Yacht Manufacturers Bankruptcies: How to protect yourself

Silent Yachts, a company specializing in the production of solar electric catamarans, has recently been rumoured to be in trouble. Established in 2017, Silent Yachts gained recognition for its cubic-designed electric catamarans, featuring robust photovoltaic panels. Their marketing highlighted their leadership in the industry, but in reality it was Poland’s Sunreef Yachts who initially pioneered this. According to Yachting Art, Silent Yachts has always been “something of a mystery” in the yachting industry and you can read more about that here>

silent 55 yachts began deliveries ins 2019

According to the Super Yacht Times there are two potential strategies being considered to mitigate the impact if this comes off. “The first involves giving individual customers the opportunity to acquire partially-completed boats in Turkey and undertake their completion. Read more about their take on the restructuring issue>>

How to protect yourself

A crucial question for any prospective buyer revolves around the financial safeguards accessible to protect their initial investment between the contracting stage of a custom new build yacht and the actual receipt of the yacht. Nearly every agreement for building a brand-new yacht by smaller manufacturers includes an initial payment, in addition to multiple “progress” or “milestone” payments throughout the project’s duration. In fact, the majority of contracts for constructing custom yachts require the buyer to commit up to 90% of the total purchase price before the yacht’s completion and delivery.

There are ways to protect the financial interests of a new yacht buyer like an Irrevocable Commercial Letter of Credit and the procurement of performance security bonds provided by insurance underwriters. In the EU, for example, protection is available under the Financial Collateral Arrangements Directive.

Another key element is the clear identification of the company from whom the new yacht is being purchased. Many new build buyers mistakenly sign a contract with a corporation that functions as a “sales or marketing arm” of the shipyard rather than the shipyard itself. Often the sales company is a separate legal entity does not have adequate corporate assets to protect the buyer in the event of failure to perform on the terms of the new-build contract.

We advise prudence and caution but that should not be interpreted as fear mongering. Most new build projects go off perfectly. However, the cost of planning financial protections for a new build buyer is generally small in comparison to the risk of loss, in the event that problems do arise.

Your yacht broker should be able to advise you but we highly recommend to also get your own advisors / attorneys involved to protect your interests.


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