Fri | Jul 30, 2021

Batts hears final arguments, to rule on Arc receivership in May

Published:Friday | February 5, 2021 | 12:11 AMNeville Graham - Business Reporter

Supreme Court Justice David Batts has given himself nearly four months to decide whether to appoint a receiver to locate any assets and wind up Arc Systems Limited, after hearing final arguments o Wednesday in the years-long case brought by...

Supreme Court Justice David Batts has given himself nearly four months to decide whether to appoint a receiver to locate any assets and wind up Arc Systems Limited, after hearing final arguments o Wednesday in the years-long case brought by Exclusive Holidays of Elegance.

The interim receiver looking into Arc Systems has already produced at least four reports for the court that incorporates information about the movement of various assets, as well as bank records and other documents.

Exclusive Holidays, which is controlled by Fred Smith, claims it is owed nearly $26 million in commercial debt for steel supplied to Arc Systems, and wants to recover those funds. Arc Systems was founded by Norman Horne, but officials of the company have said it is independent of other members of Horne’s Arc group of companies.

Parties to the case say the granting of the receivership would allow the receiver to start tracking down the Arc System assets, if they exist, with a view to recovering and liquidating them in settlement of the debt, constrained only by the powers granted by the court. Representatives of Arc Systems have said, however, that the company ceased doing business in 2013 and there are no assets to find.

The job of chasing down any assets would fall to Ken Tomlinson of Business Recovery Services Limited, a near three-decade operator in the debt recovery trade, who is currently the interim receiver looking into Arc System’s past operations.

During Wednesday’s court hearing, Gordon Robinson, the lawyer representing Exclusive Holidays, alleged that Arc Systems had been ‘stripped’ of its assets. Arc Systems’ lawyers did not push back against the allegations. Batts himself questioned the legal basis for the submission and the outcome expected, to which Robinson responded that the court could consider bringing the material to the attention of other authorities.

Exclusive Holidays of Elegance, whose normal business is tours and ground transportation, secured a winding up order in the Supreme Court against Arc Systems in May 2014, under the Insolvency Act. Five years later, on May 29, 2019, Exclusive Holidays filed a claim in the Supreme Court for Arc Systems to pay over a near $26 million of outstanding debt that it said was owed for rebar construction steel supplied to Arc in 2008.

Arc Systems has been fighting the receivership, with lead attorney Dr Lloyd Barnett submitting to the court back in September 2019 that Exclusive Holidays and its directors had no right to bring an action to wind up the operations of Arc, because Exclusive Holidays was itself placed into receivership at one time. Batts rejected those arguments, allowing the hearings on the application to appoint a receiver to proceed.

Delayed by the pandemic, the case returned to court this week after more than a year with submissions from Robinson, who invited the judge to pay close attention to the last two reports filed by Tomlinson.

“They leave the court with almost no option but to infer that what has taken place is a deliberate stripping of Arc Systems Limited for the benefit of owners of Arc Systems Limited and to the detriment of the creditors, including the claimant,” Robinson said.

In his reports, the last of which was subnitted in January 2020, Tomlinson detailed a series of transfers involving real estate and cash between Arc Systems and St Lucia-registered Hilda Corporation. The reports also detail loan guarantees done by Hilda Corporation for another company in the Arc group, called Arc Manufacturing; and property transfers from Hilda Corporation to Arc Properties under a reconstruction and merger agreement in 2017.

Robinson alleged that “the receiver’s report exposed both dishonesty and moral turpitude”, and argued that executive director of Arc Systems Sholton Brown was “a sham director sent to the court to hoodwink the court and hide the reality of what ARC Systems Limited was doing for the benefit of Norman Horne and Charlotte Hayles.” Horne and Hayles are siblings.

“I really believe that what is taking place here is an affront to the judiciary of this country,” Robinson declared. “The strongest condemnation ought to be made of the conduct of Arc Systems, Arc Properties, Arc Manufacturing, Hilda Corporation; not only in protection of the applicants in this case, but also in protection of possibly future investors who might not know what they are getting into,” he said.

Arc Systems is otherwise indebted to Swiss company Atradius Credit Insurance NV, which previously obtained judgment of US$8 million against Arc in May 2013. Batts invited a submission from Howard Harris of Daley/Foga, the attorneys for Atradius, who said they tried to enforce the judgment but only received a payment of US$371,466.07 from ARC Systems and, as such, the judgment remains unsatisfied.

Batts said he would rule on the receivership on May 28.

neville.graham@gleanerjm.com