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Privy Council ‘Regret’ Over Alexious’ ‘Backdoor’ Escape

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Privy Council yesterday admitted its “regret” in finding that the Companies Act provides a legal “backdoor” for the Alexiou brothers to avoid paying a near-$200,000 debt.

Branding their appeal “unmeritorious”, the highest court in the Bahamian judicial system nevertheless ruled that Zachary James Galantis’ two-decade fight to obtain the balance of the purchase price he agreed with Antony and Alexander Alexiou in 1998 could not succeed in law.

Finding that he had chosen the wrong route to pursue the duo, sons of Colina principal and Nassau Guardian president/publisher, Emanuel Alexiou, the Privy Council’s verdict effectively identified a legal loophole that potentially allows companies and their shareholders/directors to escape liability for “oppression” by dissolving the firm and having it struck it from the register.

Its ruling, which overturned an earlier Court of Appeal verdict, found that Mr Galantis could not sustain his claim that the brothers’ conduct had “oppressed” him because the Companies Act’s section 280 only provides a remedy for such situations when they are “current” - meaning that they are ongoing.

The Court of Appeal, in its 2016 verdict, had ruled that the Companies Act’s section 272 continued the Alexious’ liability to Mr Galantis regardless of whether the company in question, Ali-Cat Designs, had been dissolved.

“The oppressive acts complained of by the appellant [Mr Galantis’] are the directors’ [the Alexious’] 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,” then-appeal court president, Dame Anita Allen, wrote.

“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.”

This analysis, though, was rejected by the Privy Council, which said it “stretches the concept of oppression too far”. It found that Ali-Cat Designs was dissolved in July 2008, with Mr Galantis only initiating legal proceedings to obtain a compensation order against the Alexious in April 2009 - almost one year later.

“No liability capable of being continued by section 272 had been imposed by the date on which the company was removed from the register,” the Privy Council found, adding that section 280 was irrelevant to Mr Galantis’ case.

“There was no ongoing oppression capable of being remedied by the intercession of the court in the affairs of the company at the date of commencement of the proceedings. Furthermore, section 272 does not have the effect of continuing any liability of the directors under section 280 because they were not under any such liability when the company was removed from the register.”

The Privy Council said Mr Galantis, who was represented before it by Bahamas Bar Association president, Khalil Parker, should have sought an alternative legal remedy by applying to the Supreme Court to have Ali-Cat Designs restored to the companies registry.

Had he been successful, he could then have alleged “breach of fiduciary” duty by the Alexiou brothers in their capacity as directors. “In this way, the company [Ali-Cat Designs] might have recovered funds which could have been used to pay the respondent,” the Privy Council ruled.

“However, that course was not followed and, with some regret, the Board has come to the conclusion that the route which sought to employ sections 272 and 280 was not open to the respondent.

“Notwithstanding the unmeritorious nature of the appeal, the Board will humbly advise Her Majesty that the appeal should accordingly be allowed.”

The 20-year dispute has its origins in the $500,000 purchase price that the Alexiou brothers agreed to pay Mr Galantis to acquire his equity interest in a downtown Bay Street t-shirt store, Big Kahuana, which was located between the Frederick Street junction and John Bull’s flagship store. The store’s inventory and leasehold were included in the deal.

The agreement, struck on July 8, 1998, saw the brothers and their Ali-Cat Designs business pay $300,000 cash upfront with the remaining $200,000 balance - secured by a promissory note - to be paid off in instalments over a three-year period, starting on September 1, 1998. Payments, though, ceased by March 1999 - just seven months later - only $36,506 of the balance paid.

Mr Galantis launched Supreme Court proceedings against the Alexious and Ali-Cat Designs on October 22, 1999, claiming $182,531.70 was due to him as the purchase price balance combined with interest, damages and costs.

He ultimately obtained a Supreme Court judgment for this sum on February 15, 2005, which was upheld by the Court of Appeal that November. The $182,532 was never paid by the Alexious, forcing Mr Galantis to initiate new legal proceedings to enforce his judgment.

This required the brothers to be examined by the assistant Supreme Court registrar in 2007. “During this process the respondent [Mr Galantis] formed the view that the company’s failure to pay involved unfair and oppressive conduct on the part of the appellants,” the Privy Council said.

“In particular, he learned that the business he had sold to the company [Ali-Cat Designs] had been ‘converted’ by the first appellant [Antony Alexiou] in conjunction with Bahama Republic, a Bahamian company owned and operated by the first appellant, and which was operating a retail store on the company’s former business premises.”

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

Mr Galantis then learnt from the deputy registrar general on August 14, 2008, that attorneys acting for the Alexiou brothers had secured Ali-Cat Designs’ removal from the companies registry on July 25, 2008, triggering the launch of his ill-fated legal action for oppression.

This was initially met with the same response as that given by the Privy Council, with then-Supreme Court justice, Clare Hepburn, finding that Mr Galantis could not claim relief under the Companies Act’s section 280 because Ali-Cat Designs had been dissolved and therefore the “oppression” was not continuing.

However, the Privy Council noted yesterday: “Justice Hepburn was satisfied that the first appellant [Antony] had acted in his capacity as a director of the company in a manner that was oppressive or unfairly oppressive to, and/or that unfairly disregarded, the respondent’s interests as a creditor of the company.

“Furthermore, she was satisfied that the second appellant [Alexander] had at the very least acted in his capacity as a director of the company in a manner that unfairly disregarded the respondent’s interest as a creditor of the company.”

The Privy Council also suggested that the Government, and Parliament, have some clean-up work to do on the Companies Act. It noted that there is a “clash” between sections 272 and 273, the latter of which was inserted as an amendment in 1993 just one year after the original Act was passed.

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