Norton Motorcycles caught in regulator headlights following controversial collapse
Regulators are circling Norton Motorcycles after the collapsed firm went into administration leaving empty-handed customers and pension holders furious.
Reports of bikes not delivered despite significant sums being taken, multiple winding-up orders, pension deficiencies and irregular investment patterns have led authorities to begin probing the 122-year-old business’s activities.
The pension ombudsman has opened an investigation, and it is understood fraud officials, and financial watchdogs are also closely monitoring the situation.
A Serious Fraud Office spokesman told AccountingWEB they “could not confirm or deny” an investigation was underway.
Norton’s problems fall outside the remit of the Financial Reporting Council, as it is not a major listed company, but the FRC said it will be monitoring the work of the accountancy professional bodies who are obliged to investigate issues of wrongdoing by the firm.
“This is a sad story for many people, as I remember my late father-in-law talking fondly about how he spent hours stripping down Norton motorbikes in his garage,” said Stuart Evans, commercial litigation partner and specialist in business disputes at law firm BLM. “It is an iconic British brand, and the news of the company entering administration will come as a blow to many fans.”
Norton Motorcycles, founded in Birmingham in 1898, was rescued by the current owner Stuart Garner in 2008, who moved the historic brand to Leicestershire. Garner restored some of the business’s former glories making high-end bikes such as the V4RR and Dominator, retailing for tens of thousands of pounds, but the brand has repeatedly flirted with failure.
Cash flow problems almost led to the company going bust in 2012; however, Garner managed to raise extra capital to keep the Castle Donington business afloat. Cracks began to appear in August 2019 when DHL International issued a petition to wind up Norton Motorcycles, which was published in The London Gazette.
The petition was later withdrawn; however, in January representatives from Norton did appear at the Insolvency and Companies Court in London to contest a separate winding up petition with regard to the unpaid taxes, this time having been served by government tax officials.
Garner said the company could cover the £300,000 bill with R&D tax relief it was owed, but it later emerged HMRC was demanding around £600,000.
That case has been adjourned until February 12.
Customer and investor anger
In November 2019, Norton launched a share scheme in a further bid to raise cash, but controversy over Garner’s methods led to the withdrawal of the programme.
The Pensions Ombudsman has confirmed it is investigating new complaints from the 228 investors who put their savings into three pensions schemes linked to the motorbike business, but who are now struggling to obtain returns.
Local media has reported motorsport fans taking so social media to complain that having paid upfront, in some cases tens of thousands of pounds, their brand-new bikes haven’t arrived, forcing them to involve Trading Standards.
The firm’s collapse came last Wednesday (29 January), when administrators BDO were called in by Norton’s financiers at Metro Bank, who unsuccessfully attempted to broker a solution that involved the bike firm paying its debts.
A Metro Bank spokeswoman said: “Having worked closely with the company for many months, we have acted in the best interest of the company’s stakeholders and employees, and on the basis of independent advice. We have therefore made the difficult decision to request the appointment of administrators.”
It emerged that Norton’s auditors had previously raised alarm in the company’s most recent accounts over US investments and stock quantities, and also stated suggested income and pre-tax profits had been “overstated”, and there was “material uncertainty” over Norton’s immediate future.
“We will get to know the full tale of the decline of such an iconic brand once the officeholders’ investigations are complete,” said Evans. “We have seen reports of unpaid taxes, complaints to the Pensions Ombudsman and auditor queries over its accounts, so there is a lot to unpack.”
Until then, Norton fans must wait for the detail of those and any other issues arising from the investigations and their contribution to the firm’s downfall, experts agreed.
“The views of the former board members on these issues will be an important part of that process. This story is proof that the spectre of insolvency is real, and for many businesses, never that far away,” added Evans.
The collapse has left a trail of debtors from bike owners to the Leicestershire Enterprise Partnership, which lent Norton £750,000 to build a new factory at the company’s headquarters.
Speaking after HMRC’s winding-up order, Garner said he was “devastated” and had lost everything he had. A controversial, outspoken figure, Garner also attracted national attention as a bullish backer of Brexit, and his business was hailed by politicians as a British success story that would go on to greater heights once the UK left the EU.
Garner blamed the tough trading conditions caused by the uncertainties around the UK’s exit in part for the company’s downfall.
“It has become increasingly difficult to manufacture in the UK, with a growing tax burden and ongoing uncertainties over Brexit affecting many things like, tariffs, exports and availability of funding,” Garner said.
“The business has shown growing signs of distress over the past few years, with worsening creditworthiness and substantially growing negative working capital and shareholder funds position,” said Mark Halstead at financial risk and business intelligence firm Red Flag Alert. “Brexit uncertainty will have impacted these greatly, but all said they are a heritage brand with a great fan base and massive USA following, so there is hope for the company.”
Halstead said the UK striking a quick free trade agreement with the US would be crucial for any hope of survival for Norton.
Experts agreed the problems may have been exacerbated by Brexit, but there were many systemic problems already evident long before the UK referendum vote.
“It isn’t as simple as saying ‘Brexit has kicked us up the backside’, as owner Stuart Garner has claimed,” said Rick Smith, of company rescue specialists Forbes Burton. “Norton seems to have a chequered history in relation to their financial management which has culminated in an outstanding liability to HMRC."
As that the firm has entered into administration, the administrator must find out the issues and resolve them, Smith said, adding it may be difficult to find a buyer for the firm with such a catalogue of historical problems.
“With an unpaid tax bill of £300,000, they aren’t currently looking like an attractive investment for buyers,” said Smith. “The most likely outcome is that Norton will be liquidated and people who have paid money or deposits for motorcycles will fall in line behind HMRC and other creditors to receive any funds from the liquidation.”
The additional claims of fraud, pension mishandling, and misused government-backed loans are going to add to a very complex case which could take some time to unravel, Smith added.
“It is true that it has become increasingly difficult to manufacture in the UK, in part thanks to Brexit, but in this case, the root causes are the mismanagement of finances and seemingly poor leadership,” said Smith.