By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Court of Appeal has rejected a “backdoor” escape route that would have allowed the Alexiou brothers to continue their near-two decade avoidance of a $200,000 debt owed to a fellow Bahamian investor.

The appellate court, in a December 7 ruling, found that Antony and Alexander Alexiou could not escape their “oppressive” conduct towards Zachary Galantis simply because the company at the centre of their dispute, ALI-CAT Designs, ceased to exist.

The Alexious, sons of Colina principal and Nassau Guardian publisher, Emanuel Alexiou, had argued that Mr Galantis’s 2011 action could not succeed because ALI-CAT Designs had been struck off the Register of Companies some two-three years before.

But Appeal Court president, Dame Anita Allen, and her two fellow judges rejected this ruling on the basis that ALI-CAT’s striking off “does not extinguish” the liability that the Alexious owe to Mr Galantis.

Dame Anita Allen said the brothers had shown a “blatant refusal” to pay Mr Galantis the balance of a $500,000 purchase price, which they paid to acquire his equity interest in a downtown Bay Street t-shirt store.

That deal was struck in 1998, with Mr Galantis subsequently having to fight an almost 20-year battle through the Bahamian court system to recover what is due to him.

Dame Anita, in overturning the earlier Supreme Court verdict, found that to rule in favour of the Alexious would create a “backdoor” for the directors of Bahamian companies to avoid legal liabilities, thereby “frustrating” the intent behind the Companies Act.

She ordered that the brothers pay Mr Galantis $182,532 in compensation, plus $35,811 in certified costs, with interest to accrue on both until payment.

Dame Anita, in her written ruling, said the dispute had its origins in a July 8, 1998, agreement where Mr Galantis agreed to sell his equity interest in the Big Kahuana, a Bay Street t-shirt business located between the Frederick Street junction and John Bull’s flagship store, to the brothers’ ALI-CAT Designs.

Some $300,000, or 60 per cent, of the $500,000 purchase price was paid on closing, with the $200,000 balance secured by a promissory note.

This was to be paid off in monthly instalments over a three-year period, starting on September 1, 1998, but payments ceased by March 1999 - just seven years later.

Mr Galantis sued for the balance owing to him, obtaining a Supreme Court judgment in his favour in February 2005. This was upheld by the Court of Appeal three months later.

Mr Galantis sought to enforce his judgment in 2007 but, during these proceedings, the Alexiou brothers testified that ALI-CAT Designs’ assets and business had been transferred to “a phoenix company”.

This is a firm, set up with the same directors and the same or similar name, which trades in the same industry as the first business from which it received the asset from.

The ‘phoenix company’, according to the Court of Appeal judgment, traded as Liquid Desert, and appears to have been called Bahama Republic Ltd.

As a result of uncovering the so-called ‘phoenix company’, Mr Galantis launched new legal proceedings under the Companies Act in 2011, alleging that the Alexious had “breached their fiduciary duty of care”.

He also claimed that, as directors, the brothers were being “oppressive or unfairly oppressive” towards him, and acting in a manner that had caused him harm by disregarding his status as an ALI-CAT Designs creditor.

Former Supreme Court Justice Claire Hepburn, in rendering her initial verdict, agreed that the Alexious had “breached the duty of care” owed to the company as directors, and that Antony had acted “in a manner that was oppressive or unfairly oppressive”. And Alexander, “at the very least”, had ignored Mr Galantis’s interest as a creditor of ALI-CAT Designs.

Yet Justice Hepburn said that by “sitting on his rights for an extended period of time”, and waiting until 2011 to bring his complaint - three years after the company was struck off - Mr Galantis’s action was ‘out of time’

“While the complainant [Mr Galantis] may have the morally correct position, and the defendants [the Alexious] have acted badly, on the case law I must conclude, somewhat reluctantly, that the complainant is not entitled to the relief he seeks as the oppression is not ongoing,” she found.

“This is not the type of behaviour that one expects of a company, and having regard to the duties of directors, one would expect them to satisfy judgment debts as opposed to sitting idly by until the company is struck off and the only person who could have an action cannot remedy the situation.”

However, Justice Hepburn blasted both the brothers for their conduct: “Antony might have been ‘the big kahuna, so to speak’, but he most certainly was not a reasonably prudent ‘big kahuna’.

“Both defendants are culpable of sitting passively by while the company [ALI-CAT] was inadequately supervised.

“Antony Alexiou adopted a flippant attitude toward settling the court judgment. Directors should not have the luxury of adopting such a flippant attitude, but that assumes that a court judgment will be brought before the company is struck off.”

Dame Anita, though, said the Companies Act section on which Mr Galantis based his 2011 complaint had no requirement when it came to the timely filing of cases.

“The crux of the learned judge’s decision to reluctantly deny the appellant the relief sought was the erroneous belief that as the company (ALI-CAT) ceased to exist, having been struck off the Register of Companies, the oppression was not ongoing at the filing of the 2011 action,” Dame Anita found.

But, referring to the Companies Act’s section 272, she said: “This section is clear. The removal of a company from the Register of Companies does not extinguish the liability of the company or its directors.”

Implying that the Alexiou brothers had done everything possible to avoid paying the purchase price balance, Dame Anita found: “The oppressive acts complained of by the appellant [Mr Galantis] are the directors’ blatant refusal to honour a debt, and to prevent payment of that debt by subsequently removing the company’s assets and preventing the appellant, a judgment creditor, from successfully settling his claim.

“As noted, liability for this oppressive behaviour is not extinguished by the removal of the company from the register. To hold that it does would create a backdoor through which a company or its directors can avoid liability; thereby frustrating the purpose of section 280.”