Shetland's first whisky on the rocks hit by credit crunch and divorce court

BLACKWOOD Distillers, the spirits group aiming to build Shetland's first whisky distillery, has suspended the project amid difficulties with financing.

Caroline Whitfield, the chief executive of the Lerwick-based firm, first unveiled plans in the autumn of 2002 and initially aimed to open the distillery by the end of 2004, but planning and other delays meant the target was put back to late 2007.

To fund Blackwood's £5m distillery, the firm produces and sells high-end, specialised spirits. These include a vodka, gin and vodka cream. It recently launched Diva vodka, which uses a diamond filtering-system and comes with Swarovski crystal gems suspended in the middle of the bottle.

But the distillery project has now been further delayed as the funding package Whitfield put in place has been held up by her divorce, while the company that produces its gin and vodka brands has fallen into administration.

Whitfield admitted that the project has been hit very hard by the credit crunch, but insisted that it was now on a firmer financial footing and that an announcement on construction of the distillery at Catfirth, Nesting, was due soon.

She said: "The reality is the credit crunch has really affected us. It is virtually impossible to get growth finance at the moment, which means that creditors are jumpy. The funding package we have is subject to me finalising my personal circumstances, in particular a financial court decree post my divorce. As I am a significant shareholder, the investors want to ensure that their investment is not subject to any wrangling in a divorce settlement."

Whitfield insisted that Blackwood's gin and vodka brands were still trading, but following strong pressure from creditors, Shetland Spirit Company, a subsidiary of Blackwood Distillers Holdings, was put into administration. The spirits will now be distributed under licence by the Aim-listed Blavod spirits firm.

Whitfield added: "It is not liquidation, it is not the horrible end of things, we just had to put the spirits company into administration to protect all the creditors. But the brands are likely to grow and flourish under a larger partner than ourselves.

"We couldn't start work on the distillery until I got the white spirit business sorted; that is now done. I needed to get my divorce terms sorted and that will be coming through, then further investment will be coming through from there."

In 2006, Blackwood teamed up with the Scottish entrepreneur Frank Strang to announce they would spend £5m converting part of the Saxa Vord base on the island of Unst into a whisky distillery. A year later it was forced to abandon plans to redevelop the RAF site after agreement could not be reached with Military Asset Management, the owner of the camp.