Wednesday, 29 August 2012

Council Leader responds to Storey questions

Council Leader Eileen Blamire
As we reported in last week's e-newsletter, virtual-lancaster is trying to find out how the Council's £90,000 loan to failing company SCIC in December 2011 came to be authorised by the City Council's Chief Executive Mark Cullinan under emergency procedures.
(See Mr Cullinan's comments below, added 31/8/12)

We understand that the issue was raised by the Chief Executive in a question and answer session with selected councillors in mid-November, but no decision was taken at that session and we can find no reference to it in the minutes of any cabinet or council meeting until 1st February, when the full council was notified in the Leader's report that an emergency loan had in fact been made back in December. Cabinet met on 6th December 2011 and 17th January 2012 and the Full Council met on 14th December 2011.

Last week, we asked the Leader of the Council, Eileen Blamire, why this emergency decision was not discussed at the Cabinet or Council meetings in the intervening period.

Councillor Blamire has responded that:

"The decision was taken on December 20 2011.   There was only one meeting during that intervening period - Cabinet on 17 January - so there was no undue delay." 

virtual-lancaster also asked if the loan was made to this failing company with any conditions in place as to how the money was to be used or repaid?

Councillor Blamire told us:

"Yes there were conditions attached - the main part of the loan agreement is included in the public urgent business report that went to Council on 18 July."

The Council's had previously made a grant of more than £133,000 to SCIC (struggling even before the recession) over a three year period from September 2008, in the belief that the company would begin to break even by 2012.   As the £90,000 emergency loan made last December was intended to enable the failing company SCIC to meet costs vital to its survival, such as utility bills, we also asked if any additional measures were set in place to ensure that the loaned money would, in fact, be expended on those critical debts for which it was requested, and who was made responsible for overseeing this expenditure?

Councillor Blamire told us:

"As background, SCIC Ltd is a separate entity with an independent Board, which has full responsibility and accountability for  the company's performance and its financial management .  The Council is represented on that Board, but has no controlling interest.

"Specific arrangements were put in place as part of the loan agreement with SCIC. It was due to these arrangements that the financial difficulties were highlighted and confirmed. The Council initiated the default action, because it didn't get the required information through from the company.

"As a more general comment, the Council's aim in all this has been to support creative industries.  In doing so and as reported, it has provided financial support over a number of years to the company managing the creative industries centre.  It has known of the company's difficulties and has challenged that company over its performance and prospects.  The risks were well documented - even as far back as 2007 when it was decided to proceed with the Storey's redevelopment as a CIC.  The Council chose to accept the risks then, because it thought the benefits for creative industries outweighed those risks, and there was full awareness of the risks in granting the loan much more recently.  The decision to grant that loan wasn't straightforward though.  

"There were other complications attached to the VAT position for the building that could have exposed the Council to even greater financial risks - as well as all the difficulties and uncertainties for the sub-tenants and their customers, which we have seen in recent weeks. 

"The most important thing now is to work through the liquidation process and establish a clear way forward." 

virtual-lancaster understands meetings will be taking place shortly to discuss the matter further and what to do about the Tourist Information Centre, currently located in Lancaster Reference Library on New Street.

Update 21/8/12:
Virtual Lancaster also asked Mark Cullinan, Lancaster City Council's chief executive the following questions:

Can the CE comment on why the matter was not raised in any Cabinet or Council meeting during the period between  mid-November and February?

Can he clarify if the loan was made to this failing company with any conditions in place as to how the money was to be used or repaid?

Given that the council's previous oversight of this partner company had failed to avert this crisis, can he describe what additional measures were set in place to ensure that the loaned money would, in fact, be expended on those critical debts for which it was requested, and who was made responsible for this expenditure?

Mr Cullinan has replied as follows: 

"The reason why the decision to provide a loan to SCIC Ltd was taken under urgent business procedures is very simple.

"Important decisions such as this are only taken once all the necessary information is available and, in this case, this only became available after the meeting of Cabinet in December. The decision, however, could not be deferred to the next meeting of Cabinet due to the urgency of the situation.

"In such circumstances the council's constitution allows for an urgent decision to be made. 

"Although not a common occurrence, it is not unusual. Both the leader of the council and responsible Cabinet member were consulted and were in agreement with the decision, and the chairman of the Overview and Scrutiny Committee agreed that call-in should be waived.

"The decision was then reported to the next meeting of Council in February, as is required by the council's constitution. 

"Any implication that the correct procedures were not followed is incorrect."

Virtual-Lancaster has only the most tenuous grasp on what the correct procedures might be in such a case but the implication certainly appears to be that public money can in fact be loaned under these procedures to a long-failing company that has no visible means of repaying it.

Tenant companies occupying the Storey building on Meeting House Lane were hit by SCIC with a bill for £99,651 in additional charges just days after it received the City Council's emergency £90,000 'loan' which was intended to support these tenancies. Predictably, at this point some tenants felt forced to leave the building, with a resultant drop in its already inadequate income.


Anonymous said...

Virtual Lancaster is absolutely right to question why this £90,000 loan was granted. Unfortunately the answers above don't answer some key questions. These are:

1. Why loan taxpayers money to a technically insolvent company?

At the time of the loan SCIC Ltd had a credit rating of 8 out of 100; two unpaid County Court Judgements (CCJs) and a huge hole in its balance sheet. Furthermore its Chief Executive had an outstanding personal insolvency (IVA) against him Given all this was a company you should really loan money to?

2. Why not wait until the next Cabinet meeting?

Only with the disastrous decision to close the Tourist Information Centre have the City Council rushed to make a decision on the Storey so why rush this one? The loan was agreed on the 20th of December. With Christmas and New Year the next Cabinet meeting was only two weeks away. SCIC lasted over a year being technically insolvent and not paying staff on time, why not wait another two weeks?

3. Councillor Blamire says, "the Council's aim in all this has been to support creative industries". Was this really the case?

It is understood that one of the conditions agreed between SCIC Ltd and the City Council was to seek to claim SCIC's losses from the tenants. As a result, once the loan was in place, bills went out to tenants for up to £14,000 each. It increased the charge for rental and service charge from roughly £14 per sq foot to £27 per sq foot. As a comparison White Cross works out at around £11 per square foot. With no consultation prior to receiving invoices the Storey went into meltdown with solicitors appointed and tenants leaving in droves. Surely the City Council and SCIC should have realised the effect of their actions?

4. Have the Council really questioned SCIC's finances? Councillor Blamire says, "[The City Council] has known of the company's difficulties and has challenged that company over its performance and prospects". There is no evidence of this except one Cabinet meeting. For example, tenants have never been consulted by either the City Council or SCIC Ltd over the last two years. At a Cabinet meeting, under questioning from a Green councillor, the then Chief Exec of SCIC Ltd struggled to answer questions and there was shown to be significant holes in the finances, yet they were still accepted by Cabinet and a loan granted.

5. Was the the Chair of Overview and Scrutiny in possession of all the facts? "Chairman of the Overview and Scrutiny Committee agreed that call-in should be waived".

Given the above surely they would never have waived a call in.

The loan was granted so SCIC Ltd so they could pay particular creditors. Those creditors were never paid and the City Council subsequently made further payments to cover utilities.

Anonymous said...

How could a company that didn't exist before the recession, be "struggling even before the recession"? The SCIC opening was in May 2009, by which time the UK was in recession. Would be good if Virtual-Lancaster got obvious facts right ...