By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian is alleging that the US unit of Baha Mar’s contractor booked $96m in debt owed to subsidiaries and affiliates “under a line item for country club memberships”.

The multi-billion dollar Cable Beach resort complex’s original developer, in legal filings with the US federal bankruptcy court in New Jersey, asserted that this and other recent discoveries underscore why the probe into CCA Construction Inc - one of three entities found liable to pay his $1.7bn fraud and breach of contract award - by an “independent examiner” is so urgently needed.

That “examiner”, whose appointment has already been approved by the New Jersey federal bankruptcy court, is effectively an arm of the US Justice Department and will begin work tomorrow to investigate the business affairs of Baha Mar’s main contractor. Mr Izmirlian and his BML Properties vehicle, in their latest submissions, suggested there is much to probe including a “senior executive” using corporate funds for personal purchases.

“The need for a thorough independent investigation is underscored by facts uncovered since the commencement of this case, which strongly suggest that CCA’s misconduct remains ongoing even after the events that led to the New York judgment,” they argued.

“That trial court found that the self-serving assertions of CCA’s witnesses were not credible and were contradicted by the contemporaneous documents that BML Properties fought CCA to obtain in discovery, all of which led to extensive findings of fraud, diversion of corporate assets, misuse of corporate assets for personal purposes and repeated fraudulent statements.

“The limited discovery that BML Properties has taken or attempted to take to date, and the limited responses received, are sufficient to reveal that.. CCA experienced deepening insolvency for the better part of the last decade while, at the same time, continuing to incur hundreds of millions in purported ‘loans’ from CSCEC Holding that are undocumented and have rarely been repaid”.

CSCEC stands for China State Construction and Engineering Corporation, which is CCA’s ultimate parent and partially listed on the Shanghai Stock Exchange. CSCEC Holding is one of the parent entities upstream from CCA Construction, the US entity currently in Chapter 11 bankruptcy protection in the US.

“At least one high-ranking CCA executive potentially used corporate funds to make tens of thousands in personal purchases during the litigation and leading up to the [Chapter 11] petition date, as revealed in recent third-party productions,” Mr Izmirlian and BML Properties alleged. The Chapter 11 petition date was during the 2024 Christmas holiday period.

“What’s more, CCA’s own disclosures further raise numerous questions that need to be investigated, including why CCA has incurred more than $96m of apparent outstanding inter-company debt to its subsidiaries and affiliates - which it scheduled under a line item for country club memberships - while it was most likely insolvent,” they added.

Then there was “CCA’s relationship to its sureties and the fact that the approximately $700m surety bond obligations could be partially or wholly cross-collateralised and back-stopped by CSCEC Holding and CCA’s ultimate parent in China through their indemnity agreements with the sureties, which was glossed over in CCA’s initial filings but elicited through discovery”.

Mr Izmirlian and BML Properties also challenged how “CCA claims to be a holding company that does not know the value of its equity interests in subsidiaries and generates no cash flow” in legal filings challenging the hiring of a US law firm to assist CCA Construction’s bankruptcy committee.

Noting that the appointment was made the very next day after the New York appeals court upheld his $1.7bn damages award, Mr Izmirlian said this appeared to be an effort to “duplicate” the independent examiner’s probe and amounted to a waste of CCA’s remaining resources.

“The court has already granted BML Properties’ motion for an examiner, and now that the New York appellate division has affirmed BML Properties’ judgment against CCA, the US Trustee’s Office has commenced the process of selecting and appointing one,” he added.

“BML Properties agrees that an investigation is necessary. Indeed, BML Properties is the estate’s largest creditor by orders of magnitude and would be the primary beneficiary of that investigation. But BML Properties objects to the retention of Duane Morris for that purpose in light of the forthcoming examiner.

“The important work of an independent examiner cannot be substituted by, and estate resources should not be diverted to, a separate and duplicative investigation organised behind closed doors by CCA and its sole shareholder CSCEC Holding Company. BML Properties understands that the US Trustee has been diligently interviewing several well-qualified candidates and will appoint an examiner by the April 29 deadline.”

Mr Izmirlian described the Chapter 11 case as “predominantly a two-party dispute between BML Properties and CCA, and BML Properties has both a significant interest in any investigation and a proven track record of ferreting out misconduct by CCA, as shown by the New York judgment for liability that CCA apparently still refuses to accept”.

The only involvement that CCA and its parent will have in the independent examiner process is “to determine the scope and budget for the examiner’s investigation”. Mr Izmirlian had urged that an examiner be appointed to probe CCA Construction’s pre-Chapter 11 bankruptcy protection dealings with other CCA affiliates for alleged “fraud, dishonesty, incompetence, misconduct, mismanagement” or other irregularities.

He and his BML Properties vehicle, in filings with the New Jersey federal bankruptcy court, argued that the examiner’s appointment was justified because CCA Construction Inc has shown “clear bias” against themselves even though the damages awarded against the Chinese state-owned contractor makes Mr Izmirlian its largest creditor by far.

With no official creditors committee likely to be appointed, and China Construction Inc purportedly “stonewalling” Mr Izmirlian’s information requests following its December 22, 2024, filing for Chapter 11 bankruptcy protection, Baha Mar’s original developer argued that appointing an independent examiner would be the best way to protect all creditors given the contractor’s “history of serious - and already proven - fraud claims”.