Cross-Border Case Study: Obstacles to Cross-Border Recognition in the Baha Mar Case/Northshore Chapter 11 proceedings
Sophia Rolle-Kapousouzoglou, LennoxPaton
In July 2015, the Bahamian Supreme Court dismissed an application seeking recognition of Chapter 11 proceedings filed by Northshore Mainland Services Inc. a US Company and 14 Bahamian Companies (“the Baha Mar Companies”).
The Chapter 11 filing arose because the Baha Mar Companies responsible for the development of a $2.5 billion resort in Nassau, Bahamas were in financial straits. The Resort had missed several scheduled opening dates up to the time of the Chapter 11 filings and the resort was only 97% complete despite the sums already invested in the Resort which is said to be the largest single phase resort development in the Western Hemisphere.
By commencing the Chapter 11 proceedings the Debtors’ 14 Bahamian Companies voluntarily submitted to the jurisdiction of the US Courts with the hope of facilitating a restructuring under US law since there was no similar mechanism available under Bahamian law. The likely outcome for the Debtors would be a liquidation of the Bahamian Companies if insolvency proceedings were pursued in The Bahamas.
Effect of Opening the Bankruptcy Proceedings in the US before The Bahamas
Although under Bahamian law a voluntarily submission to the jurisdiction of a US Court could give rise to the companies being subject to the jurisdiction of the US Courts proceedings, the fact that insolvency proceedings had not first been opened in The Bahamas proved to be one of the fatal obstacles to the application for recognition.
As a result, when the application was made for recognition of the Chapter 11 proceedings, the Supreme Court held that the Baha Mar Companies could not seek a stay of proceedings in The Bahamas emanating from Section 362 of the US Bankruptcy Code. The Supreme Court held that the only insolvency proceedings which could give true effect to the principle of modified universality would be unitary insolvency proceedings in The Bahamas.
It was further determined that there is no equivalent to Chapter 11 under Bahamian law by which breathing space can be created or new capital can be injected on terms acceptable to any reasonable lender. Forum shopping was not accepted and a restricted approach was therefore taken. The Bahamian Government subsequently filed applications to wind up the 14 Bahamian Companies who were indebted to the Bahamian Government in the sum of almost $60 million.
Provisional Liquidators were appointed over the 14 Bahamian Companies on 4 September 2015 and the winding up hearing has yet to be proceeded with.
Dismissal of Chapter 11 Proceedings as against Bahamian Companies Following Refusal of Recognition by Bahamian Courts
In the Bankruptcy Court of the District of Delaware, two separate dismissal motions were filed by CCA Bahamas (“CCA”) the lead contractor at the Resort, and CEXIM, the Debtors’ secured creditor, while the Debtors filed an objection to
Sophia Rolle- Kapousouzoglou