Scrub Island Development Group Ltd., the owner of a posh resort in the British Virgin Islands, has filed for Chapter 11 protection in a Florida bankruptcy court to ward off a request for receivership granted to FirstBank Puerto Rico through which it seeks to collect on a $108 million loan.
SIDG’s court filing is a last-ditch effort to prevent the local bank and a third-party appointee from taking over the resort’s assets and operations — valued at between $100 million and $500 million. Scrub Island’s owners have apparently been struggling for several years to make their payments on the loan FirstBank granted in 2007.
The legal battle began earlier this month after the BVI’s Eastern Caribbean Supreme Court entered a receivership order on Nov. 1 in response to a petition by FirstBank to appoint a third-party company to take over SIDG’s assets.
To deflect the consequences of that order, SIDG filed for bankruptcy on Nov. 19 in Tampa asking the court to terminate the receivership and pave the way for reorganization. In documents filed with the petition, SIDG warned it will be filing another proceeding against FirstBank claiming — among other things — breach of contract, negligent misrepresentation, civil conspiracy, unfair and deceptive trade practices and aiding and abetting breach of fiduciary duty.
SIDG further blasted FirstBank by saying the receivership filing was done in a “secretive” way, without prior notice to the company or its attorneys. In its documents, SIDG claims FirstBank obtained confidential information about the business through a former employee.
SIDG owns Scrub Island, a 230-acre island in the BVI consisting of Little Scrub Island and Big Scrub Island, which are connected by an isthmus between the islands. The Scrub Island project began in 2003, with development of the posh resort and private residences getting into full swing in 2005, when Florida-based Mainsail Lodging & Development was brought into the project. Mainsail is listed as one of the projects 10 largest unsecured creditors, with $3.5 million owed.
The resort told the court it will pay other creditors in full and Mainsail will continue to operate Scrub Island Resort as a Marriott Autograph Collection Hotel. All reservations at the hotel will be honored, the operators said.
Difficulties between the BVI property owners and the bank reportedly began in June 2011, when FirstBank said it entered into an agreement with the resort developers to work out a plan to address the outstanding loan balance, estimated at $100.5 million at the time.
“No reduction in the principal obligations due FirstBank has occurred since that time,” the bank said in its reply to the Chapter 11 filing submitted last week, in which it asked for the case to be dismissed saying the Tampa court lacks jurisdiction in the matter that must be resolved by BVI authorities.
Furthermore, FirstBank said it believes Scrub Island’s owners have little chance to achieve a successful reorganization under Chapter 11 protection, and will also fall short on proposing a viable plan, considering that it has been unable to meet certain conditions of the earlier agreement.
“As a last ditch effort to save a sinking ship, the debtors requested that FirstBank agree to fund [its] shortfalls through June 2014, at which point if the debtors were unable to refinance or sell the Scrub Island Resort, they would voluntarily transfer ownership to FirstBank,” the bank said in its filing.
“The debtors and FirstBank were unable to reach an agreement, and in light of the debtors’ serial and ongoing defaults, FirstBank again initiated the process of protecting its interests and enforcing its rights in the collateral under BVI law,” FirstBank explained.
Earlier this year, this media outlet interviewed Norwood Smith, vice president of sales and marketing of the resort, who confirmed ongoing interest by Puerto Rico’s wealthy in owning a piece of the posh property. Prices for the villas range from $2.5 million to $4.5 million, while the marina suites start at $1.5 million.
Scrub Island Resort consist of 26 guest rooms; 26, one- and two-bedroom suites; and a collection of hillside villas. The resort also features four restaurants.