Harland & Wolff, investigates a £25 million ‘misuse’ of funds, administration as early as next weeK

The interim executive chair announces the launch of an ‘independent’ investigation.

Shipbuilder Harland & Wolff, known for building the Titanic, is investigating the “misapplication” of over £25 million in corporate funds. The UK company could enter administration as early as next week.

Russell Downs, a restructuring specialist who became interim executive chair last month, told the Financial Times that he has initiated an “independent and focused forensic investigation” into handling these funds.

The investigation scrutinises a “misapplication of probably over £25 million” and other expenses “at a much lower level… which appeared to offer little or no financial or corporate benefit.”

Downs emphasized that the probe concerns the “misapplication of funds, not misappropriation,” adding that it is necessary to “determine the full extent, if any, of any wrongdoing.”

He further noted, “It’s a concern for customers who are investing money with specific obligations and expectations, only to find that the funds may not have been used as intended.” Downs declined to give additional details.

Harland & Wolff employs about 1,200 people across four sites: its main shipyard in Belfast, Northern Ireland; Appledore in the southwest of England; and two locations in Scotland.

The 163-year-old shipbuilder has been struggling to survive since the UK’s new Labour government refused a £200 million emergency loan guarantee in July, deeming it an inappropriate use of public funds.

The company’s shares, listed on London’s junior Aim market, have been suspended since early July.

Administration as early as next weeK

Harland and Wolff Group Holdings Plc, the listed parent company based in London, is expected to enter administration as early as next week, according to sources familiar with the situation. While Russell Downs declined to comment directly on the likelihood of administration, he noted, “I don’t think the Plc will play a great part in the future… it’s run its course.”

However, Downs emphasized that the group’s four shipbuilding yards are not at risk of entering administration. These yards operate as separate corporate entities and can continue to function even if the Plc goes into administration.

The news of the investigation follows the recent departure of H&W’s finance director, Arun Raman, who had served in the position since 2019 and resigned with immediate effect on Wednesday. Raman confirmed to the Financial Times that Downs had informed him about the intended probe but said he was “not aware of its scope or details.”

“All of our customers have been fully aware of our financial position since 2022,” Raman stated, adding that “nothing has been hidden from the customers or clients.” He declined to elaborate on the reasons for his resignation but clarified it was unrelated to the investigation.

In 2022, H&W was part of a consortium led by Spain’s Navantia that secured a £1.6 billion contract to build new Royal Navy ships.

Downs revealed that Navantia had issued H&W a notice of intention to terminate part of the UK group’s subcontract but added that “no decision has been made, and discussions with Navantia and the Ministry of Defence have continued this week.”

He acknowledged that H&W had “lost time” on the Royal Navy contract due to financial challenges.

“But we’re confident that we can make up that time to deliver the vessels on time and on budget, and that’s what we’ve communicated to Navantia and the Ministry of Defence,” he added.

Navantia stated it was “not in a position to comment on corporate developments at Harland and Wolff.” They did not immediately respond to a request for further comment on the termination notice.

H&W has been working with advisers from Rothschild & Co on a strategic review, and the shipyards have attracted interest from both British and international buyers, according to Downs.

“We have a credible recovery plan for each of the yards, allowing them to secure work, complete it profitably, and thrive,” said Downs, mentioning that there is a “possibility the yards will be sold together.”

He also highlighted that it is “incredibly important” to preserve the historic name.

Bids are expected by the end of the month, and Downs hopes to finalize the sale by the end of the year. Navantia is reportedly planning to bid for H&W’s Belfast yard, according to sources close to the discussions.

John Wood, the former chief executive who led the group’s rescue in 2019, stepped down at the end of July as a condition for securing a new $25 million loan from H&W’s current lender, Riverstone.

The company has been burdened by the high costs associated with its borrowings.

On Friday, Wood dismissed the news of the investigation as a “ridiculous allegation.”

According to unaudited results for 2023 published in July, H&W reported an operating loss of £24.7 million, an improvement from a £58.5 million loss in 2022, while revenues more than tripled to £86.9 million.