The new interim government is still considering its options regarding the collection of stamp duty and deferred duty in relation to The Ritz-Carlton, Grand Cayman, which was sold at auction 31 October. However, during a Cabinet news conference on Tuesday, 8 January, Cayman Islands Premier Juliana O’Connor-Connolly struck a markedly different tone from the aggressive one taken by former Premier McKeeva Bush.
The new premier said the Lands and Survey Department is performing its own internal valuation of The Ritz-Carlton property, which sold for US$177.5 million, the reserve price of the auction and the value assigned by new owner RC Cayman’s local surveying firm Charterland.
“It is a complex and technical valuation. One that they’re competent of doing, but not one you get during the everyday round of business. Once I receive that valuation I have confidence in the Lands and Survey Department that the valuation that comes forward will be one I will take to my Cabinet, as a note, so that they will be privy to what the valuation says. And I believe that will be enough position then to make a more considered decision,” the premier said.
She said the department’s valuation would probably be ready in two to three weeks (late January).
RC Cayman, a subsidiary of United States private equity firm Five Mile Capital Partners, said in early November it intends to pay the full stamp duty on the US$177.5 million property transfer, but has “no legal obligation” to pay deferred duties of $6 million the government alleged it was owed by receivership companies formerly controlled by Ritz developer Michael Ryan.
In mid-November, then-Premier Bush said in the Legislative Assembly that the government would continue to demand the $6 million in deferred duty from the new owners.
On 8 January, the new premier said she has been advised by her ministry’s chief officer Alan Jones that the government is exploring its legal position.
“His preliminary verbal view was that we would need to do more research and get a legal opinion on that because that’s a bit more tricky, as to whether that’s still available for the government to get, and the methodology to get it. Because of that I would want to wait until I get a full briefing not to prejudice any possibility of receipt of those funds,” she said.
The Grand Court of the Cayman Islands is still considering legal arguments pitting RC Cayman and Mr. Ryan’s former companies, now in receivership, against Mr. Ryan and companies he still controls. 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 – including CI$6 million that is allegedly owed to the Cayman government.
After the auction, when asked what the sale of the hotel means for unsecured creditors, a Five Mile representative said, “They get wiped out.”
After the secured creditor is satisfied, the unsecured creditors can lay claim to whatever is owed to them by the receivership companies that no longer own what was their biggest asset, the resort property.
Former Premier Bush and the company have also disagreed on how earnest each side was in discussions to resolve the outstanding duty. The Caymanian Compass has filed an open records request for correspondence between public officials and the new Ritz owners or their representatives.
Also during his mid-November statement in the assembly, Mr. Bush said the US$177.5 million purchase price was far lower than the US$468 million value assigned by an appraiser in 2007, and that government’s Senior Valuation Officer Uche Obi had said in his opinion the hotel and property were worth more than US$500 million.
RC Cayman claims the US$177.5 million value was agreed to before the auction by the government’s Valuation Office. Ms O’Connor-Connolly said that’s not exactly her understanding of the situation.
“I believe that when the parties met the considerations were something different than what the conclusions were. That’s why Lands and Survey is looking at all the details,” she said.
At the current uniform stamp duty rate for property transfers of 7.5 per cent, the stamp duty tax for the US$177.5 million sale would be US$13.3 million – not including exclusions for “chattels” such as furniture. (Under the law in effect at the date of the 31 October auction, some of the non-waterfront Ritz properties may have a duty rate of 6 per cent.)
With a valuation of US$468 million, a 7.5 per cent rate would yield US$35.1 million in stamp duty (not including exclusions) – a difference of US$21.8 million.
The new premier said after she receives the department’s valuation of the property, she will be in a better position to discuss the duty collection publicly, and she is considering calling a specific media briefing including civil servants to explain the relevant details.
Ms O’Connor-Connolly said, “It’s an area of great concern. Obviously it’s government revenue, an area that concerns everybody. I think it should be fully explained because there has been some controversy related to it, and I believe the public has a right to know.”