By Jon Waller
Lymington Times – 1 May 2020
A yacht builder could be forced to make redundancies from its 100-strong workforce after a bank rejected its bid for a £3m loan to help it through the coronavirus crisis. Marchwood-based Discovery Shipyard says it has restructured and streamlined its business and has plenty of work on its order books – yet Santander deemed it ineligible for aid despite its major shareholder offering a £600,000 cash bond to cover the bank’s loan risk.
New Forest East MP Julian Lewis has blasted the bank’s decision, saying:
“Santander is badly failing a company in my constituency when 100 jobs are at stake.
“What we are finding here is that older banking habits die hard and they are not adapting to the crisis when there are companies trying to survive. It’s very hard to see why the bank is completely unhelpful in a situation as urgent and extreme as the current one.”
But Santander defended its decision, pointing out it had lent hundreds of millions of pounds to UK businesses. It said it was “following criteria” set out by the government’s British Business Bank to assess eligibility in denying the loan for the ship firm, which it noted is not yet self-funding.
Discovery Shipyard’s managing director John Burnie told the A&T he believed the loan decision was “unfair”. He claimed it was based on financial problems which a small, former part of the firm suffered in 2019 under different management. He stressed its immediate future was not at risk, saying:
“The loan we have asked for is to help us in the long-term. It will take months for us to recover from this, rather than weeks, so who knows what long-term impact this will have?
“Yes, there could be redundancies – or we may simply run out of cash and the company will be forced into receivership. It all depends on how quickly our sales pipeline recovers. The point of the loan is it will buy us the time to recover, and then there will be little or no impact on redundancies.”
When coronavirus hit, the firm, which has an office at Berthon boatyard in Lymington, quickly installed strict financial controls, placed invoices on hold and negotiated three-month rent deferrals on its shipyard complex with its three separate landlords. It furloughed 95% of staff and approached Santander on 23rd March, the day the government advertised its Coronavirus Business Interruption Loan Scheme would be available.
The firm requested £3m since it has a base overhead of £1.8m annually – including wages and rent – and assumed it would be affected for up to 18 months. That figure would meet all contingencies, maintain the current work force and satisfy its liabilities through the period. Mr Burnie said its financial statements supported the need for the loan and its ability to service and repay it.
Under the government’s scheme, banks were told applicants had to be considered “viable” prior to the pandemic to get a loan. The government provides 80% security of the loan – but that is only triggered after the bank has exhausted every avenue to recoup any loan made.
The firm hit trouble in late 2019 under the previous holding company, Discovery Yachts Group, when a High Court battle landed it with a compensation bill of more than £1m. A buyout resulted in Discovery Yachts Group being bought by Binti Marine Holdings, the new holding company of the continuing Discovery business. Discovery Yachts Group is now in administration but the remaining parts remain unaffected and comprise two core companies, Discovery Shipyard and Discovery Group Sales. They are wholly owned by one principal shareholder, the sole proprietor of Binti Marine Holdings who has been the principal investor in the shipbuilding enterprise. He appointed Mr Burnie as the firm’s managing director and it had secured eight orders to build crafts.
Addressing the refusal, Mr Burnie added:
“The bank process used in our loan application was to look at the past two years of trading history. This, to our mind, seemed unfairly prejudiced – it was well known and freely admitted that the company had a poor past record. We specifically asked to be considered on our recent trading history – almost like a start-up.”
Mr Burnie placed a lot of the blame on the “caveats” Chancellor Rishi Sunak included in his aid package not being readily apparent when the government announced its business help scheme. He is also frustrated about the time the bank took – five weeks – to turn down its loan application.
This week in parliament, Dr Lewis asked about banks refusing to lend money to firms that had experienced recent troubles but turned themselves around under new ownership. In a response, a minister said “corresponding changes” had been made to the eligibility criteria required of applicant businesses – but it is understood they do not change Santander’s position.
A bank spokesperson said:
“The rules of the scheme are very clear and we must adhere to these and continue to act as a responsible lender. Unfortunately, on this occasion Discovery Shipyards does not qualify for a Coronavirus Business Interruption Loan Scheme loan. We have worked closely with Mr Burnie over the last few weeks to ensure we fully understood the company’s pre-Covid-19 financial position and its ability to service the loan after the pandemic – both are critical for acceptance into the scheme.”