Agenda item - Cash Collection - Company Administration Update

Report of the Executive Director, Finance & Resources.

RESOLVED: That the Committee noted the report.

50.1    The Deputy Chief Finance Officer introduced the report which set out actions that the administrators of Coin Co International had already taken and also suggested possible options that were open to the council and other creditors in the future.

50.2    Councillor Sykes asked what additional safeguards had been put in place now to prevent this happening again.  The Deputy Chief Finance Officer answered that a report had come to this Committee in this regard and now more regular checks were being made and a new process for assessing financial health of companies had been put in place.

50.3    The Chair asked Councillor Janio to propose the amendment to this Report.

50.4    Councillor Janio proposed the following amendment to the Recommendation:

            “That the Audit & Standards committee request officers seek external counsel advice on the likelihood of success of any claim brought against all or any of the parties outlined in this report. This advice should be reported on (with copies of this full advice) back to the next Audit and Standards Committee, as a Part 2 item if appropriate, with a recommendation from officers as to the next steps. The instructions to Counsel should be drafted by the Executive Lead – Strategy Governance & Law following consultation with the Chair and lead members of this committee prior to them being asked for their opinion.”

50.5    Councillor Lewry seconded the amendment.

50.6    Councillor Janio outlined the reasons behind the amendment, stating that they were asking for external advice on this matter.  He stated that the report did not mention how any money that may be received from any potential action would be distributed and he was unclear whether ownership of this money would be the council’s or whether it would belong to the company.  Therefore he felt that they required specialised external legal advice on this matter and had requested this in the amendment.   He understood that this would have a cost implication and wanted to confirm whether it was certain that a criminal case could not be pursued against the company and also that it was possible to recover money.

50.7    Councillor Robins agreed that there was obviously a cost involved in legal counsel and whether this was around £10,000 or £50,000; he felt there was a high cost of chasing the money and why should the Committee ignore the legal advice given by the council on this.

50.8    The Chair replied that £3.2 million was the current final amount owed to the council in the report and he then explained why he felt it would be prudent to request specialist external legal investigation to get advice on £3.2 million of tax payers’ money. He stated that after the company’s thirty years of trading there should be an element of assurance and diligence that every possible avenue had been explored.  He asked that if the council were to take advice on this matter, as stated under paragraph 4.4 on page 166, the report did not outline why “there are serious concerns” about this matter.  He also asked whether Santander would have first call on any claim, and that if the council were suing them, would the council have the last refusal on any money claimed? He also queried whether some of this item which was being discussed in Part One of the meeting should be in Part Two.

50.09  To clarify, the Deputy Chief Finance Officer stated that the total company turnover would be far greater than £300,000 and was probably in the millions of pounds.  He confirmed that administrators had already spent four years investigating claims in many countries and the UK and that they had great concerns about the success of any further recoveries or potential claims. He stated that the company’s directors had already been through a court process including other claims that had already been brought but that detailed information was unknown to us, due to confidentiality.  He confirmed that having settled one claim on a loan of £200k to a secured creditor, Santander, the primary secured creditor, had not fully recovered their £1.6m debt as yet.  He confirmed that if the council were to bring any legal action, there may be risks for the council but any discussion of potential risks would need to be in Part Two as this may affect other unsecured creditors. Regarding taking action against the auditors, it was confirmed that the council would have to demonstrate that they had had a duty of care to the creditor (the council) but that this did not appear to exist in this case.

50.10  Simon Court, Senior Solicitor, Housing & Litigation team was introduced by the Deputy Chief Finance Officer as supporting him in this case. The Senior Solicitor stated that the team had recruited the assistance of a lawyer who had relevant specialist background and had the benefit of discussions with a specialist lawyer from Isadore Goldman Sachs to investigate this matter.  He stated that the primary problem was the lack of information on the case. He stated that Counsel would be confronted with the same problem (i.e. lack of knowledge) and believed Counsel would require more information which we don’t. It could possibly be very expensive to research and obtain the necessary information including applications to the courts.  He also confirmed that the auditors in this case could not be sued for a third party debt and that the Directors of the company had already been sued for breach of duty and therefore it was unlikely that the administrators or the council would be able to take the matter any further. He confirmed that, if required, he would need to speak about the other actions stated within a Part Two discussion.

50.11  Councillor Platts asked about the cost of underwriting this case and how the council could be liable for this.  The Deputy Chief Finance Officer replied that due to the recoveries and settlements already achieved by the administrators and the uncertainty of achieving further recoveries, they would not pursue further action without the council providing indemnity to ensure their costs would be covered.  Councillor Platts continued to ask whether in the case of liquidation of a company, the accountants always received their money first.  The Deputy Chief Finance Officer replied that this was correct. The Senior Solicitor, Housing & Litigation added that the council would have to appoint a Joint Liquidator since the existing administrator had unrecovered costs outstanding of £300,000 and, as stated, we would have to indemnify any proposed joint liquidator and that this would have serious cost implications. The Senior Solicitor confirmed that initial counsel fees would be £8 - £10,000.  

50.12  Councillor Platts stated that since CCI had caused the  loss of money originally, letting this go was an equally uncomfortable situation for the council.

50.13  Councillor Sykes stated that he understood the motivation for the Amendment but had now been dissuaded, since he was impressed by the officers’ presentation and felt that even if there was a claim made, the council had to consider the high Counsel costs and also the costs in Officer time that this would create, so he did not want to support the amendment.

50.14  The Chair stated that he respectfully disagreed with Councillor Sykes’ conclusion, since he felt the cost of £8 – £10,000 in order to chase the possibility of gaining £3.2 million in order to get clarification on this issue and find out what the next steps could be, such as possibly making a claim against the Bank, were valid.

50.15 Councillor Robins questioned whether it was the Chair’s role to disagree with a member’s opinion on this matter.

50.16  Councillor Janio stated that £3.2 million was a large sum for the council and queried whether Santander had pushed for their claim, as they were dealing in much larger figures.  He also asked that if there was a criminal action that could be taken, then local recovery would not be part of the liquidator’s fraud action.  He felt it was difficult to distinguish the difference between fraud debt and criminal debt and that we would have to go to Counsel before we knew this.  He also stated that residents knew that the council had lost this money and that we would be letting people down if we did not try to gain more information on this. The Executive Director, Finance & Resources answered that the real issue was that spending the money initially would not increase the validity of any findings.

50.17 The Senior Solicitor, Housing & Litigation stated that it was a question of balancing financial risk and that because no guarantees could be offered on this matter it was a high risk to the council. The Deputy Chief Finance Officer added that within the early updates into the investigation the National Crime Agency (NCA) had investigated the Directors but had found no criminal case to answer.

50.18  In answer to Councillor Robins question on whether this Committee had the power to spend this amount of money, the Legal Adviser confirmed that there was an issue since this item had not been budgeted for.

50.19  The Committee voted on the amendment and it was not agreed. Therefore the existing recommendations of the Report were noted.

50.20  RESOLVED: That the Committee noted the report.