Titanic shipbuilder Harland & Wolff probes £25mn ‘misapplication’ of funds

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Shipbuilder Harland and Wolff is investigating the “misapplication” of more than £25mn of corporate funds, as the UK group best known for building the Titanic prepares to enter administration as early as next week. 

Russell Downs, a restructuring expert who took over last month as interim executive chair, told the Financial Times he had launched an “independent and focused forensic investigation” into the funds.

The probe was examining a “misapplication of probably over £25mn” as well as spending “at a much lower level . . . which seemed to be for little or no financial or corporate benefit”.

Downs stressed that the investigation was into the “misapplication of funds, not misappropriation” and that the probe “needs to determine the full extent, if any, of any wrongdoing”.

But he added: “It’s a concern of customers who are obviously putting money in against obligations with an expectation that money will be used in a particular way, which it appears it hasn’t.”

Downs declined to provide further details.

Harland and Wolff employs about 1,200 people across four locations: its flagship yard in Northern Ireland’s capital Belfast; Appledore in the south-west of England; and two sites in Scotland.

The 163-year-old shipbuilder has been struggling to stay afloat since the UK’s new Labour government in July turned down a request for a £200mn emergency loan guarantee after deciding it would be an inappropriate use of public funds.

The company’s shares, which are listed on London’s junior Aim market, have been suspended since the start of July. 

Harland and Wolff Group Holdings Plc, the listed parent entity based in London, is expected to go into administration as early as next week, according to people familiar with the matter.

Downs declined to comment specifically on the prospect of administration but said: “I don’t think the Plc will play a great part in the future . . . it’s run its course.”

He insisted, however, that the group’s four shipbuilding yards were not at risk of entering administration. They are operated as separate corporate entities that can be kept afloat even if the Plc enters administration.

News of the investigation comes just days after the departure of H&W’s finance director, Arun Raman. Raman, who had held the role since 2019, resigned with immediate effect on Wednesday.

Raman told the FT that he had been made aware by Downs that he intended to launch a probe but that he was “not aware of its scope or works”. 

“All of our customers have been fully aware of our financial position since 2022,” said Raman, adding that “nothing has been hidden from the customers or clients”.

He declined to comment on the reasons for his resignation but said it was unrelated to the probe.

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

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

He conceded H&W had “lost time” on the Royal Navy contract because of its financial difficulties.

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

Navantia said it was “not in a position to comment on corporate developments in Harland and Wolff”. It did not immediately respond to a request for comment about the termination notice.

Separately, the MoD did not immediately respond to a request to comment.

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

“We have a credible recovery plan for each of the yards to see them win work, carry out that work profitably, and flourish,” said Downs, adding that he thought there was a “chance the yards will go together”. 

He also said it was “massively important” to keep the famous name alive.

Bids are due by the end of the month and Downs said he hoped to finalise the sale before the end of the year. Navantia is expected to bid for H&W’s Belfast yard, according to people close to the talks.

Former chief executive John Wood, who led a rescue of the group in 2019, departed at the end of July as a condition of a new $25mn loan from H&W’s existing lender, Riverstone.

The high costs of H&W’s borrowings have weighed on the company.

Wood on Friday described news of the probe as a “ridiculous allegation”.

Unaudited results for 2023, published in July, showed H&W made an operating loss of £24.7mn, down from a loss of £58.5mn in 2022, while revenues more than tripled to £86.9mn.