Pass the Portfolio: explanation from Cult Wines Ltd to Premier Cru investors

Below is an email message sent on Thursday 7th August by Cult Wines Ltd to a client of Premier Cru Fine Wine Investments Ltd. 

It is clear from a number of messages that I have received that some clients of Premier Cru are not happy with the situation they now find themselves in. One area of unhappiness is the increase in the annual management fee from 1.75% with Premier Cru to 5% for the first two years with Cult Wines. It may be that the answers and explanations Cult Wines Ltd offer below provide the reassurance they want.

There are, however, some crucial pieces of information missing that would assist Premier Cru investors in deciding what is their best option. 

These include: 

the name of the company making the arrangements for Premier Cru to go into liquidation. It would appear that the creditors' meeting is on 14th August when a liquidator will be appointed. 

Will the liquidator be prepared to release wines in Premier Cru client accounts to individual investors if their ownership can be clearly established. It would appear reasonable to assume that they will as the individuals' stock rotation numbers were included in the letter sent out by Premier Cru Fine Wine Investments Ltd on 31st July 2014. Furthermore Cult Wines Ltd' proposal to manage the stock held in bond by clients of Premier Cru also assumes that ownership and title of these stocks is clearly established.  
 
If the liquidator is prepared to release these wines to investors, then Premier Cru clients will have various options: opening their own account at a bonded warehouse – EHD would be the most logical in this instance as the wines are currently stored there and their fine wine facilities are good. Alternatively, as an alternative to the Cult Wines Ltd, they could consider dealing with storage/management companies like Arc Reserves, Nexus or Private Reserves – see my previous post here. Clients wanting to sell would be in a position to approach a number of merchants to see who is offering the best deal. Though be warned the prices have been falling since 2011, so now is not an ideal time to sell.

Wine funds 
There is a further option that Premier Cru clients may want to investigate  – exchanging the value of their wines into shares in a wine fund. This possibility has been suggested to me by Miles Davis, a director of Wine Asset Managers (WAM). These funds are similar to a unit trust and as they are collective investment schemes their management is regulated by the Financial Conduct Authority (FCA).  The FCA insists that certain criteria have to be met before someone is allowed to invest in one of these funds.

This means that there would be a minimum sum required – Davis has indicated for WAM this would be £10,000. Among other criteria a Premier Cru client would have to show that they are a 'sophistcated' investor and that they understood the nature of collective investment schemes. Naturally WAM or other funds would only be interested if they wanted your wines.

Clearly any investor considering transferring into a wine fund would want to do their own due diligence to establish whether this is a viable and attractive option for them.     

What is the total shortfall of stock? Does this solely relate to en primeur orders that have yet to be bottled and delivered to the UK? Or is there a shortfall of bottled stock that should have been in Premier Cru client accounts? If the shortfall includes wines from more highly regarded vintages, such 2009 and 2010 Bordeaux, how is offering the inferior 2013 as a replacement an attractive proposition. 

From the Cult Wines email (below):  

'-  Is it possible to receive alternative wines to that of the Bordeaux 2013 that is being offered to make up my shortfall?

No, only wines from the Bordeaux 2013 vintage are available to be supplied in order to make-up for the shortfall in your account.'

This suggests that there is a shortfall in bottled wines that should be in clients' accounts at EHD. Why are these wines missing?

Update (14.45 8.8.2014) 
One Premier Cru client reports that in late May/early June 2014 £3000 worth of stock was moved out of his in-bond wine portfolio and sent to Asia without his knowledge and permission. It is not known whether this is an isolated incident or whether there is a large black hole in the wines that should in portfolios held by Premier Cru.    

       

'From: "Premier Cru" <premiercru@cultwinesltd.com>
Date: 7 August 2014
To:  

Subject: Premier Cru - Important Information

Following the recent communication that you received from Premier Cru advising you of their decision to close the business due to ill health, we felt it appropriate to contact you and provide greater clarification of the terms being offered by Cult Wines should you choose to move your account under our management.

This particular option is of course very relevant to those clients who may have been advised of the stock or cash shortfall which exists on their account, we have also noted several questions relating to the fee structure and therefore thought it timely to summarise those key points which will help to clarify the term on offer.

FAQ

-          Are Premier Cru able to sell my wine holdings for me?

-          Premier Cru are currently closed, have ceased trading and are not in a position to fulfil their commitments

-          Premier Cru cannot therefore facilitate any sale of stock on your behalf

-          Premier Cru are unable to meet any shortfall in cash or stock that apply to your account as advised in the email or letter

-          Premier Cru cannot fulfil any payments due for ‘cash on account’

-          Premier Cru are not in a position to offer any services relating to your current holdings

-          If I don’t want to move over to Cult Wines and want to liquidate my investment, how can I do this?

If you don’t want to accept the terms offered by Cult Wines, then you will remain a client of Premier Cru which following 14th August will move into liquidation. Depending on the number of clients that remain and amounts owing to creditors the company will go into either a solvent or insolvent liquidation.

  

As a remaining client you will have to liaise with the liquidators in order to access the stock stored in your reserve account under your name. Once you have received the stock belonging to you from the liquidators, you will then require a wine company to sell your wine for you. Typically the charge for selling wine is 10%.

-          Are Cult Wines able to facilitate the sale of my stock if I want to exit the market?

If you agree to the transfer of your stock to Cult Wines, then we will be able to help facilitate the sale of your wine stock. We will charge a reduced fee of 5% to liquidate your wines through us, this having paid the initial 5% 1st years’ management to transfer your account to Cult Wines.

-          How much are my current holdings worth? Can I have a valuation?

Upon transfer of your account to Cult Wines we will create an online account for you, whereby you will able to log-in and access live market valuations of your stock provided independently by Liv-ex.

Unfortunately due to time constraints and the large volume of enquiries we can only confirm the stock currently held in your name.

-          Are the Cult Wines fees based on initial purchase price or current market price?

The initial 5% first year’s management fee will be based on the total valuation of your holdings once Cult Wines have filled any shortfall you may have with stock. This will be calculated using the mid-market price as provided by independent valuers liv-ex.

-          If there is a discrepancy on my account, how can I best solve this?

With regards to any discrepancy that you may note with reference to the holdings as detailed in the communication, please note that we will be undertaking a full reconciliation & valuation on all accounts for those clients that transfer to Cult Wines Ltd

-          I don’t have cash shortfall, if I decide not to move over to Cult Wines what are my options?

As explained earlier, you will remain a client of Premier Cru, which will move into either a solvent or insolvent liquidation depending on the uptake of clients to Cult Wines’ offer.

It will be your responsibility to then liaise with the liquidators to gain access to your holdings and arrange for any en primeur orders to be delivered.

-          If I do have a cash shortfall and I don’t want to move over to Cult Wines what are my options?

You have a cash shortfall on your account, Premier Cru will be unable to pay this back in cash or assets, therefore you will need to apply as a creditor to the liquidator to try and attain some of what is owed to you.

The stock held in your EHD account, will still remain in your ownership and you will have to again liaise with the liquidators for the release of this stock to you,

-          Is it possible to transfer my wines to another wine company?

If you decide to reject the offer from Cult Wines and move your stock to another wine company, as stated above it will leave you as a client of Premier Cru and you will need to make arrangements with the liquidator for the release of your stock.

-          Is it possible for EHD to release my wines to me, so I can store in my own account? 
As the client accounts are sub-accounts of the main Premier Cru umbrella account, it won’t be possible for you to have EHD release your wines without permission from Premier Cru. As PCI is moving into a liquidation it will then be the responsibility of the liquidator to make these arrangement for you.

-          If I have En Primeur in my portfolio, how will I take delivery of this?

If you have outstanding primeurs which require delivering to your account upon physical bottling in the Spring of next year, if you become a client of Cult Wines we will arrange the collection of your stock from the supplier in Bordeaux and have it transferred to your account.

If you don’t become a client of Cult Wines, you will have to make arrangements with the liquidator to take delivery of your stock when it becomes physical in 2015.

-          Why are the fees so high moving to Cult Wines?

Service Fees – In order to explain the rates being quoted for years 1 & 2, our 5% annual charge for years 1 & 2 are linked to a reducing liquidation fee so should you decide to exit on either year 1 or 2 the total cost will not exceed 10% which matches the current cost for liquidating your portfolio at the prevailing market rates

By Year 3, the fees will revert to the original service charges offered by PCI of 1.75% p.a & 0% fee to liquidate.

-          When are fees payable to Cult Wines?

Upon transfer of your account to Cult Wines, we will issue you an invoice for fees which will be payable by the end of September 2014.

-          What service are Cult Wines offering?

Our proposal is linked to a range of market leading services which are included in the annual charge, but our main focus is on providing each client with a full assessment of their current holdings, a strategy for moving forward with a dedicated portfolio manager to ensure you receive a full private client service.  You will also receive access to oru online portfolio management tool which will allow you to see real-time valuations of your wine portfolio as provided by an independent valuer (Liv-ex) as well as access to your stock holding information.

If you decide to move your account to Cult Wines and wish to re-balance your portfolio through recommended sales and re-investment, Cult Wines will levy no charge for doing so.

-          Can I offset my shortfall against fees owing?

Unfortunately, all client shortfalls will be made up with stock to the market value of that shortfall and this cannot be offset against fees.

-          What are the costs if I don’t move to Cult Wines?

If you don’t decide to accept the offer of moving to Cult Wines, you will remain a client of Premier Cru which as a company will move into a liquidation following the transfer of the remaining client accounts to Cult Wines.

It will then be the responsibility of each individual client to liaise with the liquidators in order to receive the wines being held in your storage account at EHD.

-          The deadline is August 14th, can I have longer to consider my options before making a decision?

Due to the deadline needing to be met for Premier Cru to move into a solvent liquidation, clients are required to make a decision before August 14th as to how they wish their account to be handled.

It is therefore imperative that you provide a response no later than August 14th to ensure you retain the opportunity of accepting our terms & conditions as currently offered to Premier Cru clients

-          Is it possible to receive alternative wines to that of the Bordeaux 2013 that is being offered to make up my shortfall?

No, only wines from the Bordeaux 2013 vintage are available to be supplied in order to make-up for the shortfall in your account.

-          Who is the best person to speak to about my account and answer any questions I have about the proposed transfer?

Please direct your phone calls to 0208 332 9386 where our team are waiting to assist you, emails should be directed to premiercru@cultwinesltd.com

Please be aware we endeavour to answer every client as quickly as possible, but with the volume of enquiries received it may take us a bit of time to get back to you, please bear with us.

We trust clients will view our proposal in a positive manner and look forward to discussing your portfolio with you personally.

Best Regards,'

Other posts on Pass the portfolio here and here.