction for the 64 years prior to 2020 allowed it to operate from its premises rent free. Both companies shared the same owner and majority shareholder, the Galaxy Group of Companies.

Messrs Davies and Christie are also handling Cavalier’s court-supervised liquidation. No formal information on that process has been forthcoming since January 2021, although it is understood that the winding-up largely hinges on the sale of Cavalier’s former head office on Crawford Street in Oakes Field and the sales price realised. Again, as secured creditor, CIBC FirstCaribbean will have first claim to any proceeds from a property valued at $2m in 2017.

The Crowe Bahamas duo admitted in their Supreme Court that recoveries from the sell-off of Bobcat Bahamas’ equipment, inventory and vehicles was far lower than anticipated, coming in at a total $380,630 - a sum almost 37 percent or more than one-third below their initial estimates of $602,750.

“The actual realisations of the assets, particularly plant and machinery, are materially lower than expected. While the joint official liquidators note certain sectors of the construction industry have remained relatively buoyant through the pandemic, this outcome is not unreasonable given the overall severe economic challenges the jurisdiction has faced,” they argued. 

“The joint official liquidators are comfortable that the format and timing of the sales process they ran maximised returns for the liquidation estate. The joint official liquidators note that if realisations of plant and machinery were in line with pre-pandemic estimates, the financial position of preferred and unsecured creditor classes would have been significantly improved.”

Breaking down the recoveries, Messrs Davies and Christie that when it came to plant and machinery assets “total realisations net of VAT amounted to $324,253 against a pre-pandemic estimated value of $466,050. 

“This represents a recovery of 70 percent on expected sales value which the joint official liquidators consider a satisfactory outcome given the significant negative impact of the pandemic on the domestic economy, and the challenges of running a sales process during this same period.”

As for accounts receivables, the liquidators said the largest sum of $84,431 was owed by Cavalier, which was insolvent and thus uncollectable. While $15,960 was collected from one debtor, the rest of the outstanding debts were deemed to be too insignificant to warrant time and money spent on chasing them.

A further combined $430,000 was owed to Bobcat by its parent and affiliate, but their insolvencies meant the $110,000 owed by Galaxy and $320,000 due from Cavalier cannot be recovered. 

“The liquidation has experienced significant delays and unexpected complexities as a result of the worldwide pandemic. The joint official liquidators have within these restrictive and challenging conditions sought to maximise returns for the creditors of Bobcat Bahamas,” Messrs Davies and Christie concluded.

“These delays resulted in increased holding costs to maintain adequate insurance and security of the assets the joint official liquidators took charge of. These costs in turn impacted overall returns for creditors as they were paid for out of the liquidation estate.

“The joint official liquidators were not in a position to wait for the pandemic to dissipate and the economy to stabilise given the significant amount of uncertainty involved, and so ran the sales process for the main assets of the company in April 2021.”