10 Apr 2013
Creditors demand investigation into 'sordid history' of yacht transport company
Principal creditors, amongst the 100 or so claimants seeking over $7million dollars in refunds from Yacht Path under Chapter 11 bankruptcy, have filed a petition to a US Court to appoint a trustee to investigate “the sordid history of the Debtor.”
The case is being dealt with the United States Bankruptcy Court Southern District of South Florida and follows tumultuous events this February, when alleged legal trouble left Yacht Path unable to access bank accounts and thus pay freight for yachts. Five shipments of yachts faced arrest on arrival and owners had to pay twice their passage fee to the shipper. The company then filed for bankruptcy on 20 March facing threats of involuntary bankruptcy from affected parties.
But the principal creditors petitioning - Dolphin Partners, PJ Pacific and others representing various yachts - say these problems were due to long standing, serious problems:
“The Debtor was plagued with mismanagement, the misappropriation of funds and fraud in the operations of the Debtor by its directors,” reads their statement to court dated 8 April.
“The Debtor’s directors induced various customers to enter into agreements with the Debtor by providing assurances that the yacht transport services would be completed within the required time knowing that the Debtor was unable to provide the services.”
The petition lists various claims that yachts were not shipped within the required time and that the agreement allowed for a full refund if services were not given in that time.
SuperyachtNews contacted Dennis Cummings, president of Yacht Path for comment regarding the claims which include several open cases outside of the Bankruptcy Court. He said:
“They (the claims) are all of the same nature, a delay. I don’t know the exact nature of every single claim, some could be more than 30 others could be 40 days.”
He said the problems in court now could be attributed to the clients:
“We intended to carry out our contract for these clients and the clients are the ones who turned to their attorney and said we’re cancelling and we want our money back.”
He said the clients had not appreciated the potential for delays during transportation; Yacht Path which acts as a ‘slot charterer’ - renting space on board freighters or carriers rather than charter its own fleet – could be constrained by the itinerary of the vessel it has recruited.
Cases submitted to court reveal this is not entirely accurate as M/Y Ado waited two months to be shipped before its owner demanded a return of its $65,855.00 deposit when the service was not rendered.
The events this year, and subsequent cases to emerge, have polarized industry who see incidents as either illustrative of bad business practice on the part of Yacht Path or ills at the root of the yacht transport sector itself.
“The [yacht transport] contract is so lucrative, they can ship and drop you off whenever wherever they want, the master of ship has right to delay. You either sign it or you don't. There’s [no legal back up for] time delays,” said Captain David Sloate, in command of 36m First Draw which faced seizure this February when it transpired Yacht Path had not paid the shipper.
“This is a worldwide business that is not under supervision of any one agency, no international regulator,” agreed Bruce McAllister, at Alley Maass Rogers & Lindsay, representing owners of yachts in the bankruptcy.
Bob McIntosh at McIntosh Schwartz, Fort Lauderdale, representing five clients under contract with Yacht Path in 2012, expressed his surprise that the situation was ever able to become as serious as it has:
“I am just puzzled as to why they have been running short of money for so long, maybe they weren’t good businessmen, maybe they were selling the space too cheaply, but it doesn’t seem right. Look at the money they received from the yacht owners to board the freighters – they received all that money,” he said.
Yacht Path continues to operate as a business under Chapter 11, which gives it protection from litigation whilst proceedings for its reorganization take place. Cummings said, “Yacht Path is not going out of business."
“This course of action will enable us to make significant improvements to Yacht Path’s operations. We aim to be a more streamlined, efficient and focused company upon emerging from this process,” he told SuperyachtNews.
The creditors, on their part, are hoping Chapter 11 will find answers to the questions. “It is clear that, absent of an independent fiduciary, the creditors of the estate are placed into the quandary of relying on the same individuals that defrauded them if the management of the Debtor remains in control,” they urge.
The Court’s decision on appointment of a trustee is expected this month. Elliot Bishop, solicitor at Hill Dickinson, says he expects the case of 46m Auspicious - whose owner is suing Yacht Path for breach of contract - to take place at High Court by the end of the year. As of 5 April Yacht Path's English lawyers ceased acting, leaving them without UK legal representation.
The bankruptcy filing shows $5,124,845.50 is claimed by creditors holding unsecured Priority Claims and $2,155,433.99 by Non Priority Claims, the brackets pertaining to claims from yacht owners.
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