The nationalisation of the shipyard company at the centre of Scotland's ferry building fiasco has been plunged into chaos as it emerged the deal that paved the way for the state takeover is being challenged in the courts.

Ministers said they had reached an agreement with an American insurance firm to wipe out ferry completion bonds that ensured £25m in default payments would be paid over the collapse of Ferguson Marine Engineering Ltd (FMEL), forming the secret pathway to a state takeover.

The performance bonds acted as a £25m 'insurance' against the company going under and would allow for the completion of two lifeline ferries.

But it was highlighted to ministers as early as August, 2017, that Texas-based insurance firm Tokio Marine HCC which provided the "surety bonds" to ensure the delivery of the ferries had as a result a legal hold over the assets of Ferguson Marine, including the shipyard and equipment.

READ MORE: Revealed - Ministers' secret path to the controversial state takeover of Ferguson Marine

In June, 2018, after ministers had provided a £30m loan to the ailing shipyard, it was noted that if Ferguson Marine fell into administration - that 'security' would stand in the way of any state takeover.

Surety bonds are common business pledges to pay a sum if one party fails to meet certain obligations to another, such as failing to fulfil the terms of a contract and usually provides payment protection to subcontractors and suppliers.

Ministers confirmed to the Herald on Sunday only that a "substantial amount" of the £25m was paid by Tokio Marine subsidiary HCCI in a deal that meant the release of its hold on Ferguson Marine and allowed Scottish ministers to take control of the business.

Now it has been confirmed by court officials that HCCI is taking ministers to court over the payment in a move that raises questions about the state ownership of the shipyard.

A Scottish Government spokesperson said: “We cannot comment on a live court case.”

The developments over the deal which wiped out 'default' payments caused by the FMEL financial collapse emerged as the now state-owned company seeks to deliver the two lifeline island ferries MV Glen Sannox and Hull 802 which have been delayed by a further six months as a result of the coronavirus pandemic.

The further delays mean that the delivery of both ferries, which were due online in the first half of 2018, will be between four and five years late.

Tycoon Jim McColl-led FMEL went into administration in August, last year following a dispute with Caledonian Maritime Assets Ltd - the taxpayer-funded company which buys and leases publicly owned CalMac's ships on behalf of the Scottish government - over the construction of the ferries under a £97m fixed price contract.

The Herald:

The Scottish Government then pushed ahead to take full control of of the shipyard company as it went under with blame attached to soaring costs of the ferry contract - which have now more than doubled.

Ministers believe they were acting in the public interest in taking control of Ferguson Marine, as it saved the yard from closure, rescued more than 300 jobs and ensured that the two vessels under construction will be completed.

A source said: "Agreement was reached with HCCI to release them from a performance bond they had provided for Fergusons.

“The agreement saw HCCI pay a substantial sum of money to CMAL in return for the bond not being claimed. The figure paid is commercially sensitive.

“It is important to note that if CMAL had claimed under the bond then HCCI would have controlled the yard under the terms of the agreement they had with FMEL.

“This would have meant no certainty around jobs at the yard or the delivery of the vessels - and would potentially have led to major job losses."

Details of the legal action emerged after the Herald on Sunday questioned why ministers felt that the amount paid by HCCI that allowed public ownership to take place should remain a secret. Ministers are yet to respond.

CMAL, however, confirmed that it could not discuss the amount of the settlement because it was subject of court proceedings.

"This exemption applies to civil as well as criminal proceedings. The proceedings we refer to is the claim recently raised in the Commercial Court of the Court of Session by HCCI against the Scottish Ministers, which directly concerns the subject matter of your request. Defences have been filed and that case is now live."

The secret deal between HCCI and the Scottish Government was hatched as FMEL executives lodged complaints just before the firm went under, saying ministers were not serious about keeping it afloat and were keeping them out of vital discussions.

Documents show that even two weeks before FMEL went into administration, directors thought ministers were still trying to pursue what they called 'the solvent solution' involving keeping it entact as a private business - while behind the scenes ministers had created a pathway to nationalisation.

After falling into administration in August, last year, former FMEL managers subsequently accused the Scottish Government of having no serious intention of leaving it in private ownership while being warned nationalisation would be subject to EU state aid laws.

They accused ministers of forcing it into insolvency by rejecting a plan that would avoid any state aid claim, save the taxpayer at least £120m and prevent the costs of building two key lifeline ferries soaring to over £230m.

The Herald:

A report by consultants PwC to ministers in considering options for Ferguson Marine's financial position three years ago highlighted that any agreement to amend the HCCI surety bond was "significantly unlikely to happen" and that "there are very few commercial reasons that would motivate them to make any amendments to this arrangement".

But a recent analysis of the Scottish Government's position, it has confirmed that talks took place between ministers and HCCI before FMEL fell into insolvency to "understand its intentions and consider what implications this would have for us, both in our role as second ranking creditor, and for our wider interests".

A statement signed off by ministers stated: "An agreement was reached between HCCI and CMAL that would see HCCI pay a negotiated amount, release its securities and CMAL agree not to call the bonds. This allowed for the option of Scottish ministers’ control of the business in the administration period.

"The administrators of the business, Deloitte, commercially marketed the business and sought and received bids from prospective purchasers.

"At the conclusion of this process, the Scottish ministers’ bid was identified as representing the best return for creditors, and thereby the successful bidder. Had an amicable commercial solution not been available this could potentially have seen a significant period of disruption and inactivity at the site – and potential substantial costs during that period."

The Herald on Sunday previously revealed that ministers had ensured there was a "right to buy" a year earlier when giving FMEL a £30m loan, knowing it was creating a path to state ownership.

Documents revealed ministers were making financial arrangements should the shipbuilder fall into administration two years before its financial collapse in August, last year - offering a £15m loan a month later.

While finance secretary Derek Mackay was telling the public a further £30m loan a year later was “to further diversify their business", internal documents state the real reason was that Ferguson was in financial trouble and at risk of falling into administration.

According to the latest financial statements over the administration, the Scottish Government is still owed over £40m from the collapse of FMEL having using £7.5m of what they were owed to buy the business. They would only expect to get a tiny fraction of that debt back.


March, 1903: Ferguson Shipbuilders lease the Newark Shipyard in Port Glasgow for £500 a year and secures its first order for two steam tugs.

August, 2014: Ferguson goes into receivership with the loss of up to 77 jobs.

September, 2014: Clyde Blowers Capital, an industrial company owned by tycoon Jim McColl, purchases the yard for £600,000 and renamed it Ferguson Marine Engineering Ltd (FMEL).

August 2015: Government-owned Caledonian Maritime Assets announced that an order for two ferries for publicly owned CalMac capable of operating on either marine diesel oil or liquefied natural gas, had been won by Ferguson.

August, 2019: The directors of FMEL gave notice that the company would be put into administration after a failure to resolove a dispute over increased costs and delays to the construction of the ferries.

December, 2019: The government takes over ownership of the shipyard, writing off about £50 million of previous loans.

January, 2020: A Scottish Parliament inquiry is told that the large ferries MV Glen Sannox and Hull 802 were "significantly less than half built".