The Mayfair Cellars collapse could have massive consequences for smaller wine merchants – and could force changes in the en primeur system.
As decanter.com revealed in April this year, the London fine wine merchant went bankrupt as the result of a £1.5m fraud perpetrated by its finance director Dominic Smith.
Administrators Grant Thornton are in the process of sifting the financial records of the company to find out exactly how much money has been lost, and what can be recovered. At this stage total losses stand at around £3m.
The collapse of the company also means that hundreds of en primeur contracts will not be honoured. The company’s directors had no idea that negociants in Bordeaux were never paid for the 2003 vintage, which customers had ordered and paid for in the spring of that year. The majority of the wine has not been delivered.
Mayfair creditors – particulary the 50 or so individuals in Hong Kong – are furious they have lost their investment, and will certainly be instructing lawyers to recover what they can.
The fallout could result in far-reaching changes in the en primeur system, which requires wine buyers to pay up front for wine which is not yet bottled and which they will not see for three years.
The problem is title: Mayfair’s disgruntled creditors have proof of purchase but no claim on the wine that is now sitting in warehouses in France.
‘It is a ridiculous way to buy wine. It’s basically giving the chateau an unsecured loan in exchange for something you have no title to,’ one industry insider told decanter.com.
Andrew Hosking, of administrators Grant Thornton UK, said the case could be ‘a milestone’ in the industry.
‘One solution could be to pay money into an escrow account,’ he said. But this would not solve the issue of buyers being unable to prove their title to the wine.
What seems more likely is that en primeur buyers will desert smaller merchants like Mayfair in favour of blue-chip operations like major London merchant Berry Brothers, which has an accounting team of 10, deals only with the biggest 15 negociants, and is fully insured.
‘If the chateau burns down, we would pay our customers for the wine they had lost,’ said Simon Staples at Berrys.
The only way the system is likely to change is if customers refuse to pay up front for wine. ‘That’s unlikely to happen, even in an off-vintage like 2004,’ Staples said.
Written by Adam Lechmere