Court filing reveals hotel property insolvency

The companies controlling The Ritz-Carlton, Grand Cayman, are “insolvent to the tune of” more than US$340 million on a balance sheet basis, according to a review by the Deloitte accounting firm contained in Cayman Islands Grand Court documents.

In a ruling dated 25 September, Justice Peter Cresswell denied applications by defendants Ritz developer Michael Ryan and five of his companies to force the plaintiffs, comprising five companies formerly controlled by Mr. Ryan, to pay a security of $1.2 million to cover Mr. Ryan’s legal fees if he is able to defend himself successfully against the plaintiffs’ claims. The judge also denied the Mr. Ryan’s alternative application for the plaintiffs to advance him $126,152 by way of indemnity and then to pay all future legal costs.

A 1 August letter from a Deloitte partner indicates that as of 12 March (the date that Mr. Ryan’s former companies behind the Ritz went into receivership) the companies had $261 million in total assets and $601 million in total liabilities, based on draft unaudited balance sheets Deloitte examined.

“They are unarguably insolvent on this basis. The Plaintiffs’ evidence does not dispute this,” Mr. Justice Cresswell wrote.

Of the $601 million in liabilities, approximately $250 million is claimed by the secured lender, according to Deloitte. Court documents have indicated that in March, RC Cayman Holdings LLC filed a writ demanding the immediate payment of nearly $234 million from Mr. Ryan.

The remainder of the debt is unsecured, including the CI$6 million the Cayman Islands government claims it is owed. Assuming that the Ritz assets could be sold for book value of $261 million, and that the secured lender’s costs would be $2 million, the remaining surplus after paying off the secured lender would be about $8.5 million, according to Deloitte.

Dividing the $8.5 million in funds by the $351 million in unsecured credit means that, upon liquidation of the companies, “an unsecured creditor could on these figures at best expect a dividend of no more than 2.5 cents on the dollar”, according to Deloitte.

In his ruling, Mr. Justice Cresswell determined that the plaintiffs would not be able to pay Mr. Ryan’s legal fees if ordered to do so, and indeed that his “defences in this claim have a high degree of potential success”. Furthermore, he continued that the plaintiffs have not advanced a positive case against Mr. Ryan’s “very substantial claims going the other way” that he is in fact owed money.

Nevertheless, the judge determined to exercise his discretion not to order the security for Mr. Ryan’s costs, primarily because the actions by Mr. Ryan himself were what led the four companies into $340 million in the red.

“There is one circumstance which is worthy of emphasis and repetition. All of the Plaintiff and Defendant Companies are, I repeat, ultimately over 90 per cent owned by Mr. Ryan,” he wrote. “The Plaintiff and Defendant Companies formed part of the group described above. Mr. Ryan was responsible as director for the affairs of the Receivership Companies and his conduct (in the broad sense) of the affairs of the Receivership  Companies was such that immediately prior to the receivership their position was, according to Deloitte, US$(340,640,000).”

The judge determined not to grant indemnity, in part because Mr. Ryan was unable to produce the written contract for his “directorship, management and CEO services” that he says contained indemnity provisions. The judge notes that Mr. Ryan’s attorney Ian Huskisson said, “Mr. Ryan recalls there was a contract but he has not been able to find it.”


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