Northshore creditors meeting

[chinita]

Ex-Solent boy will know and correct me if I am wrong. Did this not happen with Orion yachts who went into liquidation leaving uncompleted hulls? My Regimental Yacht Club had commissioned (I think) Rustler 42 No:2.

They were left with the problem of finishing it off; they did so at enormous cost. All members were invited to contribute, largely by consenting to life memberships.

I seem to recall that Orion yachts re-emerged as Rustler Yachts with the same CEO, management and staff about eighteen months later.

 

[pvb]

Hmmmmmm!!!!!!

Hmm indeed! This has all the hallmarks of a deliberately-designed failure, and someone's walked off with a lot of money.

 

[Daydream believer]

when there's not enough money in the bank for the receivers to pay it....

The receiver does not pay it
First funds available for distribution goes to pay the liquidator ( they would not take the job on if there was no funds )then to the employees, then the government to pay taxes & VAT then preferential creditors then creditors . if not enough funds the government reimburses employees
This is an important safety net for the employees so do not knock it
I think liquidators are looked upon as the demons in all this. That is not so. Initially the directors call in a liquidator to prepare a basic statemnt of affairs. Then at the creditors meeting a vote on who should undertake the job os made
. Usually the original one oes it but large creditors often vote for their favourite liquidator. So the liquidator is actually working for the creditors & should not be pilloried as they are

Some times the crash is caused by a bank or debenture holder who sees some dofficulties are arising, waits until there is ome cash available then grabs it thus causing collapse. These are the ones who are the real badies.
I recall many years ago when brent walker ( brighton marina etc) were in cash difficulties. Walker put £14 m of his own & daughters cash in to help. The following day the bank saw this & grabbed it for themselves. They are the badies. Or were in that case

I hate typing with an i pad!!!

 

[Silent Lady]

How come the deposits are SAFE .. Other Companies have closed and prospective buyers loose deposits. Sounds like a real scam. I shall not be buying one when I have sold my National 12 Dinghy ... See Fox's are still trying to sell one for £300,000+

 

[dunedin]

"A new trading company has been formed from the ashes of NYS and will continue to produce the Southerly range of swing keel yachts, including the new Dubois designed Southerly 535 due to be premiered at this year’s PSP Southampton Boat Show."

Well well well! What a surprise!

If a Phoenix company springs back up magically owning the moulds, equipment and rights and building Southerly style boats then any prospective customer should seriously question whether this is an operation they would trust to put their faith in. Surely their reputation would be pants with customers as much as ex-suppliers and ex-employees.

 

[Garold]

Interesting move. I'll take them off my list of yards I'll be looking at when I buy a new boat.

+1

Sadly a Southerly was the yacht that seemed to have all the features I'd wish for, except the price.

However, the brand now has a whiff of something undesirable about it. And even if the deposits are safe, who'd trust this gang in the future? Maybe next time they may choose to keep the deposits too.

Hope that the workers find jobs in a more stable yard.



Garold

 

[Ex-SolentBoy]

As I said before it is fair game to structure a company as you want to.

The legal term I believe is "caveat emptor" or buyer beware.

If you give money at any time, to any body, for any thing, you are a numpty to rely on any body, particularly your government (the law) to protect your interests.

I would never spend money with any one, for any thing, without attempting to balance the lack of delivery equation.

Bleating afterwards is just showing commercial contractual inadequacy IMHO. It's not the government, or the RYA, or anyone else's problem to educate the masses in commercial contracting 101, as my American friends call it.

 

[Ex-SolentBoy]

+1

Sadly a Southerly was the yacht that seemed to have all the features I'd wish for, except the price.

However, the brand now has a whiff of something undesirable about it. And even if the deposits are safe, who'd trust this gang in the future? Maybe next time they may choose to keep the deposits too.

Hope that the workers find jobs in a more stable yard.



Garold

Quite.

 

[Tranona]

How come the deposits are SAFE .. Other Companies have closed and prospective buyers loose deposits. Sounds like a real scam. I

Not a scam at all. The deposits will be held in a client account as the transaction will be under a BMF build contract and the deposits will not be part of the assets of the company.

People have lost deposits in the past because they have paid the dealer without getting any security and end up being unsecured creditors. Southerly did not sell boats like this.

 

[Norman_E]

The one thing that I can see that might be doubtful legally is that the parent company / landlord is not a creditor for the £20,000 monthly rent, which was evidently paid. It used to be the case that an insolvent debtor who "preferred" one creditor over others could have committed what was known as a fraudulent preference. Such a preference could be overturned by the liquidator. I don't know if that aspect of insolvency law has survived all the changes that have been made since I studied the subject for my bankers exams, but if I was a creditor I would be questioning the liquidators about it.
EDIT: There was a good defence against a claim of fraudulent preference if the "preferred" creditor had applied pressure to obtain payment. Fraudulent preference had to be a voluntary act of the debtor to give preference to one creditor over another or others.

 

[rwoofer]

Although legal, this still reinforces my opinion that the structuring of companies in this way is unethical. Through bitter experience it is forcing customers to check the actual assets of any company, which on the evidence they will see is going to kill any chance of a boat sale.

This is going to further kill the industry. Certainly I'm not going to be buying a boat from any company that does not have sufficient assets.

 

[Ric]

It will be interesting to see if Irons Brothers continue to supply the lifting keels to the new Northshore company.

 

[tokoloshe]

The use of a Performance Bond (guarantee), issued by a bank on behalf of the builder and in favour of the customer,
is one way of protecting the customer in a build contract. If the bank refuses to issue such a guarantee, that is a good
guide as to the bank's opinion of the builder's worth as the value of the guarantee goes against the builder's line of credit.

In the event of non completion of the build, the customer presents the document to the bank who must pay
on demand. The builder would protect himself with Unfair Calling Cover Insurance.

I used to do a lot of these with export build contracts. Perhaps one of our banking brothers might confirm that
this is a runner in a domestic situation.

 

[Tranona]

The use of a Performance Bond (guarantee), issued by a bank on behalf of the builder and in favour of the customer,
is one way of protecting the customer in a build contract. If the bank refuses to issue such a guarantee, that is a good
guide as to the bank's opinion of the builder's worth as the value of the guarantee goes against the builder's line of credit.

In the event of non completion of the build, the customer presents the document to the bank who must pay
on demand. The builder would protect himself with Unfair Calling Cover Insurance.

I used to do a lot of these with export build contracts. Perhaps one of our banking brothers might confirm that
this is a runner in a domestic situation.

Bankers guarantees are not common in this country - at least in the boat building business as they carry too much risk for the bank who would rather lend against security, and for the builder because it limits general borrowing capacity. The preferred method for new builds is the BMF new build contract which allows for stage payments and title to the part built boat passes in line with payments. That at least ensures that part complete boats are not part of the assets of the builder, but still leaves the buyer with an incomplete boat. The same will apply with a bank guarantee - it does not guarantee delivery of the boat, only security of any payments.

 

[Tranona]

Although legal, this still reinforces my opinion that the structuring of companies in this way is unethical. Through bitter experience it is forcing customers to check the actual assets of any company, which on the evidence they will see is going to kill any chance of a boat sale.

This is going to further kill the industry. Certainly I'm not going to be buying a boat from any company that does not have sufficient assets.

Being asset rich - in the sense of owning business property is not necessarily a guarantee of stability and security. One of the failures in the history of Westerly came about primarily because it had bought freehold property which reduced the amount of cash available to develop new products and processes, but more importantly left it with unsuitable premises when demand levels changed and it was stuck with them.

This problem is not unique to boat building and there are equally compelling arguments in volatile markets for not owning fixed business assets long term, for both business owners and customers.

 

[rwoofer]

Being asset rich - in the sense of owning business property is not necessarily a guarantee of stability and security. One of the failures in the history of Westerly came about primarily because it had bought freehold property which reduced the amount of cash available to develop new products and processes, but more importantly left it with unsuitable premises when demand levels changed and it was stuck with them.

This problem is not unique to boat building and there are equally compelling arguments in volatile markets for not owning fixed business assets long term, for both business owners and customers.

Surely that is just an accounting artefact. If someone else can make money on renting the building to you than you are simply increasing the number of middlemen all needing their profit.

 

[grumpy_o_g]

Surely that is just an accounting artefact. If someone else can make money on renting the building to you than you are simply increasing the number of middlemen all needing their profit.

To an extent, but it's about concentrating on what you make a living from. Most large businesses lease back buildings these days, especially in high value areas. The theory is that you can make a greater return on the capital released by using it in your core business. If you're totally cash-rich then it's not such a good argument but then if you're that cash-rich maybe you need to look at other opportunities to put that money to use.

In Northshore's case though they did own the building from what I have read. It's just that the ownership was ring-fenced from the operating company. Ring-fencing is a good and understandable practice in some cases - for example it allows a loss-making subsidiary to fail without it dragging down an entire corporation - unfortunate for those involved in the subsidiary but it's saved millions of livelihoods and probably customers as well. It can be used in more questionable ways though.

 

[Tranona]

Surely that is just an accounting artefact. If someone else can make money on renting the building to you than you are simply increasing the number of middlemen all needing their profit.

That is a simplistic way of looking at it. The asset has an economic value and needs to earn an economic rent, irrespective of who owns it. Of course the owner of the building could elect not to earn anything from his asset but in that case he would be pretty stupid to pledge it as an asset to his business. If the business fails he might then lose his asset on which he has not been taking any return.

If we follow your line of argument your boat made in that asset will have been underpriced if it does not include an element for the use of that asset. Doubt the owner of the asset would be happy with that. No such thing as a free lunch!

So, not an "accounting artefact". Accounting reflects the economic reality. You can't build a boat without premises, and you can't use premises without paying for them in some way. makes no difference whether the owner of the building is the same person as the builder of the boat or a third party, the building still has a cost to be charged against the profit.

It may well be that owning property that the business uses makes the business more resilient to short term fluctuations in activity, but inevitably if the business is unable to generate cash and profits, eventually it will fail. The issue is always about who loses when the music stops. As can be seen from the creditors in this case it is usually government (taxes) employees, secure creditors, unsecured creditors, usually (as in this case) suppliers and possibly customers, although in this case probably few, then shareholders.

 

[northwind]

The bigger issue is not ownership of the land, but ownership of the intellectual property, whoever picks up the pieces and starts again will have to negotiate for the use of the brand, moulds, designs tooling etc. To me this is the biggest concern, yes it protects the interests of the owner of the ip, but not the workforce or customer. It makes the company building the boats worthless.

 

[rwoofer]

That is a simplistic way of looking at it. The asset has an economic value and needs to earn an economic rent, irrespective of who owns it. Of course the owner of the building could elect not to earn anything from his asset but in that case he would be pretty stupid to pledge it as an asset to his business. If the business fails he might then lose his asset on which he has not been taking any return.

If we follow your line of argument your boat made in that asset will have been underpriced if it does not include an element for the use of that asset. Doubt the owner of the asset would be happy with that. No such thing as a free lunch!

So, not an "accounting artefact". Accounting reflects the economic reality. You can't build a boat without premises, and you can't use premises without paying for them in some way. makes no difference whether the owner of the building is the same person as the builder of the boat or a third party, the building still has a cost to be charged against the profit.

It may well be that owning property that the business uses makes the business more resilient to short term fluctuations in activity, but inevitably if the business is unable to generate cash and profits, eventually it will fail. The issue is always about who loses when the music stops. As can be seen from the creditors in this case it is usually government (taxes) employees, secure creditors, unsecured creditors, usually (as in this case) suppliers and possibly customers, although in this case probably few, then shareholders.

In this case who else would the building be rented to?

Your second paragraph and third paragraphs appear to contradict each other. I happen to agree with your third paragraph, but that still suggests that a property owner needs his profit after cost of capital, whereas for the builder that is included in his overall profit. The only case I would accept that not owning assets is good business is when another company could run it far more efficiently than you can, so that it is still cheaper for you after they take their profit. I don't believe that would be the case for Northshore.

My concern is that this form of ringfencing assets has a dramatic impact on company value. As customers get stung by this ringfencing more and more, they will choose not to do business with you or take out some financial product to protect themselves which brings yet another middleman and their profit. It seems to me this has what has happened in so much of the finance industry that it simply sucks value out of the supply chain.