Thursday, October 8, 2009


Recently, there have been reports of several bankruptcies in the marine industry, in which the company's principals have successfully repurchased company assets at liquidation, then gone back into business the next day. Debt free, at the expense of prior vendors and customers. When it happens once, you can write it off to economic circumstance, or to bad management, or maybe just to bad luck. But when it happens multiple times, you have to conclude that it is the outgrowth of a less-than-forthright approach to business.

Here's the deal. Suppose I don't properly capitalize (or re-capitalize) my company, but instead take customer deposits out ahead of delivering product, while I use vendor-extended credit to purchase materials and sub-contracted services. Suppose also that I use most, or a significant percentage of the cash generated by sales (mostly advance deposits and unearned progress payments) to pay myself and other company executives and principals serious salaries, bonuses, and dividends. Eventually, when I don't or can't deliver product to my customer(s), or when my creditors finally begin to beat down the door, I go bankrupt. Then I use the cash I've accumulated through pay-outs to myself and other company principals to purchase at auction the company assets at a fraction of their worth, and now free of the debt which previously encumbered them. And whammo, I'm back in business.

Frankly, nothing happening in the marine industry these days even approaches the massive boondoggles foisted upon us all by the denizens of the financial investment sector. Moreover, it surely is the case that the majority of business failures in the marine industry are the result of problems in the banking sector (resulting in lack of credit and lending), as well as a general malaise in the economy as a whole. But just as frankly, some of the marine business bankruptcies we're seeing just don't smell right. And it is beyond me why customers and vendors go back to dealing with the same guys over and over again, after being burned. Maybe because being around boats and yachts tends to suck the blood from of our brains.

1 comment:

  1. The bankrupcty attornies are having a field day during this so called "Great Recession". It's amazing how laws that were originally set-up to protect people from