Yacht Brokers/Dealers-How to safeguard clients cash

[DAKA]

Background
When Opal Peters went bust not all clients were compensated in full.
Barclays Bank had set up an automatic transfer to sweep funds from the clients account to offset against the £5.5m overdraft.
This effectively meant that any client paying £100 000 for a boat in the morning may find that by close of business that evening £90 000 or more has automatically been transferred to credit the £5.5m overdraft.
Staff at Opal Peters were aware of financial issues and tried to protect clients funds in the so called clients account but they found that just calling an account a clients account does not automatically protect it.

I have now split my post into two sections, one being relevant to Brokers, suggesting what they can do now by getting in touch with their bank this afternoon and what individuals can do before they hand cash across or agree to allow a Broker to hold funds for a boat being sold.

Brokers
Many high street banks at local level simply do not understand the complexities of a clients account, they see a large chunk of cash and believe they have a right to it, they will encourage you to borrow the funds to offset any overdraft/loan you may have. One of the ways they do this is to set up a second account running in tandem that is constantly overdrawn. This seriously compromises the protection of the trust.
Write to your Bank asking them to confirm in writing
That they acknowledge receipt of your letter dated ****** regarding account number *********, called ************* clients account. In accordance with your instructions they recognise this account as a client account and they agree that they are not entitled to combine the account with any other account, nor are they allowed to offset, make any charge, encumbrance, lien or take compensation, or any retention what so ever from this account.
The Bank agrees that they can not take any charge,encumbrance, right of set-off,lien, compensation or retention, against any approved assets held for the clients account.
TSB Lloyds have an account specifically designed for use as a clients account which is charge free and will be able to set an account up for you if your current bank will not cooperate.

Individuals
Dont become a Brokers Mark, ask them to confirm in writing that your money will be treated as money held in trust and ask for a letter from their bank which should read

That they acknowledge receipt of your letter dated ****** regarding account number *********, called ************* clients account.
**********Bank confirms that they recognise this account as a client account and they agree that they are not entitled to combine the account with any other account, nor are they allowed to offset, make any charge, encumbrance, lien or take compensation, or any retention what so ever from this account.
******** Bank agrees that they can not take any charge,encumbrance, right of set-off,lien, compensation or retention, against any approved assets held for the clients account.

Or if you have a significant sum at risk ask for a dedicated trust account to be opened in accordance with the above conditions.



The remainder of this post isn't really worth reading, its only added to give substance to this post with a case study and case history.
BAP Case history
http://redirectingat.com/?id=635X49...://www.ybw.com/forums/showthread.php?t=253452

Copy paste here for anyone who cant be bothered to read the judgement.

Quote
BAP had an overdraft facility provided by Barclays Bank (the Bank) of £5.5
million. There was also a current account and a client account. BAP normally
paid deposits and part payments on direct sales into the current account but
its policy was to pay deposits received on brokerage contracts into the client
account. Until early June 2007, the client account was 'swept' every week,
with an automated transfer of all funds in that account in excess of £10,000 to the current account. BAP's overdraft position was worked out by reference to the net amount due after allowing for the credit on the client account.
Accordingly, deposits paid into the client account did not necessarily remain
in that account.
The last automated transfer from the client account to the office account took
place on 5 June 2007. According to the evidence of one of the directors of
BAP, the policy from that date was to pay all deposits, whether for direct or
brokerage sales, into the client account, in view of BAP's uncertain financial
position.

end quote




Unlike a solicitors clients account there isn't currently a compensation scheme in place to cover a Yacht Brokers account.
The BMF, RYA, YDSA are turning a blind eye to the 'tandem overdraft account' situation which could be leaving so called clients accounts near worthless as the judge quoted in the opalpeters case

James Roscoe (Bolton) Limited -v- Winder [1915] 1


Barclays automatically empted the clients account once a week for BAP to 'Borrow'.(less £10k)

Once cash was 'Borrowed' wouldnt you expect Barclays should have known that BAP wasnt allowed to pay it back in ?

In my opinion many well known high street banks are not capable of setting up and looking after 'clients accounts'.

Its a shame these short comings that clearly put clients funds at serious risk aren't recognised by marine organisations.


Quote
the claim to beneficial ownership of money in a bank account
requires the continued existence of the money either as a separate fund,
or as part of a mixed fund, or as latent in property acquired by means of
such a fund. Where money is paid into a bank account, which then
becomes overdrawn, the fund ceases to exist. Equitable tracing therefore
cannot be pursued through an overdrawn account, and the beneficiary
cannot claim a proprietary interest in other assets belonging to the trustee
in priority to other unsecured creditors on the ground that his assets had
been misappropriated in breach of trust: see Bishopgate Investment
Limited -v- Homan [1995] Ch.211 per Dillon L.J. 216d-f and 218e – 220-h
4. tracing is only possible to the extent that the balance ultimately standing
to the credit of the trustee in the bank account does not exceed the
lowest balance of the account during the period since the money was paid
into the account: James Roscoe (Bolton) Limited -v- Winder [1915] 1



end quote


BAP clients account balance reduced to £10 k each week when Barclays automatically took the cash out.

Is anyone happy with the idea that they can pay a Yacht broker £100 000 on Monday and by Monday night the Broker has used £90 000 to reduce his overdraft.


How can the Yacht Brokers/Dealers associations allow this to continue.
Now I expect and accept others are not in total agreement with my report, it was written in less than 20 minutes, but please take on board the serious short comings of the current situation and help put pressure on the various Marine associations to get their camp in order, hopefully by producing their own report and advice .
Lets not loose sight of the fact that BAP where well respected and they were trying to safeguard clients funds, they were apparently oblivious to the dangers and all Brokers need to investigate just how safe their clients funds are.
This post should be read as a starting point .

 

[ontheplane]

Excellent Post.

I wonder if it will ever get sorted though.

To be honest, after all the posts I have read regarding money, Brokers going bust etc etc I don't think I'd ever use a Broker. If I did, I think I'd want to just pay the full balance in one hit, and get some form of paperwork showing I was the Owner, good title had passed to me and so on.

In reality, I think you are better off dealing privately, however there is still the issue of outstanding finance, and No-one seems able to clarify if there is a sure-fire way of getting title to a boat.

I didn't realise until recently, that finance companies don't have to register a charge with HPI for cars either, but the fact is, most DO and so the system works (by and large anyhow).

Perhaps pressure could be put on for Finance companies to use HPI for boat loans (using the Hull Number as the identifier) and HPI move into doing the service they do for cars on boats??

Even so, it would still need EVERY finance co to sign up to be of any use.

Anyone know anyone who works for HPI who might suggest it?

After all, if a Broker can't guarantee the Boat you are buying is free from finance, and they can't really guarantee your money and they don't guarantee the boat itself, what the hell ARE they doing for their 7% ???

 

[volvopaul]

Daka, where do you get the time from to post this sort of thing?

What we all have to remind ourselves is there are good and bad brokers out there, just like there are good and bad marine engineers, plumbers, gas fitters etc etc.

But yes its really time that some sort of register is brought out to safeguard clients money, who would have thought that each week a clients account is creamed off by the banks, purely to safeguard themselves in the event the company goes bust.

So is the only way to buy a boat to turn up with a suitcase full of money and buy it on that day after its all been checked out? Its the brokers job to sell the boat clear of title and he can only do that when he checked out with all the finance houses and the owner has clearly signed to say there is no debt on the boat, though the broker only has the sellers word on that, and does he actually know who the seller is?

Most boats have a good trail of paperwork, mine has all the way back to Princess when they sold it but not all boats have that watertight integrity, how would a broker know if say id borrowed from a friend on a gentlmans agreement or sold half on a share to someone who knew nothing about boats but just wanted to be around them and didnt have the knowledge to use the correct RYA bill of sale, 64/64ths and all that, to come down to his half and find it not there!. Still there would then be a court case against the broker for not checking out every angle.

To me the system needs updating, it could be brought inline on all new sales straight away, hpi could run it for a small fee alongside the automotive side, paperwork could then be associated with it, with the lender, buyer and supplier all registered at the point of sale.
It could then be done with private and brokerage sales that way using one system it protects everyone wether it be on a 1 year old or 20 year old boat thats financed, the future would then be safeguarded against bent deals, lost deposits, stolen boats etc. The broker or private purchaser could then simply contact hpi with the hull number, make name etc and be quickly told the financial status of the boat just like the car industry.

Slight thread drift I know but, as daka has said the banks also need to get inline with what are there clients whos thousands if not millions they hold, they should also be made accountable if they know the companies financial status, thats why they are one of the first inline for payment after liquidation of a company, the likes of me get nothing! I too just scraped payment from BAP as I did some Rodman warranty work, just before the crash.

I also think thats why there are many sales that just cant be agreed because of poor paperwork, no vat invoice etc, a new system would help both seller and buyer and shift out underhand dealers.

Roll on a decent system imho.

 

[jfm]

It's all a bit naive imho. There are perfectly good mechanisms to protect money and we don't need this half baked nanny state thing.

Ref your second letter, leaving aside that the suggested drafting isn't slick, have you actually tried getting someone else's bank to make a representation to you, which could land them with a liability? Get real; it isn't going to happen, and anyone running a bank doesn't allow employees to give such letters willy nilly.

Ref your first letter, you need to analyse your rights to rely on a letter sent privately by a bank to one of its customers.

This stuff you propose is seriously not watertight against bad behaviour and fraud (nor is HPI) and you risk doing more harm than good if you get a system which looks like it works but actually doesn't when it gets to a court of law

The best advice you can give to sellers is use a trustworthy broker and unless you're 100% happy with broker don't ever let him take possession of the money over and above the amount of his commission. Let him hold the boat in escrow, not the cash, because boats cannot disappear by being comingled with an overdrawn bank account, whereas money can. To a seller, advise them to pay minimum deposit. I've never demanded more than £10k when selling (two) £0.5m boats; that's all that's needed so stick to your guns on it. But dont let people get false sense of security with letters like this from banks

Final comment: if this thread is to stay orderly we need to see there are two completely different issues already on the table. There is Daka's issue about brokers not holding funds in correct trusts and then going bust like BAP. And there is the issue of people buying boats and later finding that a bank has a mortgage on them. Can we at least recognise these are different problems and need different fixes, and mixing them up in one thread can get confusing?

 

[strakeryrius]

There's a very simple answer to the conundrum of broker's accounts getting comingled by the banks. Make sure that an account designated as a "Client Account" is held at a different bank to the one that the Broker has his current a/c at. That will make it much more secure from the depredations of the bankers and any transfers between them will leave a clear and easily tracked paper trail.

 

[Tranona]

Pete

As I tried to explain in the last thread - you are being very selective in the way you are using this case.

At the time the company went into administration the "sweeping" policy was not in operation for some time and brokerage and deposits were being paid in correctly.

Those people, mainly brokerage clients all got their money because they could show the funds were being held in trust. To quote the judgement "..the credit balance in the client account at all material times exceeded the amounts held in respect of brokerage sales". So there is no question of trust being broken with these clients.

I don't know what would have happened if the company had gone into administration prior to the change in policy, and it was not an issue in the case. I expect there were some claimants that had made deposits directly into the client account prior to the change in policy, but the case does not identify them separately.

Those who lost money were mainly those who made deposits on new boats where, although they were promised it would be held in a client account it was actually paid into an overdrawn general account. BAP staff tried to correct this by making a block transfer to the client account, but the bank reversed it - full explanation in the report you have.

The way you are interpreting what the bank did is, I think wrong. It is quite clear that the bank reversed the transfer because the balance in the client account exceeded the amount held on trust for clients. You need to understand that if the funds were not deposited correctly then a trust had not been created. That was the issue underlying the whole case. The judgement makes it very clear the conditions necessary for a claim on the client account to be successful. If the conditions are not met the claimant is an unsecured creditor.

So, the "error" was not any action of the bank, but a failure of BAP to honour their commitment to customers to deposit the funds in a client account. I don't know whether any action can (or has been) taken against individuals.

You may well be right about bad practice in the way banks deal with client accounts, but other than describing what appeared to be going on at BAP, this case does not seem to indicate an issue - or rather that policy was not an issue in respect of the claims.

 

[DAKA]

Thanks to everyone for taking the time to read the post and add your wisdom and interpretations which is appreciated .

I realize that there are indeed legal remedies already in place to resolve issues after they have occurred but I would like to make two points

Choosing a trusted and respected Yacht Broker doesn't help at all as BA Peters were one of the most respected Yacht Brokers in the UK.

Although there may be legal remedies to sort the mess out afterwards can we just think about that..........

BA Peters went into administration 14/8/07
The judgement was issued 14/1/09

What could that mean in reality .........

two boating seasons lost
17 months of worrying about £100 k
17 months of mortgage payments wasted
17 months where you are not allowed to use your boat
17 months of depreciation
17 months of corrosion
17 months of fading curtains/upholstery
17 months of mould from a closed up boat

How may of us would want to get involved with a pile of #### like that ?

Marine trading associations should think about this and advise their members how best to protect clients money, at the same time speaking to experts how other risks pointed out by ontheplane and Volvopaul can be minimised.

I accept that all risks cant be eliminated but allowing a Yacht Brokers Bank to use the clients funds to offset against his overdraft is an easy one to put right.

 

[jfm]

I realize that there are indeed legal remedies already in place to resolve issues after they have occurred ...

No, the alternatives mentioned in this and other threads include things that will stop the problem happening before it happens

 

[DAKA]

Well if you mean by not handing cash to a Yacht Broker at all I agree but seeing as handing cash to a Broker is the most common practice I was just attempting to add a little extra security to the 'clients accounts' which can offer little value if poorly organised.

If you mean the use of escrows, I admit to being a bit hazy on, are they practical for smaller transactions and do Yacht Brokers routinely offer them.

 

[ColdFusion]

Background
When Opal Peters went bust not all clients were compensated in full...

I admire your persistence in the face of getting nowhere and I am in agreement with your sentiments. I think buyers take a leap of faith when dealing with boat brokers. I do not believe the boat buying process is tight enough and I do not accept the reassurances given by some on this forum (in this thread and others). Some of whom clearly have a vested interest from the other side of the table. I would be very surprised if anything changes because there is simply no desire for change within the industry. Only when the next boat broker goes bust taking client account monies with them, will people start to think (again) that something needs to be done. In the meantime I think you're banging your head against the wall, sadly.

 

[jfm]

Well if you mean by not handing cash to a Yacht Broker at all I agree but seeing as handing cash to a Broker is the most common practice I was just attempting to add a little extra security to the 'clients accounts' which can offer little value if poorly organised.

If you mean the use of escrows, I admit to being a bit hazy on, are they practical for smaller transactions and do Yacht Brokers routinely offer them.

Sure, but you're kidding yourself about the level of security you are creating. What your proposal does is merely put the bank's neck on the line if they misappropriate the trust moneys. It does nothing to protect agianst the broker himself moving money where he shouldn't, which as tranona explains above is what happened in BAP. In other words, if your solution had been applied in the case of BAP deposits, no-one would have been any better off. That's pretty bad Daka.

Ref escrow, I'm proposing (and have done before) something very simple. After survey and before completion of the boat sale, the seller puts the boat into escrow with broker. Ie he physically gives to broker the boat keys, signed BoS in favour of buyer, all papers like the usual VAT receipt and stuff. And an escrow letter setting out the terms, which letter buyer can see and get happy with. Then the buyer wires the money to seller. As soon as that money lands, the escrow (under its own terms) ends and the broker (acting as stakeholder/escrtow agent/trustee) is obliged to hand over the escrowed assets to buyer. The broker cannot misappropriate the escrowed property because it's a boat not money; you'd see him drive off in it and smell a rat at that point! And he cannot comingle it with his overdraft, obviously. It's as bulletproof as you're going to get and it's a million times better than your bank letters.

No this isn't routinely offered by brokers. Remeber, it's not in their interest to structure the transaction this way. It's only done at the initiative of smart buyers/sellers in high £££ transactions. I did exactly this when selling my first Sq58 and all parties were happy (what's not to like about it?). It should be done more widely and is perfectly applicable to any sized transaction, but buyers/sellers need to take the initiative till it becomes fashionable (in relation to which, I'm not holding my breath...!)

 

[jfm]

I admire your persistence in the face of getting nowhere and I am in agreement with your sentiments.

I agree Daka's sentiments too. I am merely disagreeing with his analysis of the law and the legal protection those draft bank letters actually give you.

 

[gjgm]

I admire your persistence in the face of getting nowhere and I am in agreement with your sentiments. I think buyers take a leap of faith when dealing with boat brokers. I do not believe the boat buying process is tight enough and I do not accept the reassurances given by some on this forum (in this thread and others). Some of whom clearly have a vested interest from the other side of the table. I would be very surprised if anything changes because there is simply no desire for change within the industry. Only when the next boat broker goes bust taking client account monies with them, will people start to think (again) that something needs to be done. In the meantime I think you're banging your head against the wall, sadly.

Surely you need to clarify what is common practice- which I think many agree is flawed- and possible practices that greatly remove the risks.
I think the real risk is that many people are simply ignorant that the common practice might be so dangerous. It wasnt so long ago there was a stunned silence on here when it became understood that defaulting on a boat mortgage didnt exonerate you from the full debt- liability isnt limited to the residual value of the boat.
If people didnt understand that, what hope is there that they are familiar with the risks the actual purchase.
As regards brokers and client accounts, why dont brokers simply step aside, and have nothing to do with the exchange of the funds?
I have to agree with JFM though, that people have to take responsibility on their own shoulders and stop expecting someone else cover their butt.

 

[DAKA]

Ref escrow, I'm proposing (and have done before) something very simple. After survey and before completion of the boat sale, the seller puts the boat into escrow with broker. Ie he physically gives to broker the boat keys, signed BoS in favour of buyer, all papers like the usual VAT receipt and stuff. And an escrow letter setting out the terms, which letter buyer can see and get happy with. Then the buyer wires the money to seller. As soon as that money lands, the escrow (under its own terms) ends and the broker (acting as stakeholder/escrtow agent/trustee) is obliged to hand over the escrowed assets to buyer. The broker cannot misappropriate the escrowed property because it's a boat not money; you'd see him drive off in it and smell a rat at that point! And he cannot comingle it with his overdraft, obviously. It's as bulletproof as you're going to get and it's a million times better than your bank letters.

Thankyou for your explanation, you make it sound simple.

If a seller or buyer requested an Escrow transaction is the average Yacht Broker likely to have a specimen letter ready to use ?
Is this something the Marine Trade associations supply , a copy right protected document for their members only , now we can see some value being added by a Yacht Broker or does a seller or buyer need a solicitor to draft the papers.

 

[gjgm]

JFM
can you clarify exactly what is meant by puting a boat into escrow.How that is achieved?
The long handed version !

 

[jfm]

Thankyou for your explanation, you make it sound simple.

If a seller or buyer requested an Escrow transaction is the average Yacht Broker likely to have a specimen letter ready to use ?
Is this something the Marine Trade associations supply , a copy right protected document for their members only , now we can see some value being added by a Yacht Broker or does a seller or buyer need a solicitor to draft the papers.

It is simple Daka. To repeat all the steps:

1. Buyer pays only small deposit to broker (not more than commission amount, and often less)
2. Survey etc as usual
3. Just before completion seller puts boat into escrow. Broker is escrow agent. This means:
(a) seller gives escrow letter to broker (copy to buyer, who should be shown the letter in draft to check happy)
(b) give all original paperwork (chain of title, VAT, warranty, all the usual) to broker, including a signed BoS in favour of buyer
(c) Give all boat keys to broker, and give broker possession of the boat. In my case the boat stayed on its berth, but you could move it to marina near broker or whatever you want. Seller shouldn't go on or touch boat from this moment. Buyer should know the boat's location
4 Buyer pays seller, bank transfer
5 When money lands, seller emails to say all ok with the money. At that point the escrow terms specify the broker is holding the boat as trustee of the buyer, so buyer walks into broker office and collects keys and papers and takes the boat, all as specified in the escrow letter

I do have a specimen letter (that I used when selling my Sq58) and will post it. but not till monday becuase I'm not in UK and dont have it on this 'puter.

 

[DAKA]

It is simple .......
I do have a specimen letter (that I used when selling my Sq58) and will post it. but not till monday becuase I'm not in UK and dont have it on this 'puter.

Your a star

Thanks for your input and enjoy the rest of your holiday

Cheers
Pete

 

[ColdFusion]

Your a star

Thanks for your input and enjoy the rest of your holiday

Excellent. Thank you from me, too, jfm.

It would be interesting to see if this would be acceptable and workable to brokers, such as Tranona?

 

[jfm]

It would be interesting to see if this would be acceptable and workable to brokers

Yes it would. There are several brokers on here so their views would be interesting. Sorry I can't post the letter till Monday, but will do it then and bring this thread back up to the top

 

[matt_lake]

May I draw your attention to the following and in particular, the code of practice?

http://www.britishmarine.co.uk/what...ciations/associations/brba.aspx?GroupId=49484

The good guys in the industry recognised that, in the wake of the BAP collapse, things had to change and that the working practices adopted by said good guys were formalised. A lot of work has since gone into creating the BRBA and Dom Smulders in particular deserves credit for driving this initiative.

As the OP stated, there are good and bad in the industry but the BRBA are making every effort to rebuild trust with the boat buying public by creating a mark of excellence in the BRBA.