A CANADIAN company gained control of a troubled renewables manufacturer seen as a key part of the future of Scotland’s wind farm revolution for just £1 as ministers ploughed in tens of millions, the Herald on Sunday can reveal.
It has emerged that while the Scottish Government injected over £37.4m in loans to support struggling Burntisland Fabrications (BiFab) and for that gained a third of the firm, the Canadian firm DF Barnes took total control for just £1.
The Herald on Sunday last week revealed that ministers stand to lose up to £54.2m of taxpayers money which it has pumped into the firm – seen as a key part of the future of Scotland’s wind farm revolution – if it collapses.
Ministers signed off on a secret £30m guarantee to support Bifab last year before doing a U-turn after the failure of an important contract, leaving fears that the company faces liquidation.
Ministers decided to do a U-turn after its new legal advice felt that providing key support for the ailing company at the centre of a wind farm jobs row would be seen as illegal state aid under European Union regulations.
The support came by way of a commitment to effectively underwrite a contract to have a part in the the £2 billion Neart Na Gaoithe (NnG) offshore wind farm project in the Firth of Forth to the tune of £30m.
Scottish Government sources revealed that a re-evaluation came after BiFabin September failed to win any work on Scotland’s largest offshore wind farm, the multi-billion pound Seagreen project, located just a few miles from its yards in Burntisland and Methil in Fife.
The yards are currently operating on a skeleton 30 staff – with zero contracts in place at present but at its height employed hundreds.
Unions on Friday called on the Scottish Government urging transparency over legal advice which led the Scottish Government to withdraw financial guarantees to support the manufacturer – which also has a yard near Stornoway – of eight turbine jackets for the NnG project.
The Herald on Sunday has seen new documents which reveal for the first time that DF Barnes’s purchase of the company on April 17, 2018 was dependent on an agreement that ensured the Scottish Government provided future financial support.
The details have emerged in an analysis for ministers by financial consultants Grant Thornton headlined ‘Project Harris’ provided to ministers two days after the takeover warning that the company “remains balance sheet insolvent”.
Ministers employed Grant Thornton to provide “diligence” on a draw down on further taxpayer funds to prop up the ailing firm.
And the firm concluded a drawdown of £7.6m was needed or it will “likely result in the insolvency of the company”.
Financial papers show that WREDS Holdings Inc, a privately owned Canadian company formed to take over BiFab mounted the £1 buyout before being incorporated into DF Barnes’ marine division for day to day management.
Documents reveal: “On April 17, 2018 BiFab Holdings Ltd acquired control of Burnitisland Fabrications Limited through the purchase of 80% of the share capital for a consideration of £1.”
It estimated that goodwill in terms of the takeover – calculated by taking the purchase price and subtracting the difference between the fair market value of the assets and liabilities – was worth £10.5m.
Financial statements reveal that between April 17 and December 31, 2018 loan proceeds received “during the year” [from the Scottish Government] totalling £37.4m were converted to 134,273 £1 ordinary B shares. In 2018, the Canadians had 280,612 more powerful A shares.
Despite having a third of the company, ministers do not have a seat on the board.
The lower class B shares prevents ministers from having the right to instigate a meeting of shareholders. Papers show that a quorum for such a meeting only exists if the shareholders hold not less than 51% of the A shares and only the Canadians hold those.
Grant Thornton’s report revealed that the further funds had been needed to allow BiFab to complete a contract to complete a contract for German manufacturer Siemens and Dutch firm Seaways Heavy Lifting (SHL) who were awarded a deal to work on Scotland’s largest offshore wind farm project, Beatrice, off the east Caithness coast.
It is understood that the Scottish Government had agreed to underpin a loan with a £20m insurance guarantee if for any reason the work was not complete – similar to that finally rejected nearly two weeks ago.
The report reveals that it was “the intention” that a “maximum facility” agreed in November, 2017, six months before the Canadian takeover, would be sufficent to fund the company’s requirements to complete their involvement.
But later the company repeatedly reported increased total expected costs on the contract and management states that without additional funding support, the company would be unable to complete the contracts.
In March, 23, the loan facility was increased.
But the analysis reveals that the ministers’ view was that the extra money considered due by management to complete the contracts should be, first funded by DF Barnes, after the buyout.
If failing to reach agreement on this then the report says the money would be advanced to the company under a “new loan agreement on commercial terms post-acquisition (ie once SG had more certainty as to the future of the company)”.
But the correspondence with ministers says that on April 5, DF Barnes, said that without the extra millions being made available by the Scottish Government to complete the contracts, it would not proceed with the buyout.
Grant Thornton’s diligence report which came after the takeover as DF Barnes made a formal request for the funds said: “DF Barnes’ acquisition of the company has generated positive press and sentiment about the company: a lack of sufficient cash to meet payments to suppliers due to be paid at the end of April 2018, could jeopardise this.”
It suggested ministers go to BiFab management and ask to reconsider the amount of the loan drawdown.
“Drawing under the facility is required as a measure of last resource.
“Notwithstanding the company has been acquired by DF Barnes failure to obtain these funds will likely result in the insolvency of the company, and the total loss of all sums already advanced by the Scottish Government (as there is a heightened risk that creditors who have already had significant deferral of sums due seek to petition to wind-up the company).
“In conclusion, drawdown of £7.6m from the SG loan facility was needed to meet its liabilities set out in a short term cash flow forecast.”
The advice came with a proviso. Grant Thornton said there were “limitations” because of the availability of financial information. There was no forecast balance sheet as at June 30, 2018 (or later) provided.
BiFab, which once employed around 1,400 workers was rescued from the brink of administration when it was purchased by DF Barnes, although hundreds of jobs were subequently shed.
The troubles surrounding the company are set against a Scottish Government report in 2010 stating that the offshore wind sector alone offered the potential for 28,000 direct jobs and a further 20,000 jobs in related industries, as well as £7.1bn investment in Scotland by 2020.
The Scottish Government says that it invested £37.4m “through a combination of equity and loan facilities in order to save BiFab from closure in 2017, and to support delivery of SSE’s Beatrice Offshore Wind project. A further loan facility of £15 million has also been provided to support working capital.
“The financial support provided by the Scottish Government secured work and jobs at the three yards – including the Beatrice (BOWL) Contract and the Moray East Pin Piles contract,” a Scottish Government spokesman said.
“In order to secure a future for the business, the Scottish Government’s investment was in support of a business plan to re-establish BiFab as a credible supplier within the offshore renewables market. This plan included commitments by the majority shareholder to support working capital and corporate assurance facilities.
“We have operated as transparently as possible while respecting the bounds of commercial confidentiality in line with the clear guidance provided by the Scottish Public Finance Manual regarding investment in private companies including appropriate levels of due diligence and assessment of risk.
“Previous support was based on a careful evaluation of the circumstances and strong pipeline opportunities.
“Without majority shareholder investment in the company we have now exhausted the options for what financial support we can provide legally.
“We will continue to do everything possible to support the business while recognising the need for us to remain in line with State Aid regulations.”
A DF Barnes source stressed that it was part of the agreement that the Scottish Government would be the “primary financier of the business” after DF Barnes were invited by the Scottish Government to take on BiFab.
The source did not respond to a question asking how much the Canadian firm had pumped into the BiFab.
It has emerged on Friday that Lord Davidson QC, the former Advocate General for Scotland, has said in a legal opinion for unions fighting to stop BiFab’s closure that citing EU state aid rules as a reason for not providing a financial guarantee was “remarkable” given the Brexit transition period is about to end.
He added that Scottish Ministers could have “deferred” the decision until Brexit is fully implemented on December 31st.
He added: “It appears to be an excess of caution for ScGov to inform BiFab a guarantee would be illegal.”
Suggesting the move could be open to judicial review, he added: “If it is correct ScGov did not test the commercial market in respect of the guarantee (and that might include advice from market players), did not at least consult with HMG [Her Majesty’s Goverment] and there was no immediacy in respect of delivery of the guarantee then the decision looks to be irrational.”