See update 6/11/12 below; Council Comments
In October this year, the city council forfeited the lease of the Storey Creative Industries Centre Ltd (SCIC), and took possession of the Storey Institute as a result of the company going into liquidation.
Clouds lurk over the doings of SCIC however, which are currently being investigated by liquidators. In July the City Council’s Budget & Performance Panel asked Council Officers to answer questions raised by Cllr Roger Mace about their ‘due diligence’ when approving a £90,000 loan to SCIC in December 2011.
The £90,000 loan request was the subject of an exempt Urgent Business Report on 20 December 2011, prepared jointly by the Heads of Financial Services and Regeneration & Policy Services, which has since been released at Councillor Mace’s request. It was dealt with by Chief Executive Mark Cullinan as an emergency.
Coun Blamire informed Council in her Leader’s Report that ‘This decision was a Key decision, but it had not been included on the Forward Plan. As such the Chairman of Overview and Scrutiny Committee agreed to this being treated as a matter of special urgency in accordance with Access to Information Procedure Rule 16, and gave approval for the Chief Executive to take the decision in advance of the usual five day’s notice. An urgent decision was taken on 20 December 2011. Additionally, the Chief Executive (in consultation with the chairman of the Overview and Scrutiny Committee) was asked, and agreed, to waive call-in in accordance with Overview and Scrutiny Committee Procedure Rule 17 (a).”
Lancaster City Council has informed virtual-lancaster that all members of Cabinet were provided with the Urgent Business Report of 20 December 2012 and received an informal briefing which was not minuted. They have also explained that the decision was always an executive decision for Cabinet to take and was was undertaken in accordance with the Council’s Constitution which is approved by Full Council.
The decision to grant the loan was reported to the full council on February 1st, the day before the loan agreement was actually signed, when it was touched on in the Leader’s Report to the Council, but not scheduled for discussion as the decision had already been taken. However, in July members of the Budget & Performance Panel raised some concerns regarding the ‘due diligence’ applied to the decision, and the Panel noted at their last meeting on Tuesday 23 October that:
“There are discrepancies between the figures in the company accounts as at 1 April 2011 (i.e. the closing figures in the company’s accounts for 2010-11) and the starting point of the forecasts and projections produced by the company in support of the company’s request for the £90k loan
“To summarise, the SCIC Ltd. Balance Sheet forecast in the report of 20 December 2011 – as presented to support the request for the loan – shows “opening actual” liabilities for April 2011 exceeding “opening actual” assets by £57,329. This is not consistent with the accounts for the year to 31 March 2011 (approved two days after the formal loan decision of the 20 December 2011), which report the liabilities of the company exceeding its assets by £8,295. The directors are responsible for the accounts giving a true and fair view of the state of affairs of the company.
“£57,329 and £8,295 cannot both be true. Either way there is a case for further investigation.
“The response to the question from the B&P July meeting about due diligence says “The company’s previous year accounts and management accounts were assessed. The company had produced a sustainability plan and that was appraised.”
“The sequence of events relating to the loan included the following:-
- 20-12-2011 Approval of loan under City Council’s urgent business procedures.
- 22-12-2011 Signing of annual accounts of SCIC Ltd. for year to 31 March 2011 by Ms J. Greaves (Director of SCIC Ltd.)
- 22-12-2011 Signing of report to the Board by auditors: CLB Coopers.
- Friday 23-12-2011 receipt of accounts at Companies House.
- If the company had to meet a deadline of 31 December for filing its accounts at Companies House – that would help explain why the making of the loan was urgent from the company’s point of view.”
“These annual accounts contain the words at para 1.1 ‘The company made a loss of £7,394 in the year and at the balance sheet date the company’s net liabilities exceeded its net assets by £8,295. The directors have prepared profit and cashflow forecasts and expect profits in the forthcoming year to exceed losses incurred to date. In addition, new sources of funding for future periods have been secured. Therefore in the opinion of the directors the financial statements should be prepared on a going concern basis.’
“The Council’s agreement to grant the £90k loan repayable over three years is justification for the directors to say in the company’s accounts “new sources of funding for future periods have been secured”. The question to be investigated is whether the company was trading illegally – for example in the period preceding the approval of the loan.
“Recommendation 2 of the December 2011 report, delegating to the Head of Financial Services and the Head of Governance the agreement of the detailed terms and conditions attached to the loan to protect the council’s interest was without substance as the loan was already fully agreed as set out in recommendation 1 of the report.
1-2-2012 Reference to urgent decision made in Leader’s report to Council.
2-2-2012 Signing of loan agreement
3-2-2012 Payment of loan moneys to SCIC Ltd.
“As making a loan to the company was deemed to warrant the application of urgent decision rules in December, and an undated letter from Tom Clark (Chief Executive of SCIC Ltd.) asks to draw down the loan in December, it is strange that payment was not made until February.”
The Budget & Performance Panel’s concerns have been forwarded to the Liquidator.
The Lancaster Guardian reported last week that SCIC director Councillor Abbot Bryning who is also the City Council’s Cabinet Member for Finance assured the Panel that he ‘never misinformed Cabinet, misrepresented the facts or withheld information’. There is no mention of the Storey or its crisis in the Cabinet minutes of 17 January 2012.
The case made in the December 2011 Urgent Business Report for SCIC’s hefty annual grants in previous years explained that it had been hoped that once the company started to turn a profit it would hand some of the money back. These forecasts had failed to materialise and by December 2011 SCIC already had debts totalling £130,000 to outside creditors – of which £32,000 was already owed to the Council.
It seems that during 2011 the Council had actually been withholding payments from SCIC relating to Lancaster Visitor Information Centre (LVIC) rent and service charges. The Urgent Business report explains that “This was tied in with seeking agreement on an acceptable repayment plan for monies owed to the Council for Npower and insurance related payments.” Again, this does not seem like easy ground on which to negotiate a further £90k loan. But SCIC managed it.
In order to help buy planning time, in Autumn 2011 the Council decided to release monthly payments of around £2,000 for LVIC rent and service charges. It also released full payment of backdated service charges for previous years totalling £8,900, so that SCIC staff could be paid (£8,785) in November.
Despite the need, for tax liability reasons, for the Council to stay at arms length from the running of the not-for-profit business it had set up in 2006, SCIC CEO Tom Clark was increasingly coming back to the council for ad-hoc help with its bills and County Court judgements. These threatened the council with the even more costly failure of its project while it was already facing criticism of its management of Lancaster Market.
It’s not clear what happened to the planning time that was bought by the 4 year strategy of repeated hefty annual bailouts. The repayment plan proposal for the December / February loan depended on tenants accepting additional charges and the Heads of Finance and Regeneration recommended in their Urgent Business Report that:
“If approved, it is reasonable to assume that provided the SCIC at worst case continues to maintain its current occupancy levels, it can become a self sustainable operation based on its current financial projections.’
In caveat they added that there was no guarantee that this ‘worst case‘ could be achieved. Their report did not engage with the possibility that it might not, although SCIC had a consistent track record of failing to meet its financial goals. In reality some tenants were already having difficulty meeting the current charges and the council itself had resisted paying them, which did not bode well for an increase. In fact the increase, implemented in early 2012, was demonstrably ill-received, with some tenants, included the largest, opting to leave. (see June 2012 news item: Storey Centre in Crisis as rent rises hit home.
Another plan began taking shape in the summer, when the SCIC crisis had become public knowledge. Locally-raised entrepreneur and Monaco resident Adrian Gott told VL that he began discussions with SCIC CEO Tom Clark and City Council personnel at that time regarding his possible involvement in the building’s future. Mr Gott told us with enthusiasm that although the operational management of the building really needed sorting out he saw the Storey as a great building with tremendous potential. However, he added, these discussions came to a halt when SCIC was wound up.
Lancaster Visitor Information Centre, which vacated the building when the financial difficulties of SCIC Ltd came to light in July, has already moved back to the building. Of the 10 remaining tenants, all of whom were confronted by bailiffs and served with eviction notices last month, seven have now signed interim licences to continue operating from the Storey and discussions are ongoing with others. FatMedia, the largest tenant, has moved out to premises in Spring Garden Street, a move planned since the Storey situation deteriorated at the start of the year. The Storey Gallery continues to operate, but LitFest has been holding its recent annual Literature Festival and regular events elsewhere. (LitFest is currently waiting to hear about its bid for a £35,585 council grant for accommodation).
The terms of the covenant under which the Storey building was originally donated to the city council are – ‘for the purposes of the advancement in the Borough of Lancaster of science and art and technical and industrial education’. The benevolent public outreach of the two arts organisations alongside the opportunities presented by the Creative Industries Centre fulfilled that brief. Recently an EU funded 3 year joint urban regeneration project with Lancaster University (PROUD) has launched despite some impatience with ex-CEO Tom Clark on the part of the funders, who only discovered that their partner SCIC had collapsed when they read about it in online news media.
Over the past year and more the City Council has been faced with a number of complex challenges as austerity measures, adverse market conditions and pear-shaped business deals have hit home. Since taking over the running of the Storey council officers have held a number of meetings with tenants whilst sorting out the practicalities of managing the building, including room bookings, licensing arrangements, internet connections and interim marketing whilst evidently having difficulties with the SCIC records. A progress report for the November Cabinet meeting by the Head of Resources highlights that:
“establishing management arrangements for the Storey has taken a significant amount of time and effort from a number of Officers and it is inevitable that other tasks have been delayed. This situation will continue and although over time the nature of the work will become more proactive than reactive, at some point in the future there will need to be a reassessment of the staff resources needed to manage or oversee the building, depending on what the future arrangements actually are.”
However while thousands of local residents must regularly endure having to traipse in person to the town hall during working hours simply to renew their visitor parking permits (10 minutes of staff time apiece before you even start calculating the impact on service users hours) one wonders how things will be, as Mr Gott put it ‘sorted out’.
Cabinet members will be presented with the progress report at its meeting next week (November 6, Item 8). Coun Janice Hanson currently holds the Regeneration portfolio. It is likely that a member will be appointed to hold a new Storey portfolio.
The PROUD project is currently carrying out consultations on development plans for Priory Fields and Quay Meadow. Their PICTURE THIS CO-Design Exhibition will be on show at The Storey from Thursday 15 – Tuesday 20 November. (afternoons until 6pm, closed Sunday).
For their assistance in finding out how not to plan, we refer them to our handy draft guide:
Opinion: How to tell if a development deal is dodgy?
Update 6/11/12: Lancaster City Council have informed virtual-lancaster that ‘It is our understanding that the Budget and Performance Panel are satisfied that the decision making process was in accordance with the Constitution Council agreed.‘ They add that all members of Cabinet were provided with the Urgent Business Report of 20 December 2012 and received an informal briefing which was not minuted. They have also explained that the decision was always an executive decision for Cabinet to take and was was undertaken in accordance with the Council’s Constitution which is approved by Full Council.
They have explained that the £90,000 loan decision made in December 2011 and paid on 3 February 2012 was not included in the Forward Plan as it was Urgent Business.
virtual-lancaster has also asked the City Council if the Council meeting of 1 February was informed on receiving the Leader’s Report that the loan granted as a matter of urgency in December had not actually been paid yet. They explained that this information “was not relevant as the executive decision was being implemented.”
Update 8/11/12: In an earlier version of this report, it was suggested the Storey Gallery organisation had decamped from the building. This was incorrect and we are happy to amend the news item above. Council Cabinet discussed the future of the Galley at their meeting on 9th October. Currently, the Council has agreed to funding the maintenance of the Gallery but any funding of the Organisation by them is dependent on funding from other bodies such as the County and the Arts Council and others.
Reading the 'progress report' it's clear the Council has a mess to sort out and it will also take time to do it (which I hope it will), but I can't help feeling that whoever wrote that report thinks Council made the wrong decision in supporting keeping the place going as a creative business hub. And that they are still trying to steer the Council into another course of action.
They have tried to run it as a creative industries hub for 6 years now and so far the numbers don't seem to be adding up. It may be that not all civil servants are great business heads and it could be more efficiently managed. Other options are letting part of the building go for other uses or else leasing or selling it to a non-profit or a private developer, who may have other plans.
I've yet to hear of any call for outside proposals from either.
If the council is under pressure to maintain it as a CIH then they are permanently vulnerable to requests for subsidies. It puts them in a difficult position unless these are simply built into the forward plan and stringent conditions enforced.
The level of sustainability planning is very weak at present. It is basically sales pitch and stonewall. You wouldn't lend money to your own mother to pick up such deals. The Urgent Business report talks about there being no guarantee of being able to achieve even the 'worst case' scenario, having detailed a history of not achieving it, for example, which is so blinkered it's painful. The whole setup had been in need of an overhaul for at least three years. Landlords need to be more stable and committed than this to be successful.
I think the full council do support the Storey CIH project and would have made grants if they had been asked earlier. They might also have seen the need to take some initiatives with a view to building in greater stability.
I imagine if officers are under a heavy workload there is a tendency to work reactively as crises arise and then take what appear to be shortcuts. It's difficult to turn that around and requires committed leadership and professional skill.
Not every business has to be a runaway success. It simply has to break even with bread on the table.
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