The Yacht Law Podcast

Yacht Yard Red Flags: What Buyers Should Check Before Signing

• Diane Byrne

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We map the financial traps that sink yacht dreams: overcrowded yards, unsecured payments, "trust me" agreements, and deposits that erase leverage. Practical fixes follow—credit checks, real performance guarantees, firm delivery dates, and overall strategies that protect yacht and superyacht owners.

• why crowded yards can signal cash stress
• unsecured payments vs first preferred ship mortgage reality
• firm delivery dates and delay damages as leverage
• verifying guarantees and avoiding sham instruments
• reading yard-wide delays as systemic risk
• using credit searches and lien checks for clarity
• avoiding non-refundable deposits with strong LOIs.


Have a yacht law question? Email it to info@megayachtnews.com or michael@moore-and-co.com for your chance to have it answered on our podcast. All requests for confidentiality and/or anonymity are respected.

Hiring a lawyer is a big decision. Visit Moore & Company for the legal team's qualifications and experience. And, to learn the latest about superyacht launches, shipyards, designs, and destinations, visit Megayacht News.

Diane M. Byrne:

Welcome everybody. Michael, I was looking back at some of our recent podcast episodes because I've seen the numbers of listeners going up in recent weeks. And we have done a very good job of hitting some hot topics that are very much on people's minds. The episodes I've been getting a lot of the new listeners are the ones on the 100% bonus depreciation, which comes as no surprise. That's been a big topic of discussion in yachting.

Michael Moore:

Yep.

Diane M. Byrne:

But also the episodes on the differences between the EBA and MEBA yacht contracts and the most recent episode on the fine print in yacht transport contracts.

Michael Moore:

Right.

Diane M. Byrne:

So if we're looking into our crystal ball here, there are a couple of potential explanations. Obviously, these are all parentally important topics. Although the 100% bonus depreciation is obviously much more of a time-sensitive topic. This isn't something that's been in existence for years and years, and it is something that is expiring at the end of this year. But the discussions about how to apply it, what it means, what the deadlines are, et cetera, of course, are of great interest to people. And the discussions about the transport contracts and the differences in the yacht contracts, I think, are very much on people's minds because there's more education going on. People are doing a little bit more due diligence. So, you know, hats off to you for suggesting these ideas. I'm really glad we dove into them.

Michael Moore:

Well, I think that this is a labor of love, uh, primarily, and as this practice of law, that the kind that you know I do, it always has been that way. I think it's a classic example. Maybe this is the most important message to our listeners in terms of do what you love, and you'll never work a day in your life. And um my orientation was always just how exciting would it be to make a living working on boats, you know, dealing with boat issues. And my mantra has always been people that have lots of money and fun to be with and who are constantly getting into trouble. It was like a perfect practice. And I think one of the topics of today is how you can get into trouble. It's it and it's not a happy thing, and it's not a happy situation for anyone when their dreams are at least deferred by financial problems in a yard that they trusted any business with.

Diane M. Byrne:

Yeah, that's the subject of our conversation today, the financial red flags to keep an eye out for. And being in yawning as long as you have, being in yawning as long as I have, I'm sure the two of us could trade some unfortunately trade some pretty horrific stories, but the goal obviously is to keep people from making some of the most common mistakes. And when it comes to yawning, you it doesn't matter who you talk to, everybody is in agreement that buying yawn is a matter of the heart more than it is a matter of the head. And unfortunately, sometimes the heart will overrule the head or tell the head, no, no, no, no, that's not what you really are seeing. And that's when a lot of the problems I think end up popping up. So exactly. Yeah. So why don't we get into them? In the years that I've been in the industry, one of the biggest to me is when a shipyard is a little too quiet, when there are too few projects around or perhaps projects under contract. What is what do you see when when you see something like that?

Michael Moore:

I would say that that would actually be the other end of the concern spectrum for me, because you you could so quickly determine what is really going on in that yard. And whenever you you say these things, sometimes I have these flashbacks. For example, the a client of mine who came from India who his dream was to own a Bertram. And uh so you know, you have a client, he's a wonderful person, he lives on a little island just off the coast of India, and as a child, yachts would come and go through his this little island. He went on to make a fortune in uh salt, became like the salt king of India, but his dream was to own a Bertram, and I warned him, I said, Well, you know, this is what I hear. The long and the short of it is that there was only one one Bertram under construction in the entire Bertram facility. And uh he he said, I worry about that. And I said, Well, you came here in love with a dream and an idea of a Bertram, and that's a Bertram. It's just not finished yet, and I can assure you that I have the ability to guarantee you a good title that that boat will be delivered to you in the condition that you want it to be in when it's finished. And that actually happened. So it's fairly easy to do that sort of thing, but the point is it's about impressions and opinions. It's not about opening anybody can open a book and read or or Google around and get ideas on the internet. But my biggest concern to your earlier point is when there's too many boats in the yard. When there's too many boats, you have a little bit more of a complicated problem is the money that came in last being used to finish the ones in front. And they've really undercharged that wonderful contract that the buyer thought he was getting is suddenly in danger. Most of these situations are what I call trust me contracts. I get a lot of that. I get a lot of people that just trust the brand and the entity. They put money into the boat in their payment plan. But at the end of the day, 90% of them are unsecured creditors. If something goes wrong, they are totally unsecured. Every secured creditor will be paid before them in full. That's your mortgagees, the banks, and so forth. You usually do not have, if I may just kind of wax into that, you don't have the power of one of the most powerful security instruments in the world, the first preferred ship mortgage. What you have is a lien that is generally described as a state-created lien of a maritime nature. In other words, that is a lien that's recognized under the Maritime Lien Act, but is way, way, way, way, way down on the list of priorities. And this is even assuming the boat has been launched, because until it's launched, it doesn't even become a boat. And so until it becomes a boat, you cannot hold a first preferred ship mortgage. It's just this inanimate object that is basically trust me, you're going into a stranger's land, you're paying huge amounts of money on a schedule, and somewhere along the way, you start to realize maybe the the milestones are being asked for in advance of the reality of the progress of the build, and now you have a problem. And it's a problem where there's not a lot of way out. And then in that group of people that are all in the same yard, you got your fire brands and your passives. You got your people that go off on a minute like a firecracker. You got other people that just seem to have the patience of Job, but they're all in the same situation. So there's people out there that are completely out of pocket looking for their boat. And you may be in the yard and only partially in. It's just a very, very complicated mass. And and in recent times, we've seen like Catalina yachts in Largo, I think is in full-on insolvency now. I'm not involved, so I can I would encourage anyone listening to do their own due diligence in that situation. But along the way, I've I've seen some of the most storied yacht builders in the world go under. I remember representing a gentleman by the name of Donald Trump. He bought a yacht, and the thing about Mr. Trump is he's not bashful, as we all now know, about some of the positions he takes. It's almost shocking when you're dealing with him because he'll ask for things that you it's almost it's almost embarrassing. In this particular case, he asked for a massive delay damage penalty. I'd like to take credit for it, but the reality is he's the guy that came up with that. He wanted that yacht in New York Harbor on July 4th. There's somebody who's going to pay. And the Dutch yard was guaranteeing that the boat would be there on July 4th, and that they were Dutch and they never missed dates, and it was going to be a beautiful thing. And as I recalled it, they had the worst winter in the history of the Netherlands, and it just completely sabotaged their plans and they missed their delivery date. Well, the bottom line is we ended up owning the yard.

Diane M. Byrne:

Wow, that is not the situation anybody wants to be in.

Michael Moore:

No, and that was exactly what Mr. Trunk said. He took a very kind view, which was what do we do now?

Diane M. Byrne:

Yeah.

Michael Moore:

The last thing on earth I want to own is a boat yard. I own luxury real estate. So why do I need a yard in the Netherlands? It's like, well, I'm a maritime lawyer. Let me explain. No, no, no. It's like, no, no. Figure out what to do with it. Figure out what you can get for it. Get rid of it. Make the deal that you you can make, and God bless you. I'm not, I'm not worried about it. They've already screwed me on my deal. It'll never be made up. Now they're bankrupt. So I'm gonna get my money back. So let's move on. Kind of on the same subject by way of situations that too many boats can be a problem. So this yard that I had never heard of in Germany. Now, today, I don't think there would be a listener in the yacht world that would not know that company by name. Now, they asked me why I would not allow my client to go there without a guarantee, a performance guarantee. And they were really angry. We can't believe you have never heard of us. We are a German, we've been around before World War I. Surely you've heard our name. And I said, I hate to tell you this. I don't. You're new to the yacht world as far as I'm concerned. Although you have a storied history, yachting has not been your here, is you know, I'll mention some companies so you can know that. You know, and they ran numbers. Do you have you heard of Abikan and Rasmussen? Yes. Have you heard of Lursen? I said, of course. Have you heard of Meyerwert? I said, they make big ships, yes. They then named a company that is known throughout the world that would act as the guarantor of the project. And I said, I'll accept them as a guarantor. Sure. I'm not trying to be a jerk here, but they went bankrupt. They went bankrupt in the middle of the deal. I'm just saying, making yachts is not as easy as it looks. And this group thought they could just be overnight, fedship, lursome. No, no, no, no, no. It took you how many years to get there? 20, 30 years. My point is that everyone wants to loan you money when you don't need it. And no one wants to loan you money when you're desperate for it. Mm-hmm. Yeah. Now, to that point, I was contacted by a bank in Germany. I will be very impressed, Diane, if you know this bank. It goes by the initials KFW. KFW is the largest bank in the world that you've never heard of. Now, what how did I get involved with them? I got involved with them because they they hired me to foreclose on a in a a multi-ship situation. KFW is a government-owned German bank. If KFW pull the plug, as they as they say, on people that are in default to them, it conceivably would collapse the world water-oriented shipping-oriented credit markets.

Diane M. Byrne:

Mm-hmm. Yeah. Yeah. If a government is saying that it's not working, that that's for sure.

Michael Moore:

That's right. And so KFW, that was created in 1948, nicest people in the world, every one of them smart to a fault. But my job was to collect $90 million. And all they did for the first part was to, you know, kind of apologize to me for the fact that they were pulling the plug. And I said, look, I'm a heartless automaton. That's not the way we work. If you tell me, go take that hill, we're going to go after that hill. That's just the way it works in my world. But I love you guys. I mean, I love getting to know you. I'm learning something I had never heard of. But they are, they were created after the war, to be honest about it. It was somehow part of the reconstruction effort. Somehow it became part of shipping and building ships. And that's how they became the financier for a lot of yards. As I said before, they're the most benevolent bank in the world because they're part of the economy of the world. And they're not out there like a commercial bank. You miss a payment, you get that notice, you're in default. No, no, it's not the way they were. But the yard that I was talking about earlier, Germanyard, they were the ones that saved it.

Diane M. Byrne:

Amazing.

Michael Moore:

Yeah, they came in out of nowhere. I think it's actually the way I got to know them because my job was to kind of figure out how to create maximum happiness. Basically, my orientation immediately is how to get the boat out of the yard. Sometimes these yards are so thinly capitalized, there's no way to do a turnaround agreement. But my orientation is always how do we make maximum happiness out of a situation? Let me give you one example. Again, I apologize for not saying the names. But one of America's great yacht builders, a client came to me and he wanted to burn down the house. He was so mad that he had a lot of the right bells and whistles. Like a firm delivery date. That is an absolute must in all yacht building contracts. You have to have a drop-dead date. If you don't have a drop-dead date, you may still be trying to build a yacht years from now. You will be strung out. You will be put off. You will be lied to. I got in my car and I drove to the yard that had an office in South Florida. Yachts were constructed elsewhere. And I said, here's my trouble. You're in default on every different provision that you could probably put default under. And you're you're having trouble. I know you're having trouble. And you could use the capital that my client has and is willing to pay you. It'll save your yard. But you gotta do exactly what I tell you to do. Here's what you gotta do. You need to deliver that boat as soon as possible. You need to launch it, you need to put it in the water, and you need to do everything that you need to do to get it documented as a United States documented vessel. Now, that would require you to transfer title from your insolvent boat yard to my extremely solvent client. Now, that's what you're gonna have to do, or we will bring down your house. And they said, Well, tell us how this would work. I said, No, no, we'll handle it. So we we had the boat delivered. It was it got the necessary paperwork issued, a builder's certificate in this case, and other related documents. And we took those documents to National Vessel Documentation Center, and through some other bells and whistles, my client then paid all the money that was that needed to be paid to finish the boat, and the boat was actually finished in his name. And I think we even waited a few months because we wanted to get out of the bankruptcy rules. You know how bankruptcy works, it's like you could have a 90-day look back, you could have a 120-day look back where all the creditors are there, and this is clearly being a preferential creditor situation, but properly structured in a maritime context, everybody wins. The yard was in deep, deep duty, didn't have capital, my client had capital, didn't have a boat. Clearly could see that this boat was not going to be delivered. There were other boats around that those boat owners and their lawyers were ready to fight, fight, fight. And that would be years in the making, and no one would win except the lawyers. So the point is that I think that at the end of the day, our client got his boat and that lives happily ever after.

Diane M. Byrne:

Yeah. But it wasn't easy getting there, so that's not something that a lot of people want to go through, obviously. So, okay, so that story and something you were talking about earlier touches on something else that is a cautionary tale. When a shipyard has multiple yachts that are delayed, we all know that owners' change orders can cause delays, and we're not talking about that. We're talking about a shipyard that is unable to complete a project within a reasonable on-time time frame.

Michael Moore:

Right.

Diane M. Byrne:

The challenge with that, though, from an outsider's perspective, is how can an owner determine that boat A over here is a year and a half late, boat over here is eight months late, and all the issues are due to the shipyard not having its act together. Obviously, if they hire a lawyer, the lawyer can start doing due diligence and digging in and using contacts, but is there other is there another apparent way to determine that there's something really wrong going on?

Michael Moore:

Well, every shipyard representative that's listening to this podcast will probably never fire me. And it will set their hair on fire, and they will call you names. But the first thing that you should do when looking doing business with a shipyard is do a credit search. You need to see what's already recorded against that company's business. They won't like it. There are a lot of rules. The granting of liens, for example, if you wanted to become a secured creditor, is has to be a conveyance. It's not a as there's not there's no operational at law. These are state created lanes. So when you're in a situation where the boat has not yet been delivered, it's not in navigation. That's the key expression. It has to be in navigation. And by the way, there is a practice that one can look up to see what you can't do. It's called dipping. Dipping is when the yard takes a boat and just dips it in the water, declares that it's in navigation, then takes it back out of the water. That's why you have to do it under the guidance of a qualified maritime lawyer to do it the right way, the legal way. But the first thing to your point that a person who is going to be an unsecured creditor otherwise, and all they're getting is a piece of paper that says that you major also on payments. So you're literally giving millions of dollars to an entity on a trust me situation on the chance that somewhere in the future, sometimes two years, sometimes three years, even four years, as we know, you may get a boat, provided you continue to pay. But the first thing is the yard already liened, mortgaged, pledged to a bank or to a lender, and the answer is yes. I mean, this would be the situation with a number of yards that are no longer with us that historically were very, very fine yards. Christensen comes to mind, Trinity comes to mind. But they they do borrow money from their lenders, and that whatever's in that yard is the security for the loan. And that lien will often attach to things that are in the title of the yard, like unfinished boats. So the real difficulty is trying to get a picture of the financial status of the yard, no matter what they say to you. And again, for me, it's always a struggle. You get yelled at, you get, you know, called names and so forth sometimes, but the reality is that would be the most important thing you can do. Then the other thing that you could do, that if you really want to be bulletproof, they won't like it, is get a performance guarantee. What that simply means is that the yard goes to its bankers and basically cries that they have to have this performance guarantee that guarantees that the vessel will be delivered. Now, it's a little bit of a cart and horse problem because you need that yard to build that boat. They want to build that boat, but you just you have doubts as to whether they can perform. All they have to do is perform, and everybody wins. So you say, well, what's the problem here? They well, the cost of the guarantees. Sometimes I've had clients say, I'll pay for the cost of the guarantee. I won't pledge the assets that secures the guarantee, but I'll pay the premium on the guarantee. Let me just tell you one war story that you'll never forget. We had a situation with a yard that was building a yacht in another country, and we had reason to be a little concerned. And the client was, I told him, said, look, you got to get a guarantee, a performance guarantee. That yard is given out all kinds of signs that they don't really are not in a totally solvent situation. And uh incredibly enough, the yard came up with a guarantee. It had gold embossed stamps, and it looked amazingly beautiful. It was an old school guarantee. It looked phenomenally perfect. The title was even Assurances A G, which gave it the sort of German-sounding insurance company, and there was a company by that name. Except that when we tried to call the company, they would never answer our questions. And we finally got through to, I should more specifically say they got through to us. The FBI called. Ooh. Oh no. And they wanted to know how do you know that the guarantee is worthless? And I said, well, first of all, we don't know. And all we wanted to do is ask some questions of the guarantor to check the validity of the guarantee. And we know the company, so we're we have no problem with the company issuing the guarantee, but we need to have a few questions answered. They say, well, you know, we're from the FBI, and so we know how many victims there are. We just want to ask you, why have you been so diligent? We know every call you've made, and we know what was said in every call, and you and your people and Morico have been completely relentless. Obviously, you're on to something. What is it that troubled you so greatly that you would go to these links to find out to talk to somebody at the head office? I say, Well, you know, it's actually one word. And they said, What is it? And our guarantees are like two feet long almost. They're a foot and a half long, and they're a small print, and they're issued a thousand times, and so they should be perfect. Well, this associate of mine, God bless your soul, had read the damn thing, and she got to the middle part that said, in the event of a default of the the guaranteed party, the the shipyard, in the event of a default, you will come to our office and present five birds in order to complete so that we can then complete the build. And they said, seriously. And I said, Yeah, have you read it? And they said, you know, we haven't actually read it. I said, read it. So I had this idea of this little cage with five tiny little birds in there, you know, and showing up at their office in Germany and going, here are the birds.

Diane M. Byrne:

Right. Right.

Michael Moore:

But they meant to say bids.

Diane M. Byrne:

Oh my God.

Michael Moore:

It's like every other guarantor would say, you can't make this stuff up, Diane. It's just so classic. I totally understand that you go to five yards and say, Give me five bids to complete this boat. And then the guarantor, the the the guarantor's party, would say, okay, we we would like to use bid number three. It's a reputable yard, and the bid is in range with the bids one through five, and we'll take bid number three. That was out there in prerogative, but it didn't say bid, it said bird. And so that was the red flag. It was like there's something. When did this typo get into this guarantee? They're printed in the thousands all over the world. As I said before, you you can't make it up. We were laughing and saying, well, we wants to go to the head office in Europe and present the five birds.

Diane M. Byrne:

Right. Oh my god, that's insane. Aye. I do want to make sure we get to one other um one other scenario that hopefully you don't have a real a real crazy story or a horror story here. There is apparently a practice among some shipyards to stipulate that deposits are non-refundable. I have to say I haven't heard of this, but then again, owners aren't necessarily going to disclose the terms of their contracts with a journalist, and you clearly would see the terms. So, how how are they stipulating these terms?

Michael Moore:

The problem in my in my mind, in my practice, and there is a very well-known, maybe even one of the top five best known yards in the world requiring this. They're requiring this before the contracts even entered into. Meaning, if you if you give us fifty thousand dollars, I say a hundred thousand dollars, pick a number. And even if we don't go to contract, you lose your deposit. Now, a client has the option of taking that risk, that's their money. I don't have the the option as a lawyer of risking your money. But our job is to say to the client, here's what that means. You will lose a lot of your bargaining position because if you're going to lose fifty to a hundred thousand dollars, you have to understand you won't have the kind of leverage you would have if you made other arrangements. And there are other ways to make arrangements, to negotiate in good faith. There are letters of intent, short, and sort of to the to the point. The big items, price, delivery date, length overall. And you can even use what are called reference vessels in the style of or similar to and the quality of, and you can you can get a pretty good thought. But yeah, I I don't know what even what to say, except that we don't recommend it. I think the cost of doing business is, you know, yard has the cost of doing business with flakes. They can do their due diligence as to who they're sitting across the table from to decide if they're nobodies. Easily done in these days. There's all kinds of search engines that can give you the bottom line on the people that's gonna come into your, I'm gonna spend 20 or 30 million in your yard or 200 million, whatever. So so I think they're just simply a new i it's really something that I I'm telling you, it's not a good practice. I don't want to mention the yard that does that. I they've been called out in several public forums and not in a nice way. Most of our we we see new build contracts on a what I call a steady basis. We see secondhand contracts more often than new builds. But that particular practice is one that I find to be, you know, unacceptable, but you may have to agree with to it if the yard's gonna s stick by the guns and not. But it's just a business term.

Diane M. Byrne:

Right. Yeah. Right. Well, Michael, we've covered a lot of territory in this conversation, and I think we've given certainly a lot to consider. So thanks as always for your input.

Michael Moore:

Thank you. It it's always a pleasure. It's just like having you in my living room sitting down or having a yacht in the world.

Diane M. Byrne:

You know, it it's funny. I mean, I laugh, but it's a comment that a few people have have made. They feel like they're sitting in a living room or sitting around the kitchen table with us having this conversation and listening. And I'm glad because that's how it should be. This isn't meant to be arm's distance, you know, here we are high on a mountaintop, giving all of you little people down there information. It's supposed to be very approachable and understandable, whether someone's an owner or they're looking to get into this industry. Yeah, we want to make it accessible and more logical to people.

Michael Moore:

Absolutely.

Diane M. Byrne:

So well, everybody, thank you as always for listening. If you have a question or a topic that you would like us to address on a future episode, you can contact us by email. Our email addresses are in the show notes of this and all of our episodes. Until next time, I'm Diane Byrne. Michael, you have the last word.

Michael Moore:

It's always a pleasure, Diane. Best of everyone, all the best.

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Diane M. Byrne

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Michael Moore

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