The Last Drop? Recovering Wine and Whisky Held by Insolvent Companies

Towards the end of the ultra-low interest period of the 2010's, investors searching for yield began looking at alternative asset classes. While some embraced emerging digital assets such as cryptocurrencies and NFTs, others followed the time-honoured investment maxim to "invest in what you know". Wine and whisky offered diversification from other asset classes, capital gains tax exemptions and the prospect of substantial returns.

In recent years, we have seen a number of wine and whisky investment businesses enter insolvency processes. These processes have left many small retail investors asking: how do I get my bottles back? 

In Wine We Trust

Trust claims are particularly valuable in the context of wine and whisky insolvencies because there is (hopefully) an underlying tangible item which may have value. A creditor that can establish a trust over that specific asset is deemed to have a proprietary interest in it, which puts that asset outside of the debtor's insolvent estate - and beyond the reach of other creditors. 

Although often argued, trust claims are highly fact sensitive. Let us assume you are the creditor and look at the steps involved. 

Information Gathering - What stock exists? Where is it?

Ponzi schemes have tarnished the reputation of the wine and whisky sector in recent years. The first step is therefore to determine if you have genuinely invested in something tangible. This may be not straightforward. While an appointed insolvency practitioner will have access to the premises, books, and records of the company, as a retail creditor you are limited to reviewing the initial sales documentation, information released during the insolvency process, and online sources. Sources of information may include:

• documentation received on purchase;
• statements or correspondence from the company;
• creditor groups and forums;
• publicly available records; and
• enquiries directed to the relevant bonded warehouse.

A bad sign is to find invoices or receipts are from a different entity than to which you made payment. Establishing the existence and location of stock at an early stage can significantly improve the prospects of recovery.

Distilling the claim 

A fundamental requirement of any proprietary claim is the ability to identify the specific property said to be held on trust for a creditor. The more precisely the goods can be identified and linked to your payments, the greater the likelihood of establishing a proprietary interest: 

• Good Claim - Customer A purchases Laphroaig Cask No. 123. The cask is individually labelled, segregated, and held within a bonded warehouse which records that it belongs to Customer A. Ideally, Customer A has their own account with the bonded warehouse. 
• Bad Claim - Customer B purchases 10 cases of Château Lafite, but the only evidence of ownership is an unspecific certificate of ownership which is recorded within an accounting ledger within the debtor company’s books. No specific bottles or cases have been earmarked, segregated or otherwise identified. The debtor company has sold more Château Lafite than it has in its possession. 

In short, the bottles must be ascertained as uniquely as possible, not only in terms of their own characteristics but also in terms of their source from the debtor's stocks. A claim asserting ownership over the debtor's sole bottle of 1982 Château Lafite Rothschild may not necessarily succeed if there is evidence to suggest that the debtor intended to acquire a new bottle for that creditor. 

Any mixing or co-mingling of bottles is often fatal to a trust claim, although not always. A creditor claiming ownership of an exact number of unidentified bottles forming part of a larger and identified set of bottles may have a position under the Sale of Goods Act 1979, which allows for ownership of goods as tenants in common with creditors making the same claim (highly factually specific). In certain circumstances, the proportion of wine held in a barrel is also an ascertainable quantity which can be successfully claimed to be held on trust on behalf of a creditor. 

You should therefore now review the information and documentation by the debtor. You are looking to show that the debtor company was storing (1) specific, ascertained good (2) on your behalf, (3) at the relevant date of insolvency. Consider: 

• cask numbers / barrel references / case or bottle numbers;
• warehouse location or account details; and 
• producer or distillery information, bottle vintage, or fill dates. 

How to retrieve the stock? 

In the best case, you have identified stock which is segregated in a third party bonded warehouse, and even more ideally stored in an account with the warehouse under your name. If you are able, you should remove the stock from that warehouse and store it with another provider. This is because, if the insolvent company had debts owing to the bonded warehouse in which the stock is stored, the warehouse may attempt to exert a lien over all the stock it holds. Although removal of the assets might feasibly expose you to claims of conversion from the office holder, it does substantially strengthen your negotiating position. 

In the more likely scenario and where you are unable to access the stock, you should write to the office holder to identify the stock which you believe to be yours, providing as much information as possible in relation to that claim. Include information as to the dates that payments were made. 

An officeholder should spend time considering trust claims lodged by creditors and may be able to assist by matching the information you have provided with internal information at the debtor. However, although trust assets do not form part of the debtor estate and will sit outside the statutory order of priority, an office holder incurring the costs of preserving, identifying, collecting or distributing trust assets may be entitled to an equitable lien or charge over those trust assets for the costs properly incurred in dealing with them. 

Any potential return is limited to the current value of the identified goods held by the company, rather than the full debt owed. Therefore, you should file a proof of debt with the liquidators  including as much detail as possible. 

Unfortunately, these insolvency processes typically take years, and you should expect dividends are paid towards the end of this process, if any is ultimately paid.

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Our team regularly advises creditors including High-Net Worth individuals and investors on improving their recovery outcomes on these types of matters. Our experience includes acting for bonded warehouses, dealing with counterfeit wines, and in the context of En Primeur futures. We typically provide an initial assessment of the grounds for a trust claim and file a proof of debt for our clients on a fixed fee basis.