BUSINESS/ECONOMY

The fall of a business giant

Chris Wood April 22 1985
BUSINESS/ECONOMY

The fall of a business giant

Chris Wood April 22 1985

The fall of a business giant

BUSINESS/ECONOMY

Chris Wood

The offices once occupied by Crosbie Offshore Services Ltd., a St. John’s ship-leasing firm declared bankrupt late in January, were silent and in disarray last week. The company name had been removed from the front door. Rags and paint cans cluttered the reception area, and cabinet doors gaped open after the Royal Canadian Mounted Police had removed the company’s files. One floor up, Andrew Crosbie, once touted in financial circles as the richest man in Newfoundland, the younger brother of federal Justice Minister John Crosbie and chairman of the board of Crosbie Offshore, sat amid Inuit art and contemplated his shattered fortunes.

Five kilometres south, on the other side of the city, late winter snow drifted around the monogrammed, wrought-iron gates to the home of Capt. Richard Spellacy, Crosbie Offshore’s highliving president, who is wellknown for his expensive tastes—including a collection of opals and a $90,000 Maserati. A servant tells visitors that Capt. Spellacy, who is also Andrew Crosbie’s brother-in-law, is in the Far East, his return uncertain.

With the failure of Crosbie Offshore, which at its height in 1982 operated a fleet of nine highly profitable ships that supplied offshore oil-drilling rigs, the collapse of the Crosbie family’s once thriving business empire is now complete. When Newfoundland Supreme Court Judge Noel Goodridge declared Crosbie Offshore bankrupt on Jan. 25, he said that the company had improperly withheld money both from its German partners and Revenue Canada. Goodridge added that some of Capt. Spellacy’s actions “smacked of fraud.” Then, in mid-February the RCMP raided the offices of Crosbie Offshore and began a criminal investigation. Still, insists a close business associate who asked to remain anonymous, the court trial and failure of his business have not noticeably harmed Andrew Crosbie’s reputation among his business peers. Said the source: “He is pitied but not resented.”

It is all far removed from the promising days of 1979, when Spellacy, a globetrotting Australian sea captain, and Crosbie, a member of both the Newfoundland aristocracy and the Canadian establishment, joined forces to tap the oil exploration frenzy that was about to

grip the province. In early 1979 Spellacy, who had worked in St. John’s in the mid1970s as a port captain for Federal Commerce and Navigation of Montreal, returned to the province with rumors that Mobil Oil Canada Inc. of Calgary was planning to announce a major oil discov-

ery off the Newfoundland coast. Crosbie knew that the oil companies would need local supply ships to serve their $45,000-to-$300,000-aday oil-drilling rigs. As a result, the two men quickly formed Crosbie Offshore as a new division of Crosbie Enterprises Ltd., the holding company for Andrew Crosbie’s widespread business interests.

By October, 1979—a month before Mobil announced its now-famous Hibernia oil discovery —Spellacy had lined up a

source of supply vessels with Bremen, West Germany-based Vereinigte Tanklager und Transportmittel Gmbh, (VTG), which owns the world’s third-largest fleet of supply boats. Then, Spellacy flew to Calgary and contracted with Mobil to rent two supply boats—at up to

$10,000 a day each—for two years.

The deal with VTG proved to be extremely lucrative, VTG leased the boats to Crosbie OSA Ltd., a joint venture company set up by the Germans, Crosbie and Spellacy for administrative purposes, which in turn re-leased the ships

to the oil companies. Crosbie Offshore, owned 51 per cent by Andrew Crosbie and 49 per cent by Spellacy, as the Canadian agent, handled local operations. It earned lucrative fees, including five per cent of the value of all fuel, food, supplies and maintenance bills, a brokerage fee of 2.5 per cent of the boat rental and a crew fee totalling 15 per cent of the ships’ payroll. During the civil trial, Spellacy told the court: “The company consistently made in excess of $500,000 a year. Its

best year was slightly over $1 million.” Added Edward Roberts, VTG’s St. John’s lawyer: “It was a frigging cash machine.”

But by early 1984 the company was in serious trouble. Crosbie Offshore’s cash flow was burdened by principal and interest charges of more than $500,000 a year on nearly $6 million in debts that had been transferred to the company when Crosbie Enterprises collapsed in 1980.

At the same time, Spellacy continued his heavy personal spending. He earned a $222,000 annual salary, and leased a $l,600-a-month navy blue Maserati Quattroporte. And one expense account included an $8,800 claim for duty paid on imported wine. In 1982 the company also paid Spellacy a $552,000 dividend, and it bought several hundred opals from him for $192,000. Evidence presented at the trial also showed that from 1980 until its failure Crosbie and Spellacy drew an estimated $6 million out of Crosbie Offshore.

For Andrew Crosbie, 51, Crosbie Offshore’s failure was the final blow to a business empire that at its peak in the mid-1970s employed 2,400 people in more than 40 companies with revenues of more than $150 million a year. It was also a personal humiliation for a man who, by his own admission, is “faulted with a little bit of ego.”

Crosbie inherited both fortune and position. His grandfather, Sir John A. Crosbie, founded the family business in 1902, and Newfoundland’s seat of government, Confederation Building, was built by the family firm. When his father, Chesley Crosbie, died in 1962, Andrew took over the family’s interests in construction, insurance, shipping, fish products and Eastern Provincial Airways. (His brother John has not been involved in the family business since 1969.)

But Andrew Crosbie kept his hand in politics as well. In 1969 he managed his brother John’s unsuccessful campaign to replace Joey Smallwood as the head of the Newfoundland Liberal party, and in 1971 he ran Smallwood’s last, failing election campaign. Crosbie’s political influence faded under the Conservative governments of Frank Moores and Brian Peckford, but he remained an influential presence in Newfoundland business circles.

Much less, however, is known about Richard Spellacy. The marine consultant and deep-water ship’s master met Crosbie in 1978, and in 1979 Spellacy married Charmaine, the younger sister of Crosbie’s second wife, Carolyn. That same year Crosbie and his new brotherin-law formed Crosbie Offshore.

For Andrew Crosbie, creating the new division, which in early 1980 became a

separate company, was a welcome upturn in a career that had suddenly gone sour. During the late 1970s many of Crosbie’s companies started to falter, the victims of high interest rates and a declining Maritime economy. In 1978 Crosbie sold Eastern Provincial Airways. A $35-million downtown St. John’s office complex, Atlantic Place, which he had opened in 1975 and that had remained largely unrented, was seized by the Canadian Imperial Bank of Commerce in 1981. By early 1982 more than two dozen Crosbie companies went bankrupt or were sold to help pay debts of more than $30 million.

At the same time, Crosbie’s doormaking company, St. Lambert, Que.based Ambassador Manufacturing Co. Ltd., was $5.9 million in debt—including $3.75 million in loans guaranteed personally by Crosbie to the Bank of Montreal. In a clever financial manoeuvre in May, 1980, he arranged for Crosbie Offshore to take over Ambassador’s debts and begin writing them off against Crosbie Offshore’s own profits.

But Crosbie’s other companies continued to deteriorate, and in July, 1982, the Bank of Montreal placed Crosbie Enterprises into receivership, leaving Crosbie Offshore as the only profitable concern. Later that year the bank helped to arrange a complicated financial manoeuvre that turned his $3.75 million in

personal loan guarantees to Ambassador into a secured claim against Crosbie Offshore’s assets.

With the debt issue temporarily resolved, however, a more serious problem arose. In mid-1983 Crosbie’s German partners, VTG, discovered that since early 1980 Crosbie Offshore had been withholding the monthly ship rental fees for 30 days, rather than forwarding the money immediately to a joint company bank account used for the supply venture. The cash, which often totalled $1 million a month, was deposited in interest-bearing accounts, and Crosbie Offshore kept the earnings instead of sharing them with VTG. The Germans demanded their withheld money, but the company managed to stall them for more than a year.

Then, at a July 25, 1984, meeting in Crosbie Offshore’s offices, VTG’S president, Heinrich Sikora, insisted that the company immediately hand over $871,000 in withheld ship rentals. Spellacy admitted that the money was not available. The Germans responded by refusing to give Crosbie Offshore money to pay ship-related bills. Then the Newfoundland firm started to miss making payments to some of its creditors. One company, a St. John’s travel agency, even accepted some of the company’s opals in partial payment of an overdue account. And a small Nova Scotia-based

shipyard, Mulgrave Machine Works, successfully seized one of the German ships, the MV Kaubturm, for $63,000 in unpaid charges. But Roberts declared, “Sometime in 1984 they [Crosbie and Spellacy] began dipping into OUR{VTG’S] money in order to pay their own hefty salaries and meet payments on the Ambassador loan.” The Germans estimate that Crosbie Offshore owes them nearly $2 million, and the court’s accounting firm is now determining the exact amount owed.

By late November negotiations between VTG and Crosbie Offshore to salvage the situation had broken down, and on Nov. 25 VTG petitioned the company into bankruptcy. Following the trial, trustees discovered that Crosbie Offshore’s bank account held only about $10,000, while its unpaid bills totalled an estimated $6.3 million.

Until the RCMP investigation is complete, observers say it appears that the damage to Spellacy and Crosbie’s reputations is greater than the harm done to their financial positions. In his four years as president of Crosbie Offshore Spellacy received $2.2 million in salaries and benefits. But Crosbie still owns substantial tracts of St. John’s real estate. “Andrew’s tough,” said an associate who knows him well.“He’s got his fingers in a few pies. I don’t think he’s to be written off.”&t;£>