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BP Business Economic Loss Claim Appeal 2017-806: Start-Up Financials Must Show Actual Pre-Spill Operation Not Just Preparation For Operation


The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms

Claimant is a motorcycle, ATV and watercraft dealership , filed a BEL claim which was dismissed because the Settlement Program found that Claimant was not doing
business or in operation at the time of the Spill.  Claimant appeals, contending it ” incurred significant and substantial expenses in setting up the business prior to April 20, 2010, had day-to-day business operations including forming the new business, the transfer of the business, hiring professional services (accounting and legal), obtaining manufacturer licenses for the dealership, obtaining insurance and bonds, paying salaries for two officers, and received income (albeit minimal) in March 2010.”
Claimant purchased an existing boat and sports dealership in March 2009. Claimant is not suggesting it can piggyback onto the operating history of this entity but, instead, contends its activities and financials evince its own operating history prior to the Spill. A review of the financials reveals minimal income under the category of GOGS and a few months rent received. The P and L’s show no sales before the date of the Spill. However, as Claimant points out, despite a paucity of operating income, a company can still prove an operating history before April 20, 2010 if the entity can demonstrate adequate expenses before the operative date.
Unfortunately for Claimant in this case, the expenses must be indicative of the actual operation of the business and not just evidence that the entity is preparing to do business. The type of costs required to meet the burden in the face of an absence of operating income include such items as advertising or marketing costs, employee salaries, inventory purchases, etc. Claimant did not have these type of expenditures pre-Spill in this case. Claimant shows only salary for officers, interest expense, depreciation, accounting and legal fees, insurance cost, tax expense and utilities. These type of expenses have consistently been found to be indicative of preparation for
starting a business, as opposed to the actual operation of the business. Claimant does show a $150 marketing expense pre-Spill but this expenditure is not enough to establish an operating history without other more substantial indicia of operations.
Accordingly, the Program’s finding that Claimant cannot show an operating history pre-Spill is found to be correct and Claimant’sappeal is dismissed.

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