Lessons learned from Peters Opal/Bavaria debacle?

[Duffer]

A couple of weeks ago I posted on this subject, expressing the hope that a company as large as Bavaria, and their new owners Bain & Co, would guarantee that their customers would not lose out if there isn't enough money left in the client account following the insolvency of their sole importer in the UK. This would mean going beyond the strict legal position but I would have thought it would be in their commercial interests to avoid the damage to their goodwill resulting from customers losing their deposits (as seems likely) or perhaps in some cases not getting the boats they have paid for in full. I would expect Bavaria to have a very good idea of the amount of any shortfall and I would be surprised if the three former employees of the insolvent company who have set up the new importer don't also. As far as I know they have not so far provided any such assurances to their customers and only costly litigation is likely to reveal the true position.

There were nearly 2000 views and some 77 posts so there is plenty of interest in this topic. (If you are affected I suggest you take a look.) An insolvency lawyer with marine experience, Andrew Knight, made many good points and his advice to those buying a new boat is worth repeating here:

"(1) You should refuse to part with any cash as a deposit unless the seller provides you with suitable collateral against delivery of the boat - insurance or a bank guarantee are the common types of collateral. As this case shows, brokers' and distributors' client accounts do not give the security or peace of mind that you might hope they do.

(2) You should make sure that you understand the contractual position, especially if there is a middleman such as a distributor or agent; who are you buying the boat from? Who are you paying your money to?

(3) Boat show offers are great, but they can be used to pressure you into a quick buy. If you're susceptible to that kind of pressure (I'm happy to admit that I am) then go on one of the early days of the show, do the deal, but then refuse to sign the papers until you've looked them over. Say that you want to take away the papers with you, and you'll go back in three days' time (or whatever). Make sure you take everything away - Terms & Conditions are sometimes printed separately from the order forms you sign. The salesperson will inevitably resist but you've got the money and hence them by the short and curlies (My experience of boat show offers, incidentally, is that you can get them extended beyond the end of the show - the sellers will even offer this extension to you if they think you're serious. So don't fall for the 'this offer won't be available then' approach. Tell them the offer had better be available, with the same extras thrown in on top please, or you'll be buying a Ben/Jen/Bav/Etap instead because you've also been talking to them, haven't you?)

(4) A new boat can cost more than a house does. Unless you're good at understanding contracts - which a lot of businesspeople are - a few hundred quid spent on getting your normal solicitors to check over the paper work before signing, and to list any concerns, could be money well spent."

My own tip is to pay deposits by credit card (but this may cost more) or certain debit cards which give equivalent protection to that provided by s. 75 of the Consumer Credit Act (a point I made in the light of the Farepak collapse).

So why start a new thread on this? Apart from keeping up some pressure on Bavaria to do the right thing in its own long-term interests, is this situation really acceptable? Unless you set up a bank guarantee (does anyone have any recent experience of doing this - if so please post what it cost, any problems etc) or don't pay until delivery, then there is a small but significant risk that you may lose your money if the dealer, importer or manufacturer goes bust. One builder apparently says no dosh no splosh, so not paying most of the money up front may not be an option.

So should buying a new boat be like playing Russian roulette? You should be worrying about whether you bought the right boat, or ordered the right options, not whether you might lose all the money you have paid prior to delivery. If travel agents can come together to provide a scheme, why can't the much smaller number of yacht manufacturers or their UK dealers get together to provide a similar scheme to bail out customers who lose money as a result of one of them going insolvent?

 

[ROSSCO]

"(1) You should refuse to part with any cash as a deposit unless the seller provides you with suitable collateral ''

has anyone here ever managed to get such collateral ?



' If travel agents can come together to provide a scheme, why can't the much smaller number of yacht manufacturers or their UK dealers get together to provide a similar scheme to bail out customers who lose money as a result of one of them going insolvent? '

exactly because there are a small number of them - ie if one goes belly up it has a much greater impact than if there were lots of them .

 

[Duffer]

I just think it would be in the interests of the industry to remove the statistically small but significant risk of buyers losing all their money in the event of insolvency, i.e. increased sales would offset the cost of providing cover. A recent post was 'Why buy a new boat?' - this is a significant reason not to. As stated previously, I think that in this case Bavaria should step in to safeguard the interests of its customers whose only fault is timing.

 

[Whitelighter]

Currently we are arranging bank guarantees for approximately 1% of the advance. These amounts are between about £45,000 and £65,000

 

[Duffer]

Thanks for that - it sounds worth it to me for the peace of mind.

 

[Whitelighter]

It is something we started even before the PO collapse. Though to be honest, the fact that the bank will issue a guarentee is a pretty strong suggestion that they don't think the builder is about to go belly up.

SOmething else that we do - we do not ask for the balance of funds (90%) until the boat is finished and ready for dispatch. Once it gets to that stage, the builder sends us the Builders Certificate, the CE documentation and the warranty/handbooks. Once we have this, we are able to draw up a bill of sale between us (the importer) and the customer. So just like a used sale, the owner has title to the boat the moment the monies are paid. Should either the builder or us go bankrupt, the actual vessel is not part of our assets. OK, so it may well be in Sweden of on a truck between here and Sweden, but whereever it is it is insured and their property.

 

[Paulka]

[ QUOTE ]
"(1) You should refuse to part with any cash as a deposit unless the seller provides you with suitable collateral ''

has anyone here ever managed to get such collateral ?




[/ QUOTE ]

Some years ago, I considered to buy a new boat from a small boat yard in France.
I was then told that the policy was to arrange a title of property (sorry, I'm not a lawyer!) with a solicitor (???) (sorry, I'm not a lawyer!) for each and every down payment. This was supposed to protect my property - the partly built boat - from falling prey to the vultures in case of bankruptcy.
I finally didn't buy the boat, for other reasons, but memorized the tip just in case.

Of course, this procedure is quite usual in France, for all sort of down payments, but may be unprctical under other country's law.

Just my 2 pennies.

 

[jamesjermain]

I think you are asking a lot if you expect three former employees (not fat-cat directors), who have morgaged themselves to the hilt to buy a small number of stock boats and set up a new office, to also find the cash to cover any lost deposits.

I am absolutely sure they can't and won't.

As for Bavaria itself - who knows - but I doubt it.

Bain and Co bought at the very top of the market and must be feeling a bit sore at the moment. On the other hand if you are looking for fat cats...

 

[Resolution]

Most major commercial transactions involve an element of trust or a judgement of risk. If potential buyers of boats are seriously concerned about their deposit being at risk, then I would suggest either

1. Seek a bank guarantee, if you can find a bank that will issue one. However finding a bank that is in a position to evaluate the manufacturer's risk is likely to prove difficult.

or

2. Buy a boat that is already built, and in stock. Then title can pass at the same time as you make your payment, so no risk.


It is ironic that the discussion of deposits at risk has arisen in relation to B A Peters as it is my guess that the reason they went bust was an excess of unsold stock boats (both Motor and sail).

Who will be the next one to go??

 

[BlueChip]

I bought one of the last Westerly's that was completed before they went bust.
As I was trading in a model I had bought three years earlier and signing this over as a deposit I insisted on a bank guarantee. Took some arguing but Westerly came up with it in the end and paid for it. Due to delays in the build the guarantee was about to expire, I threatened to call it in if it wasnt renewed.
On the day before it expired they came up with another one, but this time the guarantee was from a different bank in Ireland. As the Managing Director was Irish I should have realised then what this meant for the company and that he had arranged a personal guarantee in his own account.
I would never ever buy a new boat without a guarantee now.

 

[rwoofer]

I heard at the boatshow that Bavaria treats it's dealers as it's customers. Apparently it does not profess to be or want to be good at selling boats. It sees it's core business as making boats to what the market wants.

Personally I think that is short sighted and not showing good stewardship of the brand, which is something they own and should care about. A dose Marketing 101 required.....

 

[aknight]

[ QUOTE ]
' If travel agents can come together to provide a scheme, why can't the much smaller number of yacht manufacturers or their UK dealers get together to provide a similar scheme to bail out customers who lose money as a result of one of them going insolvent? '

exactly because there are a small number of them - ie if one goes belly up it has a much greater impact than if there were lots of them .

[/ QUOTE ]

That's a fair point. I suspect it's actually more complex than it seems, because with such a small number of potential members, the larger players in such an association would be forever complaining that they were underwriting the smaller players.

But there are potential alternatives based on the same idea in principle. For example, maybe they could all club together and procure credit insurance at a reasonable rate which could be passed on to their customers at cost.

The reality is that protecting yourself when buying a new boat is a bit like practicing safe sex. It's down to you. It's not in the industry's interests to provide protection, because it adds cost and hassle, and if the seller is financially tight, maybe a bank or insurer won't be prepared to cover the risk. Meanwhile their so-called 'client accounts' don't have the same kinds of protection provided by the law, or the same insurance back-up, as the client accounts of, say, law firms.

IMHO the industry isn't going to deal with this unless consumers make them. And I don't detect much enthusiasm on the part of the BMF to demonstrate any leadership on this, although one might have hoped, however naively, they might - I assume they are vaguely aware of the issue as they seem to have mislaid a certain B Peters Esq from a senior role.

As certain tales posted in this thread make clear, you would feel a bit of an idiot losing tens, possibly hundreds, of thousands of pounds - no matter how wealthy you were - just because you didn't push hard enough for collateral.

You can expect, under current market conditions, any new boat seller or builder to squirm like crazy in the face of a request for collateral. Of course they will. You're not buying a multi-thousand pound, brand new boat because you're stupid. Unless you inherited the money, you earned it and that implies you probably have a good brain and an ability to do business. If you choose to hand over the hard-earned fruits of your success to a guy about whose financial status you know nothing, then at least do so because the damn boat is massively discounted if you buy NOW, and do it with your eyes open to the risk and accept that it flies in the face of all the wisdom you've ever picked up along the way, but it's worth it for that great deal. Most boat show deals are NOT great deals. Nice deals, for sure, but not so great that I'd take the risk.

Me - I'm not in the market for a new boat, but if I was, I would definitely walk away from any seller or builder that didn't offer a bank guarantee or insurance. Preferably free or at low cost. I might not find someone willing to sell me that new boat as a result of taking that stance, but that's okay, I'd settle for the money instead. Plenty of nice secondhanders coming onto the market to spend the money on, and more to come I bet as the markets tighten.

(And I bet if I did walk away, in a fair number of cases, the same seller or builder would call me up in a few days time and offer me some kind of collateral deal that he didn't feel able or willing to do when I first raised it with him. It's all about who's got the cash, and who's got the sales target.)

 

[PeterGibbs]

I suggest that buying a new boat places a duty of care not only on the seller but the buyer. The buyer should know the dealer has some 15-20 % margin to play with which will include the manufacturer's allowance for warranty claims. There will be additional seasonal incentives, volume discounts and the like that the manufactuer will offer the distributor which can be put into the pot by way of incentives to buyers - show specials, free equipment and the like.

No buyer wants to pay list price, quite rightly, and most buyers also have a shopping list of goodies that they want the distributor to contribute - out of his margin. But the downside is that the more succcessful the buyer is in getting these concessions, the less money there is on his account to willingly deal with any subsequent warranty claims.

The tougher the deal the more the dealer will want the purchaser to put up front by way of deposit. His business has to be funded some way- if he's given away a lot of his margin to get the buyer hooked, he'll try to get it back another way.

Sometimes I get the feeling that in the excitement of doing the deal, buyers may loose sight of these factors, and fail to see how the deal looks from the distributor's viewpoint. And thereby fail to see the risks being run.

In my experience the buyer must expect to put down 5% to show commitment. In extremis, this a sum most of us could (painfully) loose, if it came to it. But the remainder will be held back until the boat is delivered, commissioned, and handed over in working order. This is a cardinal point and no buyer should relent on this. Any hardening of these terms could well indicate financial weakness on the part of the distributor, or (sadly) greed. Then the buyer had better beware!

pwg

 

[aknight]

[ QUOTE ]
I think you are asking a lot if you expect three former employees (not fat-cat directors), who have morgaged themselves to the hilt to buy a small number of stock boats and set up a new office, to also find the cash to cover any lost deposits.

[/ QUOTE ]

I don't doubt they've stretched themselves to set up Clipper as you say, and you've previously emphasised that these chaps were innocent employees, the implication being that they didn't know anything about the true financial position when they accepted customer deposits in their former jobs.

Did they pay Peters Opal (in adminstration) full stock price for those stock boats? And had any customers of Peters Opal already paid deposits towards those stock boats?

 

[aknight]

Peter I agree with you. But the problem as I understand it is that many sellers and builders don't accept deposits as small as 5% before delivering the goods to the end buyer. Over years, purely as a consumer not as a lawyer, I've seen quite a few 10% deposits required in distributors' terms of sale, and (for smaller volume builders selling directly) quite a few examples of stage payments being made during the build.

So the consumer I believe is caught in a cleft stick. Try to limit the deposit to 5% and some sellers/builders may not be prepared to deal. Try to get collateral and they do everything they can (with the honourable exception of Jez Banks above) not to provide it. That may leave walking away as the sole viable negotiating tactic for the prudent customer.

 

[Resolution]

Peter, what you say is sound common sense. Too many boat buyers assume that dealers are lazy fat cats running easy businesses. I suspect that the gross margins of 15 to 20% you quote are at least 5% too high for the dealers for AWBs made by volume manufacturers. This does not leave much margin to cope with the vagaries of market demand, interest rates etc. The usual 5 or 10% customer deposit seems modest to me, as a commitment to the dealer that the customer will actually come up with the balance in full on time. (How often do "changed circumstances" lead to customers requesting a return of their deposit, leaving the dealer with a surplus boat on order with the factory?)

All is different when you move on to the bespoke tailored Swedish yacht. Much larger deposits or stage payments, and a real need to arrange a deposit guarantee or similar. Do your credit research on the manufacturer every time. Just because the boat is more expensive does not mean the manufacturer is any more credit worthy. (Ask Gludy...)

As the professor said, (I think) "Caveat emptor".

 

[Resolution]

Andrew, if you look at the reasons for having a deposit at all, I think you will agree that 10% of the final SP is not normally at all excessive.
Firstly it is there as evidence of the customer's seriousness.
Secondly it is used to fund the down payment that the dealer will have to make to the manufacturer to prove his commitment (probably a smaller amount ).
Thirdly, as I said in an earlier post, it is there to cover the dealer's costs if the buyer for any reason backs out of, or delays completion. This cost can be very considerable if the specification of the yacht is shall we say out of the ordinary. Watching one dealer trying to shift a performance version of a weel-known AWB with crushed raspberry soft furnishings provided amusement for a long time! Eventually the dealer bit the bullet and replaced most of the interior with solid conservative blue.
All the time working capital is being used, yard storage costs are being incurred AND the boat is heading towards becoming last year's model.
!0% is quickly expended.

 

[aknight]

Absolutely. Indeed I think 10% could even be said to be low, for a non-stock boat. I agree with you and Peter on all the business issues that you have both explained so clearly.

In short, I don't dispute in any way that a deposit, in a significant amount, should rightly be paid for any high-value item that needs to be built more-or-less to order. That's why I fully understand that no distributor or builder with the slightest commonsense will drop the level of deposit required to progress the customer's order.

What I do object to, however, is the utterly pathetic lack of consumer protection for those who innocently part with large amounts of money - and it isn't just initial deposits, it's also stage payments and even final payments, we're talking sums of tens or hundreds of thousands of pounds - before title to the boat is safely transferred to them.

I shouldn't really complain. Unsecured creditors are great from my point of view. The more of them there are, the more money there is to pay my fees out of the assets of the insolvent company as bona fide expenses of the insolvency process (so effectively, I rank in priority to them).

Indeed, thanks to all those out there who so willingly pay large amounts over the companies that go bust without considering the possible risks. You help me pay my mortgage, send my kids to nicer schools/nurseries than my old man could send me to, have nice holidays and do all the other things that rich fat b@st@rd lawyers do.

(And if that doesn't either wake consumers up, or get me flamed, nothing will. I need to finish off drafting another security agreement that will end up shafting some other unsecured creditors somewhere down the line, as part of a deal to finance some people who are buying another business out of administration - leaving behind yet another burned out shell of an insolvent company with lots of unsecured creditors whose lives have been ruined - but I'll check back later.)

 

[theforeman]

yeah, it`s tough - but someone has to do it /forums/images/graemlins/laugh.gif

 

[Danny Jo]

[ QUOTE ]
What I do object to, however, is the utterly pathetic lack of consumer protection for those who innocently part with large amounts of money - and it isn't just initial deposits, it's also stage payments and even final payments, we're talking sums of tens or hundreds of thousands of pounds - before title to the boat is safely transferred to them.


[/ QUOTE ] The point has already been made that when you buy a house you get a solicitor to arrange exchange of title and purchase price at the same time. And when you have a house built for you, or major restoration work done, the builder will expect stage payments to finance the work. If you own the property, then you own all the work you've paid for. Why not get a similar arrangement for boat building - hull laid up, hull paid for, hull the property of the purchaser, etc? This would of course require a different sort of dealer - one that is acting as an agent rather than one who buys the boat from the builder then sells it on to you.