A desperate last-ditch bid to save the debt-ridden New Earth Solutions Group, selected by Borders councillors for a multi-million pound waste treatment project at Galashiels, has collapsed, requiring the appointment of an administrator as creditors demand immediate settlement of outstanding payments.
News of the latest catastrophe to overtake the so-called waste treatment specialists was broken today in a letter to shareholders from NES's offshore owners on the Isle of Man. It had been hoped a "white knight" from Europe would take on the Group's £60 million pile of debt, but negotiations have fallen through.
For council taxpayers in the Borders who lost £2.4 million thanks to decisions taken by elected members and senior officers at Scottish Borders Council, it begs the question why an investigation has not been held into the involvement of the local authority with a company which had neither the money nor the technology to deliver a fit for purpose treatment centre for the region's rubbish.
Was the council aware of the firm's high level of indebtedness? Why did checks into the Group's finances not uncover links to offshore entities in the British Virgin Islands and other tax havens?
On top of the expenditure on consultants and lawyers, it has emerged that councillors even agreed to give NES a nine month breathing space during 2014 when serious issues surrounding funding and technology for the project were identified.
The decision to include an untried energy recovery facility at Langlee led to the downfall of the venture with the contract being finally abandoned in early 2015.
But the failure to press ahead with a conventional processing plant - due to be operational by 2012 - means SBC has not even reached the Scottish Government's 2010 target of 40% for the recycling of household waste.
Statistics published today show the Borders recycled 37.5% in 2015/16 compared to the Scottish local authority average of 42.8%. Meanwhile 62.2% of local refuse was landfilled, no less than 13% above the Scottish figure of 49.3%. The originally planned waste plant would have diverted 80% of refuse from landfill. The decision taken in October 2012 to vary the NES contract to include a form of incineration proved to be disastrous, both financially and environmentally.
Today's letter to investors from Michael Richardson, a director of the New Earth Recycling & Renewables [Infrastructure] PLC (NERR) which owns at least 80% of NES, outlines the sequence of events leading up to the need for administration.
NES holds a substantial number of contracts for the disposal and treatment of waste on behalf of local authorities in England, and at this stage the future of those contracts must be in doubt.
Mr. Richardson explained - as we revealed recently - that the future of the Group hinged on talks with a developer of large heat and power plants in Europe.
The negotiations were on the assumption of control of the NERR Fund and the New Earth companies by the developer and the exit of senior lenders Norddeutsche Bank and Co-op Bank.
"There were extensive discussions on how best to restructure the business operations; unfortunately, these negotiations have not been successful", reported Mr Richardson.
A series of alternative proposals had been put forward by the European developer, but all were rejected by the two banks.
The letter states: "Protracted negotiations over a six week period led to an agreement for the developer to purchase the senior debt from the senior lenders, subject to conditions and the source of financing by the developer being completed by the end of May 2016."
But after a set of accounts for the NES Group was published last month management of the company were approached by parties who had bought portions of NES's future production requesting immediate settlement of outstanding payments or bank guarantees.
"Without this arrangement in place the New Earth companies cannot process waste which in turn puts the waste contracts with the local authorities in jeopardy", warned Mr. Richardson. "The senior lenders indicated that they were not prepared to provide bank guarantees nor to finance the New Earth companies to fund accelerated payment requests."
This resulted in the directors of the Group being forced to come to a decision that in such circumstances the New Earth companies were no longer a going concern without financial support from senior lenders.
"As a consequence, the directors, in consultation with their advisors, decided that the New Earth companies were required to seek statutory protection by filing a notice for the appointment of an administrator."
Mr. Richardson adds that based on this sequence of events, the European developer was unable to proceed with either the assumption of the control of the NERR fund or the purchase of the senior debt.
In a parting message to shareholders in NES and investors in the suspended NERR fund, Mr. Richardson says: "It is understandable that you will have concerns and the directors will be in touch as soon as they have any further information."
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