Court lets interCaribbean escape from Insel Air penalty
WILLESTAD – InterCaribbean Airways Ltd. does not have to pay a penalty of $500,000 to bankrupt airline Insel Air, the Common Court of Justice ruled on Thursday. The Court in First Instance imposed this penalty in a ruling dated December 28, 2018 in case interCaribbean failed to provide financial guarantees for the Insel Air’s creditors. When those guarantees fell short, the court refused to approve the creditors agreement and subsequently declared Insel Air bankrupt on February 26.
On November 16, 2018, Insel Air signed a so-called Heads of Agreement with interCaribbean. This agreement is “a binding legal framework for the conclusion of the purchase of the shares in order to safeguard the future existence of the company.”
Insel Air went into receivership on March 14, 2017. Since that time, the company desperately searched for a party prepared to take over or support its operations. In July 2018, the government in Willemstad announced that it had selected the OLG (One Laser Group) investment vehicle as a strategic partner for its troubled airline. The government had already extended a 33 million guilders ($18.4 million) bridge loan to Insel and held 51 percent of the voting rights in the company.
OLG was to make an initial investment of 20 million guilders ($11.2 million). But when OLG failed to provide sufficient financial guarantees, Insel Air had to look for another solution.
InterCaribbean Airways, based in the Turks and Caicos islands, seemed to be the answer to Insel’s problems. Under the Heads of Agreement, interCaribbean would take over the shares for one dollar and make $11,050,000 available to satisfy Insel Air’s creditors. After signing the Sale and Purchase Agreement, interCaribbean would immediately pay the first $1,550,000; the rest was to follow in nine annual installments.
On January 7, 2019 the Meridian Financial Group granted interCaribbean a mortgage facility for $300,000; three days later Enterprise Bank&Trust made a $1,250,000 credit facility available. InterCaribbean put up land in Caicos and an airplane as collateral.
The Court in First Instance considered these financial guarantees insufficient; on January 16 the court refused therefore to approve the creditors agreement.
Three days later Insel Air put a lien on the fuel in an interCaribbean airplane (with a value of just $682) at the Princess Juliana International Airport in St. Maarten, forcing the latter company to cancel all flights to and from St. Maarten. That action was inspired by a December 28, 2018 court ruling that obliged interCaribbean to provide financial guarantees under threat of a $500,000 penalty for non-compliance. The lien was designed to force payment of this penalty.
On January 30, the Court in First Instance in St. Maarten ordered Insel Air to lift the lien on the fuel “as soon as interCaribbean provides a bank guarantee for $500,000.”
The Common Court of Justice voided the December 28 ruling on Thursday and rejected all claims by Insel Air and its trustee Rogier van den Heuvel.
The court ruled that interCaribbean did have a “far-reaching obligation” to provide a financial guarantee but that the obligation to pay (the penalty) was not due as long as conditions in the Heads of Agreement were not met.
One of those conditions was that the structure of the new company would not lead to a decision by the Curacao Aviation Authority (CCAA) to revoke Insel Air’s airline operation license.
There was a significant uncertainty in the Heads of Agreement: the majority of the Insel-shares had to remain under control of residents of Curacao with Dutch nationality; they would lead the company and have decision-making power. According to the court ruling, this conditions was considered crucial for safeguarding Insel’s airline operating license.
On December 10, 2018 however, it already became clear that the aviation authority did not approve of the proposed company-structure. InterCaribbean wanted to put the formal control with an entity in Curacao – the Stichting Administratiekantoor (Foundation Administration Office) – but the airline’s factual control would remain in the hands of interCaribbean in the Turks and Caicos islands.
Under these circumstances the court ruled, there are no grounds to grant Insel Air’s claim on the penalty interCaribbean theoretically forfeited when it failed to provide sufficient financial guarantees.
