Indies Suites assets stripped

Indies Suites Ltd. was stripped of the cash assets it received from the sale of its property and insurance settlements soon after receiving them.

The divestment of the assets was revealed during the court proceedings that ultimately led to the official liquidation of the company last week.

Chief Justice Anthony Smellie granted the petition for winding up and appointed Chris Johnson and Russell Smith, both of Chris Johnson Associates Ltd., joint official liquidators.

The disbursement of the cash assets was made in favour of Brac Construction Ltd., the sole shareholder of Indies Suites Ltd. as part payment of an alleged loan.

Mr. Johnson doubts the validity of the loan claim.

‘We have reservation that any money was owed to Brac Construction,’ he said.

Mr. Johnson had been appointed the provisional liquidator by order of the Grand Court on 7 June.

The petition to wind up the company was brought by two Indies Suites timeshare owners and supported by 177 other timeshare owners.

It is estimated that there could be as many as 500 Indies Suites timeshare owners – called ‘club members’ by contract – who paid some five to six million dollars in membership fees.

Indies Suites was severely damaged by Hurricane Ivan, and subsequently sold to St. Matthew’s University School of Medicine, even though Indies Suites Ltd. was contractually bound to repair the facility.

During his investigations, Mr. Johnson made a number of discoveries concerning Indies Suites Ltd.


The Indies Suites property was inadequately insured, Mr. Johnson’s report to creditors indicated.

A loss adjuster’s report showed the property to have pre-Ivan value of US$3,961.758, but the property was only insured for US$2 million.

‘We understand that the insured made a conscious decision to reduce the sum insured on the understanding that he would rebuild/repair using his own contractors, and as such any claim would excluded a profit element,’ the loss adjuster’s report is quoted as stating in Mr. Johnson’s report.

Furthermore, Mr. Johnson confirmed that prior to 2002, Indies Suites did in fact have $4 million in insurance.

Because of the underinsurance, Indies Suites received only US$1,125,000 as the full settlement of its insurance claim.

Mr. Johnson points out in his report that Ronnie Foster, the sole operational management of Indies Suites, wrote to club members blaming the insurer of the property for the shortfall of insurance proceeds, saying the ‘compromised claim, if one were to be made, would not be sufficient to rebuild even a small part of the facility’.

Mr. Johnson also noted that on 31 May, more than five months after Indies Suites was sold, a posting on the Indies Suites website stated ‘the proprietor has spent the past eight months since Ivan trying to settle the insurance claim and obtaining advice from experts, claim consultants and others on the feasibility of rebuilding the property and once again operating a resort’.

‘This is not just misleading, but would appear a bare lie against the facts,’ Mr. Johnson wrote in his report

Mr. Johnson said the information the management chose to provide was ‘materially incomplete, untimely, inaccurate and, perhaps, purposely misleading’.

Sale of Property

Indies Suites commenced negotiations to sell the resort and adjoining undeveloped property the month after Hurricane Ivan hit.

Evidence presented in court showed St. Matthew’s University had JEC Property Consultants do an evaluation on the Indies Suites properties in October.

The sale went to contract on 2 December and transfer took place on 3 January.

Mr. Foster did not tell the club members the property had been sold until 31 May

The raw land – which was 1.841 acres – sold for $1.5 million, while the property with the building – which was 1.841 acres – actually sold for less, at $1.3 million.

Mr. Johnson believes the properties may have been sold for undervalue, and states that no attempts to market or promote the property for sale were ever made.

‘The JOL’s have serious reservations about the sale price of the property and whether it represented market value,’ the liquidator’s report states. ‘This is a matter that will be investigated further in the course of the liquidation.’

During the court proceedings, the petitioners’ attorney, Alan Turner, revealed that St. Matthew’s University had secured a $4.5 million loan using the property as security.

The liquidator’s report notes that the law firm Myers and Alberga represented St. Matthew’s University in relation to the property purchase, while at the same time, two companies owned by Myers and Alberga, acted as corporate directors of Indies Suites Ltd.

Disbursements of Assets

The sale of the two properties netted US$653,619 after the outstanding mortgage of $2.146 million was paid.

In addition, Indies Suites Ltd. received an interim insurance settlement of US$240,000 and a final settlement of US$885,000.

In total, the company received US$1,778,619 in proceeds from the property sale and insurance settlements.

Of that amount, $120,000 was purportedly used to pay trade creditors and employee severance packages.

The balance of $1,658,619 was paid over by the company to Brac Construction Ltd.

On 3 June, the directors of the Indies Suites Ltd. signed a resolution approving a payment of $1,538,600 to Brac Construction Ltd. for money due on its loan to build the hotel property.

Subtracting the interim insurance payment from the total proceed received by Indies Suites for the property sale and final insurance settlement leaves a total of $1,538,619, only $19 more than what the Indies Suites directors resolved Brac Construction was owed.

Mr. Johnson said the debt is not substantiated by documentation.

The liquidator’s report also notes that a 31 May, 1999 balance sheet showed no reference to a loan from Brac Construction, but noted a shareholder’s investment of only $519,332.

‘The JOL’s intend to review all recent payments to Brac {Construction} Ltd. with a possible view to challenge them,’ the report states.

Destruction of Records

The liquidator’s report notes from the beginning that its investigations were severely handicapped by the destruction the Indies Suites’ records.

Very little in the way of company records survived, much of those being records handed over by the former sales manager of Indies Suites Diana Cole.

Indies Suites’ attorneys, the firm Myers and Alberga, informed Mr. Johnson that the company’s records were destroyed by Hurricane Ivan and taken to the landfill.

However, Mr. Johnson said he and his staff has uncovered documentation showing that on the first two days of June, less than a week before the appointment of the provisional liquidator, Mr. Foster and the company’s former secretary/bookkeeper Janice Criswell, ‘instructed the shredding of nearly two metric tonnes of company documents’.

On 15 July, following the provisional liquidator’s discovery of the destruction of documents, Mr. Foster said the records belonged to Brac Construction Ltd, the report states.

Ms Criswell was first contacted by Mr. Johnson on 16 June with regard to having the company records handed over to the provisional liquidator.

The liquidator’s report noted that Ms Criswell did not inform Mr. Johnson that she did not have possession of the records, but that she said she would telephone attorney Michael Alberga and advise the provisional liquidator accordingly.

When Ms Criswell did not call back, Mr. Johnson tried to contact her later the same day, only to learn she had left for the airport.

Indies Suites Ltd. subsequently confirmed Ms Criswell has left the island and the joint liquidators do not know her present whereabouts or if she will ever return to the Cayman Islands.

‘The JOL’s firmly believe that Ms Criswell may have financial information which would prove useful in the liquidation,’ the report states.

Offer to settle

Indies Suites has offered to settle the claims of the club members for $885,000.

That sum is currently being reviewed by Myers and Alberga for the account of Brac Construction.

Queen’s Counsel Ramon Alberga, who, instructed by Attorney Waide DaCosta, represented Brac Construction in the opposing the liquidation order, said the sum was held by Myers and Alberga ‘to be used for no other purpose but to repay the timeshare owners’.

But petitioner’s attorney Alan Turner pointed out that the offer seemed conditional on the order for liquidation not being made and the club members accepting the offer as full and final settlement of their claim.

During the hearing, Mr. Alberga said Indies Suites Ltd. had considered other ways of settling with the club members, including getting the Royal Reef Resort to sell Indies Suites club members timeshare units at its resort for $3,000 each; getting Plantation Village to participate in a similar scheme; and building a block of apartments that were smaller and less attractive for the use of the club members.

The offer of $885,000 to the club members’ is based on Mr. Foster’s assertion that Indies Suites club member had purchased 20 per cent of the available weeks at the property and were there therefore entitled to 20 per cent of the pre-Ivan value of the property.

Mr. Foster has said the $885,000 offer represents more than 20 per cent of the pre-Ivan value of the property, and was the fairest way to settle the issue.

The liquidators disagree.

‘This methodology of calculation fails to fully recognise the past revenue stream of timeshare owners’ payments enjoyed by the company, the company’s future long-term obligations to timeshare owners, or the fact that the economic value of the unexpired contracts might exceed $4 million,’ the report states.

Directors’ duties and responsibilities

The liquidator’s report points out that the directors of the company have an onus to ensure the responsibilities and duties of their positions are met and that the company’s obligations are met.

Based on their findings of the provisional liquidator’s investigation, the joint official liquidators ‘intend to seek legal opinion on whether the directors may have been deficient, malfeasant and/or acting against the interests of the Company’ in respect to several areas, including: the failure to insure the property adequately; the failure to reinstate the property in accordance with its contracts with club members; for selling the property at what might be undervalue and for failing to market it without competitive bids; for making preferential payments from the property sale and insurance recovery to a related party company; for the wilful and recent destruction of company records; allowing inaccurate and misleading statements, web-postings, circulars and e-mail communications to be made to timeshare owners.

Mr. Johnson said he hoped to fill in some of the information gaps by obtaining copies of Indies Suites past banking records.

‘We hope to be able to account for money coming to the company and being expended by the company for the last four to five years,’ he said.