Bush: Gov’t discussing stamp with Ritz

The Cayman Islands government is talking with the new owner of The Ritz-Carlton, Grand Cayman about stamp duty payments that could total up to CI$17 million, in theory. 

Cayman Islands Premier McKeeva Bush said the CI$6 million in deferred stamp duty payments the government claimed was owed by the receivership companies formerly owned by Ritz developer Michael Ryan is part of a continuing legal dispute that is “still outstanding”.*

“I suspect that the new owners will live up to the contract. It’s a legal document, and the government cannot afford to wipe it out,” Mr. Bush said. 

Built in 2005, the Ritz and associated properties were sold at auction 31 October for US$177.5 million to RC Cayman Holdings LLC, an affiliate of American private equity firm Five Mile Capital Partners LLC. At the new uniform rates for property transfers of 7.5 per cent, the stamp duty tax for the sale would be US$13.3 million, or roughly CI$10.9 million. (Under current law, some of the non-waterfront Ritz properties may have a duty rate of 6 per cent. Additionally, although included in the sales price, the value of “chattels”, such as furniture, would not factor into the amount of duty owed.) 

IRG broker and owner Jeremy Hurst said there is precedent for government to agree to waive the stamp duty charge to encourage the sale of valuable property in similar circumstances. 

Mr. Bush said, “Our law says on any transfer, there is an element of stamp duty to be paid. That’s the law – but we will be a good partner. And I think they want to be a good corporate citizen and expect to have a good partnership with them.” 

 

Partners  

Mr. Bush said government has been talking with RC Cayman since before the auction, but has not agreed to any definite breaks on stamp duty. He said his first priority is to ensure the Ritz stays viable. 

“This country cannot take a hotel closing at this time,” he said. 

Noting that countries from Taiwan to the United States regularly offer incentives for private investment, Mr. Bush said the Ritz has received relatively minor concessions compared with other projects over the years. 

“When I supported building the Ritz-Carlton, I supported that project because I recognised that the quality that they were starting with it would bring our tourism to another level that catered to the high-wealth individuals that we are promoting as a tourism destination,” said Mr. Bush, who is Minister of Tourism. “The Ritz-Carlton over the years has lived up to that expectation.” 

Mr. Hurst said the net positive impact of the Ritz has been far more massive than the outstanding CI$6 million. 

“We are willing to be the kind of partner that we have always been when we attracted the hotel. We will continue to be that partner,” Mr. Bush said. “The new owners have said they will continue to be that partner as well.” 

 

Debt, duty  

In March, as the property’s secured lender, RC Cayman filed a writ demanding the immediate repayment of nearly US$234 million from Ritz developer Michael Ryan, and appointed Kris Beighton and Keith Blake of KPMG as joint receivers of companies, formerly controlled by Mr. Ryan, that were behind the development and ownership of the Ritz. 

Court documents contain a review by the Deloitte accounting firm showing the Ritz receivership companies to have been “insolvent to the tune of” more than US$340 million on a balance sheet basis, with about US$261 million in assets, US$250 million claimed by secured creditor RC Cayman and US$351 million in unsecured credit. 

A complex legal case is before the Cayman Islands Grand Court, pitting the receivership companies against Mr. Ryan and companies he still controls. Each side argues the other owes money, including an allegation that Mr. Ryan and one of his companies received US$44 million over seven years from the Ritz companies before he lost control of them. 

Auction 

When the Ritz auction was announced in September, the reserve price was set at US$240 million. In October, the reserve price was cut to US$177.5 million. If the property had sold for the original reserve price, the 7.5 per cent stamp duty would have been about CI$14.8 million, or about CI$3.8 million greater than the hypothetical duty on the actual sales price. 

A Five Mile representative said the initial reserve price was set before the appraised value of the property was known, and was revised downward after the appraisal. 

“The US$177.5 million reflected the appraised value,” he said. 

The auction, which was the largest public real estate auction in Cayman’s history, drew one other qualified bidder in addition to RC Cayman, each of whom had to submit a refundable advance deposit of US$8.875 million. While the Five Mile representative declined to name who the other bidder was, he did say it is a Cayman-based entity.
 

 

Editor’s note: This story has been updated for clarity.
 

Ritz-Carlton Grand Cayman

Cayman Islands Premier McKeeva Bush said the CI$6 million in deferred stamp duty payments the government claimed was owed by the Ritz developer is part of a continuing legal agreement that is “still outstanding”. – Photo: File
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13 COMMENTS

  1. What a crock!! All these years and Mike Ryan owed the government MILLIONS and Big Mac never once demanded payment, all of a sudden the property has new owners and NOW Mac is demanding payment?? Guess its’ true, it’s not what you know, but WHO YOU KNOW!

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  2. What a crock is right! the owner of IRG must be crazy to think that because you have a million dollars ,you should not pay duty, he is only looking out for his pocket,. Lets say also real estate companys on this Island should not charge a commission on properties under CI 250,000 and only pay 50% of the present stamp duty. Why cant the little man get a break too. Let heem pay the full stamp duty, if yoy can afford US 177,000,000 you can afford the 7% duty. Put on your big boy pants an stop complaining.

    t

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  3. How ironic and hippocritical that he would even consider uttering the words they have a legally binding contract.It was not all that long ago that I attended a meeting at the Mary Miller Hall when this joker was asked if he was concerned about somebody suing the government about changing a legally binding contract with expat government workers. His response was just try it. So this looks good on him and I am certain that the new owners have more than done their homework to avoid any possible loopholes thrown at them by this joker. Hes out of his league again as usual.

    This man continues to amaze me.

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  4. catchandrelease, I’d have to say you’re wrong on that, when you run a business it the company that owes the debt not you personally no differnt than outstanding profits.

    Is it different in Cayman?

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  5. Not a lawyer so cant say for sure.

    When bankruptcy is declared, all debts of the company are a tough luck situation except when those who are secured creditors is the situation. My guess is that the bank or some other financial institution held the mortgage and when the property was sold, the secured creditors get the cash. Same as anyone who defaults on a mortgage on their home. When the house is sold, proceeds go to the bank unless there are funds left over.

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  6. NJ2cay, I refer to Ryan as shorthand for whichever of his companies imported whatever it is that the duty would have applied to. Those companies are still around but do not appear to have any money. The new owners of the hotel did not buy those Ryan companies, and the only way the new owners would face liability for the deferred duty is if it is some kind of charge on their new property. I have not heard anyone suggest that it is.

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  7. Theirs is no reason to dismiss tax payable to government. RC being the buyer of property already considered the tax consequences as evident of appraised value being lowered down to 177.5 million from 261 million book value.

    In a business valuation, the appraised value of property is based on due diligent report, where it is not only the land and building being appraised, it also consider government liability, year by year forecast, economic substance, , indexes, business plan, bla blah blah

    stamp tax on realty property mostly based on appraised value of land and building , and what I am seeing government should calculate stamp tax approximately close to 261 million book value (remember book value has already its depreciation consideration for building). No no to 177.5 million tax base.

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  8. Just for the record, I want to make clear that whilst I did make the comments as reported in the above article and stand by them, I also stated quite clearly to the Compass that regardless this did not excuse the developer in this case from not paying the stamp duty due.

    It appears in this case there was an agreement to defer the duty and as far as I am concerned it should have been paid in full and on time, as per the letter of the agreement.

    Jeremy Hurst, IRG

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  9. As I understand it ‘Government’ debts and duties take priority over even secured creditors. No invoice needs to be pre-submitted by the Government.

    It is taken as read that the new owners will have to pay stamp duty at the rate which was in effect on the day of sale.

    The ‘Back taxes’ are a different question and will depend on the conditions of the sale/auction – though it was public knowledge prior to the sale that there were outstanding duty payments. Of course if a good lawyer can weasle out of that then thats 6 Mil in the bank…

    If the liquidator chose to sell the assets and liabilities together (I believe that is the case as they specifically ruled out splitting up the property), then the new owner must also pay the 6M back duty owed.

    If they were specifically excluded then the liquidator must pay the government first, the secured creditors second, and the unsecured creditors get to share the remainder (if any).

    Either way that debt is due now and negotiations should have been done prior to the sale if the liquidator or potential purchaser wanted any exemption.

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  10. There are two issues here.

    1. The stamp duty and import duty owed by Ryan when he developed the property.

    2. The stamp duty now payable as a result of the foreclosure sale.

    There can be no excuse for this second duty not being paid.

    Why is it that big businesses can almost always get the stamp duty waived while ordinary home owners and small businesses have no choice but to pay up?

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