St. Maarten Private Eye

September 12th SunResorts LTD/Mullet bay resorts traded shares on the stock exchange. Is something big going to happen?

By Jeroen Veen - attorney at law

Mullet Bay is structured in a rather unconventional manner. The history goes way back, but I pick it up in the eighties when the whole area we today know as Mullet Bay was owned by Island Gem Enterprises Ltd. All buildings we used to know as the Mullet Bay Hotel were by then already built in the different areas of the property such as the stores, reception area, casino and nightclub and the now infamous apartment buildings amongst others. Together they were operated as the Hotel. Most of the dilapidated apartment buildings were leased out long term to the so called “home-owners”; a misleading qualification as these individuals were not and are not owners in the real meaning of the word but nevertheless. The owners are organized in an association: The Mullet Bay Apartment Association.

In 1983 a legal structure was designed to give these owners some legal protection until the units were condo-minimized and title could be transferred. It was not such a bad idea to protect the owners. The leased units were part of a hotel operation and belonged to the operator and as such they could have been lost in the event of bankruptcy (or litigation) of the entity that operated the hotel. Had the hotel gone bankrupt, all the units that were meant to be owned by others (but were actually leased out) would have been part of a bankruptcy as well and that needed to be prevented.

For most apartment buildings a certificate of admeasurement was made; some 45 in total each describing an area varying from 600 to 2000 square meters with an apartment building standing thereon. In November 1983 both Island Gem and the Mullet Bay Apartment Association incorporated a foundation. The foundation was named Foundation for the Protection of Tourist Investments. The foundation was never registered in the register of the Chamber of Commerce on Sint Maarten. The board of the foundation was formed by officials from both Island Gem and the Apartment Association. From the incorporating document we learn that members of the board were: Ted Allen, George Mayer, Kamal Alsultany, Johan Schepisi and Mohammed Khaleeli. Since the foundation is not registered, it is unclear who the boardmembers currently are.

To complete the protective plans, all 45 parcels of land with apartment buildings were transferred to this Foundation with the obligation to recognize the long term leases. The intended condo-minimization of units never took place. Today the Foundation still is the registered owner of the 45 parcels of land with the apartment buildings. There are not many people who know this. I even doubt if all the Owners know.

In September 1995 hurricane Luis hit Sint Maarten with tremendous force and destroyed most of our Island including the Mullet Bay hotel. And although the foundation was set up to prevent exposing the title, the lease rights and security interest of the apartment units to the business risk of the hotel operator, no provisions were made for natural disasters. As a part of normal hotel operation, the operator –by then Sunresorts Ltd- had insured the (entire) property. It was therefore named as the beneficiary on the policy which is the reason why the insurance proceeds were paid out to them. Sunresorts had always charged the owners a pro rate share of the insurance premium for the coverage of their unit and the owners thus claimed a part of the insurance proceeds to rebuild their apartments. Unfortunately parties have substantially different views with regard to the division of the insurance proceeds. In a nutshell, that is the subject of their litigation.
To make things more complicated, Sunresorts filed for protection from its creditors. In the U.S. that would be described as “chapter 11”. We call it a morotorium of payment. I will not comment on the reasons why this situation has lasted so long. It is as it is and it means that Sunresorts can not be forced to pay their creditors. In a couple of months the court on Sint Maarten has to make a new decision if the morotorium will be be further extended.

It is now March 2006 and the dispute over the insurance money is still not solved. The litigation is only in the beginning stages. On February 14, 2006 the court on Sint Maarten ruled in favor of the homeowners and awarded 11 million dollars and change to the owners. Not one newsspaper reported this important fact. Sunresorts has already indicated to appeal this decision and I would not be surprised if the case will see all court rooms of our Appeal Court and Supreme Court before it will be over. Justice should have its course I guess. But justice should also have its course for the people of Sint Maarten. Irrespective of the dispute, both Sunresorts and the Owners Association should have had the decency to at least clean up the ruins that we still face every day. And because they didn’t, Government should have intervened. It is just not right what Sunresorts and the Owners did to the Island and it is not right how our Government responded.

The court ruling of the 14th may have a serious impact from a different angle. I intentionally use the word “may” as nothing in law is certain. But through this court ruling, the owners may now have obtained the status of creditor of Sunresorts. Creditors can vote on an extension of the morotorium. Large creditors have important and at times decisive votes. The joint owners are by far the largest creditor of Sunresorts if they will be recognized as such. What will happen at the next hearing on the morotorium is uncertain but I doubt that the mortorium will be further extended if the owners have it their way. That does not neccessarily mean the war is over. I guess it will take much more than that.