Gunboat International filed for Chapter 11 bankruptcy protection in November after a series of challenges during the past two years, but owner Peter Johnstone says the company is operationally poised to rebound.
“It’s unfortunate we have to go through this process, but we see our path through,” Johnstone says. “And we’re really touched by the support that’s been expressed from all corners. That really adds to our motivation.”
Documents Gunboat filed in U.S. Bankruptcy Court in the Eastern District of North Carolina say the company has between 100 and 199 creditors and assets of $1 million to $10 million.
A list of the largest 20 creditors amounted to roughly $6,025,845 million in claims, and documents filed in December showed that unsecured claims against the company total $10,133,947.32.
The company is producing one 55-foot yacht, has begun the production of its first 78-footer and is in negotiations on other pending and future contracts, court documents show. Gunboat employs 57 people whose “hard work, skill and continued employment are vital to the debtor’s operations and its reorganization efforts,” says a request to continue paying them.
Gunboat brought Barry Carroll on board six months ago as chief operating officer, Johnstone says, adding that Carroll and his wife, Janice, ran Carroll Marine for 20 years as Johnstone family business J/Boats’ largest competitor.
The Carrolls sold Bristol, R.I.-based Outerlimits Powerboats more than a decade ago. “He’s a really great industry figure, and operationally one of the strongest people I know,” Johnstone says. “He’s Gunboat’s new COO.”
A flood of responses on Facebook followed a post Johnstone made in November announcing the Chapter 11 filing, and as of early December there were nearly 400 “likes.” More than 150 comments encouraged the boatbuilder, who has spent 30 years in the industry and comes from a storied boatbuilding family.
Johnstone’s original post detailed the reasons for making the choice. “In a period of non-stop accolades and introduction of several terrific new models, Gunboat has been quietly struggling behind the scenes for nearly two years,” Johnstone says on his Facebook page. “It has been a perfect storm of adverse business circumstances, mistakes and disputes.”
Leading the list of challenges was the legal dispute between Gunboat and Hudson Yacht and Marine Industries, a Chinese builder Gunboat contracted to build the 60 and subsequently sued. Gunboat alleges in court documents that HYM never did some work and that the yard refused to pay warranty claims on other poorly constructed yachts.
Gunboat also accuses HYM of breach of contract, fraudulent inducement, interference with contractual relations, unjust enrichment, breach of a non-compete agreement and misappropriation of trade secrets. Court documents accuse the company and its owner of launching a “knockoff brand” of carbon fiber catamarans despite signing a non-compete contract. The issues prompted Gunboat to spend thousands out of pocket to fix the problems, according to the complaint.
HYM has denied the allegations, filed a countersuit and blames Gunboat for the problems.
Court documents also say there had been cost overruns. “The debtor began to experience financial problems as a result of cost overruns in the manufacture of its 55-foot series, with the costs for design and manufacture of the first yachts produced in this series exceeding the sale price for some of the yachts under construction,” documents showed.
“While later yachts in the 55-foot series were profitable, the debtor was unable to recoup sufficient proceeds from the later 55-foot yachts to offset the earlier 55-foot models. This led to the termination of several contracts that were in various stages of production.
“During this same time the debtor was forced to file a lawsuit against one of its boat manufacturers for defects in the manufacturing process and failure to honor the contractual warranty requirements,” papers say. “This caused the debtor to expend substantial funds making repairs and honoring these warranties. The debtor also had one yacht suffer damage during a test/photo shoot by a leading yachting magazine, resulting in negative publicity for the Gunboat brand.”
Also on Johnstone’s list was a G4 capsize in April and a recent photo boat collision during a magazine boat test in Annapolis, which Johnstone says has “thwarted” sales of the series. “The investment was made,” he says. “The return is in the future.”
The third item he says led to the Chapter 11 filing was the abandonment of Rainmaker by her owner and crew, which was “certainly not helpful to the new series,” Johnstone says.
That boat remains afloat in the ocean, he says.
“The boat’s tending to itself, even though the crew jumped off, through one of the worst winters on record in the North Atlantic,” Johnstone says.
One composites expert says he can’t think of any other structure that would have survived intact and afloat for 10 months.
Lastly, the ramp-up of production in North Carolina after the falling out with HYM took longer and cost more than expected, Johnstone says. “Operationally we already have [turned things around]. It’s just going to take me sorting through the mess of things that have happened.”
In the Facebook post, Johnstone says he was sure the situation would “be dissected” and that the company could have overcome one or two of the challenges, but not all four in a short period of time.
“They thought they could bury us, in my opinion,” he says. “And they’re going to find out we’re actually a bunch of seeds. We will come growing back with more motivation and conviction in our approach.”
Johnstone remains positive, saying a number of investors are interested in seeing the company succeed. Boats are being built, and Gunboat is meeting its plan for operating the business and recovering, he says.
“Chapter 11 is a heck of a tool the U.S. government provides to preserve jobs and preserve companies that should be preserved,” he says. “We’re going to use the law to see things through.”
He continues: “The thing that keeps me up at night are vendors and customers that will be affected, but I think that getting these boats out and getting great products out is the single best way to recover.
“I’ve been doing this 15 years, and I’ve been in this industry for 30. If you look at the economic impact of what has been created over the years, it’s a pretty small fraction of a percent, so I’m going to ask for forgiveness as best I can and make good on it, and live another day to create more economic activity.”
This article originally appeared in the January 2016 issue.