News / Judane deal best for public purse
SHETLAND Islands Council’s decision to absolve local knitwear firm Judane of two thirds of their £600,000 debt to the local authority was “the best outcome for the public purse”, according to a document circulated to councillors yesterday (Thursday).
SIC development committee chairman Josie Simpson instructed head of development Neil Grant to remind members about why last month they had voted overwhelmingly to relieve Judane of more than £400,000 of debt to Shetland Development Trust.
In an “internal summary note”, Mr Grant states that Judane borrowed two sums from the trust totalling £860,000.
The first loan in 1993 was to build and equip the company’s new factory at Gremista, which now lies empty. Ten years later the trust loaned Judane £335,000 for working capital.
Mr Grant says that Judane has made total repayments of £761,000 so far. Under the compromise agreement councillors approved on 9 December, the company will pay another £190,000, bringing the total to £951,000.
This however leaves a shortfall of £411,000, “a significant proportion of which is resulting from compound penalty interest accrued since 2004”. The council’s lawyers have advised the penalty interest “could not be enforceable against the company”.
“The compromise agreement agreed at the Council meeting on 9th December represents the best financial return to the Shetland Development Trust of the options available,” Mr Grant says.
Judane had raised an action against the council following a planning decision to refuse a change of use for the factory to turn it into a retail business. Councillor Caroline Miller challenged that decision and won her case after a public hearing just prior to being elected to the SIC.
Mrs Miller is an unpaid adviser to Judane, whose directors are her husband Frank and his sister Judith Miller.
Under the compromise deal Judane would agree to drop its action, however Mr Grant states that this “had no influence on the arithmetic computation of what was in the best interests of the Shetland Development Trust”.
External advice from a bankruptcy practitioner “clearly demonstrated the disbenefit” of pursuing liquidation for Judane, which is why the council accepted the deal “as being the best outcome for the public purse represented by both the Trust and Council’s interests”.
While the deal creates the “perception” that Judane is left in possession of both of their factories, including one in North Road, the company has remaining debts secured against the factory of £220,000 to the Royal Bank of Scotland, who are their first ranked creditor, and £150,000 to the development trust.
The company has additional debts, including directors’ loans, of approximately £178,000. “Any sale of either of the premises in the next year would entitle SDT to use a claw back provision to share in the value of any gain accruing,” Mr Grant says.
Recent reports that the factory’s former tenant Chris Hodge had paid rent owed to Judane to a company owned by councillor Miller had raised speculation that money had been diverted from creditors.
Fellow councillor Gary Robinson called for a full investigation into the affair and this week the local police said that they had received enquiries from local people about the matter, which they had advised to direct at local government watchdog Audit Scotland.
However in his report, Mr Grant says: “I am satisfied that all of the rental payments collected from C Hodge were fully credited to Judane including the payments said to have been initially credited to another bank account.
“There is therefore no basis for a conclusion of misappropriation, to the detriment of creditors as has been alleged through the media.”
Mr Grant said the summary had been circulated to all councillors, including those who had not taken part in the debate on 9 December. He warned the information should not be shared publicly because it could affect the compromise agreement between the council and Judane.
Last year Lerwick based firm T&N Joinery put in an offer to buy Judane’s Gremista factory, which would have covered most of the company’s debts to the bank and the trust, but it was rejected. The company is still believed to be interested in purchasing the premises.
Mr Hodge left the building in December 2008 after he had stopped paying rent and been forced to drop a £1 million insurance claim against the council due to lack of funds.
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