The relationship between developers of land beside the new Health City Cayman Islands has soured, leading to a court application to wind up the business.
Health City Investments LLC, an affiliate of Florida real estate investment firm Private Equity Group, has applied to the Grand Court to wind up Health City Development Ltd., a company that acquired 150 acres around Health City to develop support infrastructure and a hotel complex related to the hospital.
Private Equity Group said the trust between the members of the company, which is run as a “quasi-partnership,” had broken down.
Private Equity Group’s affiliate HCI is a 34 percent shareholder in the project together with Gene Thompson’s GT Cayman Ltd (30.5 percent), Haresh Chandi’s SSK Holdings Ltd (30.5 percent) and Keystone Partners Ltd. (5 percent) represented by principal Allen Bernardo.
The petition, filed by HCI on March 26, argues that the Health City Development should be wound up on the grounds that HCI had lost confidence in the management of the company and in particular the “probity” of Mr. Thompson, who was the sole director when the company was established.
It is understood that the suit does not affect the recently opened Health City Cayman Islands hospital but addresses peripheral property around it.
HCI claims Mr. Thompson misled the investor about the financial prospects of the company and later reneged on a buy-out agreement. The other shareholders further allegedly oppressed HCI, the only Class A shareholder.
The Class B shareholders had obtained alternative financing for Health City Development in contravention of a shareholders’ agreement, HCI said in its filing, “to purport to convert HCI’s Class A shares to Class B shares and thus deprive HCI of its enhanced rights as a holder of Class A shares and thus effectively to lock HCI in to the company as a member.”
Private Equity Group said it became involved after Mr. Thompson approached OJ Buigas, chief executive of the real estate investment company in April 2010, with a view to procuring investments and expertise from PEG in order to acquire land, and obtain subdivisions and change of use approvals for the land to develop the properties.
PEG said it provided the funding to acquire the land and meet the expenses incurred in connection with the development, after Mr. Thompson and Mr. Chandi made representations about the post-development value of the land and the existence of purchasers who would be willing to purchase the development or parts of it once the planned area development had been approved.
Health City Development used PEG funds to buy options to purchase three 50-acre parcels of land adjacent to the Cayman Health City hospital in 2012.
In April 2013, the petition states, Mr. Thompson informed Mr. Buigas that he was unable to find any buyers for the land at the previously estimated value of $50 per square foot and that he had not secured other investors to support the acquisition and development of the project.
According to the petition, Mr. Thompson and Mr. Chandi persuaded Mr. Buigas not to withdraw from the investment until after the Health City Development had exercised its options to buy the land. By this time they would also present parties interested in purchasing HCI’s share in the company.
The discussion about how HCI would be able to divest itself from the shareholding in Health City Development continued in September, while PEG agreed to provide further funding until the hospital was completed.
The petition states that an email by Mr. Thompson in January 2014 then set out a buy-out agreement for HCI that was reached between all members.
The agreement called for HCI to receive 34 percent of the net value of the land together with the funds PEG had advanced to the company, as well as the interest that had accrued. The net land value was to be established by deducting the PEG funds and interest from the ‘agreed value’ of the land, based on the average of two independent valuations.
Valuations by Charterland and BCQS set the “agreed land value” at US$14,291,463, which put HCI’s 34 percent share at US$4,237,210. PEG maintains that as at February 27 it had contributed US$1,741,119 to the company and was due US$87,960 in interest.
HCI maintains that Mr. Thompson in a letter on March 14 on behalf of the other shareholders reneged on the divestment agreement, “wrongly” characterized the funds advanced by PEG as a shareholder loan, and said the other shareholders had secured alternative funding to repay the funds.
According to HCI, the letter continued that following the repayment of the funds HCI’s class A shares would be converted into class B shares.
The letter also stated that the other shareholders did not accept that BCQS and Charterland had adopted an appropriate method for the valuation of the property, the petition said. HCI claims that Mr. Thompson, Mr. Chandi and Mr. Bernardo by securing alternative funding had breached Health City Development’s shareholders’ agreement, which calls for reserved matters such as the procurement of financing in excess of US$500,000 to require a majority vote of the members at a general meeting.
HCI claims that a shareholders agreement was negotiated on 15 July 2013, according to which the board of the company would consist of Mr. Thompson, Mr. Buigas, Mr. Chandi, and Andrew Bokan and Howard Baum, respectively the general counsel and chief operating officer of Private Equity Group.
However, none of the shareholders other than HCI signed a resolution to appoint the directors. “Accordingly, and wrongfully in breach of the Shareholders’ Agreement, Mr. Thompson remains the only director the Company recorded as such in the register of directors of the Company,” the petition states.
In addition, the petition said, the “sole” and “improper” purpose of the decision to obtain financing “was to give Mr. Thompson, Mr. Chandi and Mr. Bernardo a purported basis to convert HCl’s Class A shares into Class B shares and thus deny HCI the enhanced voting right attaching to the Class A shares; further to deny HCI the right to wind up the company by resolution; yet further to deny HCI the right to exercise other rights afforded to the holder of the majority of votes at a general meeting under the shareholders agreement and the ability to pass special resolutions at general meetings of the company.”
Mr. Thompson and Mr. Buigas were both contacted for comment. Mr. Thompson declined to comment and Mr. Buigas but did not respond by press time.