Thursday, 25 August 2016

Day of reckoning for council and contractor


Not so long ago they were touting themselves as one of the fastest growing companies in their field with bold predictions of floating the burgeoning business on the London Stock Exchange.

But behind the curtain of commercial spin Scottish Borders Council's favourite waste management Group had a combined financial deficit of more than £157 million when the entire Group crashed out of existence in June, according to two horrendous Statements of Affairs produced by New Earth Solutions' administrators.

And research by Not Just Sheep & Rugby has shown the contractors awarded a huge £80 million deal by the Borders local authority in 2011 were carrying net debts of £27 million in 2010 (up from £19.7 million the previous year) even BEFORE the papers were signed.

So did financial experts commissioned at great cost by SBC, or paid officials at the council make that information available to elected members before they rubber-stamped an agreement which collapsed in chaos four years into the 24-year contract, and cost local taxpayers at least £2.4 million?

And were there regular reports on New Earth Solutions Group's (NESG) finances between 2011 and 2015 as the debt mountain increased? Over the same period the funders for a £21 million Advanced Thermal Technology (ATT) facility at Easter Langlee, Galashiels - Isle of Man-based New Earth Recycling & Renewables [Infrastructure] PLC (NERR) - was also experiencing serious financial difficulties which would lead to liquidation.

How many councillors asked pertinent and probing questions about the state of the NESG and NERR finances as progress on the Easter Langlee ground to a halt? And why was New Earth allowed a lengthy moratorium to sort out chronic technological problems associated with the system of so-called pyrolysis planned for the Borders?

The newly published Statements of Affairs for NESG and its subsidiary New Earth Solutions Facilities Management (NESFM) reveal just how debt-ridden the entire organisation had become when last desperate attempts to save the businesses were finally extinguished.What was left was sold for a pittance to a newly formed company called DM Opco which no-one in the waste management industry had even heard of prior to a swift deal with administrators Duff & Phelps just days after the New Earth collapse.

When NESG entered administration on June 9th 2016 estimated total assets for preferential creditors amounted to just £4.6 million.

But on the other side of the equation - liabilities - lay a list which included debts to NERR of £23.8 million, a shortfall of £4.2 million to a fixed charge holder and an estimated deficiency of assets after a floating charge of £24 million.

So far as non-preferential claims were concerned trade and expense creditors were owed £7.1 million, subsidiary NESFM - also in administration - was due £3.8 million and HM Revenue & Customs £843,000, bringing the unsecured claims to £11.2 million.

The report puts the estimated deficiency as regards all creditors at £35.36 million with issued and called up capital of £39.6 million. So NESG's total deficiency is stated to be £75.024 million.

A separate document dealing with NESFM's assets and liabilities reveals a shortfall to fixed charge holder Landesbank Girozentrale of £37.2 million with total assets available for preferential creditors of just £10.2 million.

The estimated deficiency of assets after floating charge was £66 million plus issued and called up capital of £16.4 million, giving an estimated total deficiency as regards members of £82.4 million.

The NESG and NESFM combined total deficiency is therefore £157.4 million.

As we have reported on previous occasions, the majority of the debts were already weighing down New Earth Group in October 2014 when a delegation of councillors and paid officials from SBC returned from a two-day 'due diligence' trip to NESG's facilities at Avonmouth, near Bristol, and expressed satisfaction with what they had been shown.

Borders council taxpayers were assured SBC was on the right lines with their waste management strategy, and the Easter Langlee plant remained deliverable. Four months later the deal was torn up with nothing to show for four years of dithering and delays.

The original contract between SBC and NESG was signed in March/April 2011. Our trawl through annual reports and sets of accounts produced by the New Earth group prior to those dates show that in June 2010 a financial return for the twelve months to January 31 2010 showed a trading loss of £7.548 million for the period, more than double the deficit of £3.324 million recorded in the previous year.

And at January 31 2010 NESG had net debts of £26.992 million, up from £19.747 million in 2009.

Despite these negative financial results it appears Borders councillors considered New Earth to be best placed to solve their pressing waste management issues as the Scottish Government clock ticked towards a ban on landfilling municipal rubbish.

As a direct result of the flawed decision taken in 2012 when SBC opted for a contract variation to incorporate a completely unproven version of energy recovery from waste the problems facing the local authority more than five years ago have still not been resolved.

In the past we have called for full disclosure of SBC's disastrous involvement with NESG including the release of all documents held on file by the local authority. The council has resisted, citing commercial confidentiality for the liberal censorship of reports, minutes and emails which would undoubtedly be of overwhelming public interest.

Publication of the Statements of Affairs outlined above surely means the case for full disclosure can no longer be denied, and an accompanying independent investigation should also be set in train. Watch this space, but don't hold your breath.

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