Part 2 – Not for publication
Exempt information under paragraph 3 – Information relating to the financial or business affairs of any particular person (including the authority holding that information) and paragraph 5 – Information in respect of which a claim to legal professional privilege could be maintained in legal proceedings.
WEST DEVON BOROUGH COUNCIL
coUNcil / 9 FEBRuary 2010OPERATIONAL REPORT OF MANAGEMENT BOARD AND the STATUTORY OFFICERS
MORWELLHAM QUAY
1. RECOMMENDATIONS
1.1 That the Council resolves to direct officers on how it wishes to respond to the Administrators in respect of the two Council loans registered as charges against the land previously held by the Morwellham Trust, and
1.2 That Council resolves that officers should continue to work with the preferred bidder(s) so as to establish agreements that will satisfy the Heritage Lottery Fund terms of grant so as to minimise the potential for claw back of HLF grant either now or subsequently in the future, and
1.3 That Members direct that officers keep the Council regularly informed of these developments in view of the serious financial risks involved.
2. PURPOSE
2.1 To advise Members of recent developments with the proposed disposal of Morwellham Quay by the Administrators, Grant Thornton, and the implications of these developments for the Council and its risk management.
2.2 To determine the Council’s proposed response to the Administrator in respect of a disposal to the preferred bidder(s) and the related Council charges arising from loans provided against the Morwellham land.
3. BACKGROUND AND FURTHER DEVELOPMENTS
3.1 Members will be aware that the Morwellham and Tamar Valley Trust went into Administration in the autumn of 2009. A report was presented to the Strategies and Resources Committee on the 17 November 2009 informing Members of the implications of the Administration. The consequence of this was that a number of staff at the site were made redundant and the assets of the Trust were taken over by the Administrator, Grant Thornton. The site has been mothballed and only essential maintenance has been undertaken on the site over the winter. Further investment in the Tamar Valley Mining Heritage Project has halted whilst the future of Morwellham is determined.
3.2 King Sturge was appointed to market the site and formal bids for the land/assets in administration were invited to be submitted to them by 21 January 2010. On 22 January at a meeting attended by officers and other key representatives, the Administrator confirmed that 13 bids had been received for either various parts of the land or the whole.
3.3 The Administrators favour a sale of the Morwellham site to a person/body whom they have identified as their preferred bidder and a separate concurrent sale of the land at Newquay, to another bidder. The preferred bidder has bid for the whole package but has made another bid for just the land at Morwellham. The two separate bids for Morwellham and Newquay would provide a total receipt slightly in excess of the value of bids requested by the Administrator.
3.4 In the case of the whole Morwellham package, the preferred bidder has undertaken detailed investigations and undergone due diligence procedures in respect of the site and wishes to proceed quickly to complete a sale. They have indicated that they would like to re-open the site for Easter, if possible and run it as a tourist destination and a centre for a range of educational and recreational purposes. On this basis officers have been working to establish some form of agreement with the relevant parties and the preferred bidder which would minimise the risk of Heritage Lottery Fund (HLF) grant clawback – see para 4.8 onwards below. If the public access to the site under this proposed private ownership cannot be realised to the satisfaction of the HLF, the claw back provisions could be invoked.
3.5 In the case of Newquay, it is understood that the bidder for this site alone wishes to operate a traditional boat building business at the site but has not undertaken the same level of detailed enquiries as the preferred bidders for Morwellham. Whilst this may provide a slightly better return for the administrator if concurrent sales proceed, it makes the process of disposal more complex and there would have to be a similar agreement about public access with the new owner of Newquay as well as Morwellham to deal with relevant previous HLF investment at that site. There are likely to be a number of potential concerns about a proposed boat building use of the Newquay site from an access, conservation and planning perspective. The potential additional return is therefore rather marginal and may not be realised once the difficulties of the site relative to the proposed use are fully appreciated by the bidder. King Sturge is undertaking further discussions with this bidder.
3.6 Members will also be aware that the Borough Council is the “accountable body” for the Tamar Valley Mining Heritage Project (TVMHP). The details of this commitment were set out in the report to Council of 11 April 2006 entitled “The Tamar Valley Mining Heritage Project”. This report described the role of the accountable body which is essentially to be the lead financial partner and to have responsibility for delivering the project, ensuring that it is properly managed, funded and accountable. The report also included a risk assessment at that time in respect of the delivery of the project and the risks associated with its role as the accountable body.
3.7 The Borough Council, Devon County Council and the former Morwellham Trust entered in to a contract with the Heritage Lottery Fund (HLF) in which the parties were jointly and severally liable. This was in respect of investment made by the HLF for project works including improvements to the land within and around Morwellham. As the Trust went in to Administration, the terms of the HLF contract provided for an immediate potential claw back of any HLF funds already spent on the project. The HLF have thus far reserved their position over the claw back whilst they await the outcome of the Administration. The HLF officers have been helpful to date in trying to find a solution to these issues.
3.8 As this report was being drafted active discussions and negotiations are in progress which will necessitate a detailed verbal update at the meeting to fully appraise Members of the current situation.
4. DETAILED CONSIDERATIONS
Process of Administration
4.1 Members have previously considered a number of reports about Morwellham. In January 2010 a previous report agreed by the Council in 2007 and a risk management matrix was circulated to Members for information. The matters surrounding the Trust going in to Administration and the route to resolving this are complex. The Administrator’s role is to maximise the value of the assets in order to provide the best possible return for any creditors. It is understood that there are a number of creditors of the Trust and the Morwellham Trust’s trading company, in addition to the Borough and Devon County Council. These probably include some former employees.
4.2 The Borough Council has two registered charges against land owned by the now defunct Trust. A first charge for £20,000 against a loan made on 1 December 2006 has been challenged by the Administrator. Whilst it was properly registered against one title at the Land Registry at the time, it should also have been registered within 21 days as a charge at Companies House. There is also an obligation on the Trust Directors to notify this charge to Companies House. Regrettably it now appears that this essential notification was overlooked by both the Borough Council’s legal team and by the Trust Directors at the time.
4.3 A second joint charge in favour of Devon County Council and West Devon Borough Council for £475,000 and £125,000 respectively, made on 30 April 2007, was correctly registered both at the Land Registry and Companies House and these charges by the Councils are regarded by the Administrator as “secured creditor” charges. The Borough’s £125,000 charge is registered against seven titles on the Morwellham land. (see Appendix 2)
4.4 A third charge in respect of Devon County Council for £520,000 is also being challenged by the Administrator as incorrectly registered at Companies House in proper time. It is understood that the County Council may seek to refute this challenge.
4.5 The consequence of the defect in the Borough Council’s first charge (para 4.2 above) is that it slips to being classified as an “unsecured creditor” charge.
4.6 In reality the Council’s charges, whether secured or unsecured, are entirely dependent upon the actual proceeds of sale against the specific titles on the land against which the charges are registered. There is a potential risk that the Borough’s properly secured charge of £125,000 may not be fully redeemed if the final proceeds of sale of land on which the charge relates are insufficient to cover the secured creditors.
4.7 Officers have been researching the ability of creditors to challenge the costs associated with the administration process. See the Legal Powers and Implications section below.
Heritage Lottery Fund and future management agreements
4.8 As indicated above officers have been working to try and ensure that the potential for any HLF grant claw back is minimised. As stated previously, the claw back provisions form part of the contract that WDBC, DCC and the Morwellham Trust entered in to when the Tamar Valley project commenced to receive HLF support. The claw back relates to either one of the parties in the contract going in to administration (as in this case) or where public access to the sites that have received previous funding support is subsequently withdrawn or reduced. The HLF will not provide funding that provides betterment to a private land owner unless there is some formal agreement to providing public access for 30 years and future management. The precise level of potential claw back in this case has yet to be assessed but officers are currently trying to quantify this. DCC has now indicated that it recognises that it is also liable if the claw back is invoked. Appendix 1 sets out a summary of the value of works undertaken as part of the TVMHP to date.
4.9 From Appendix 1 Members will note that a considerable sum of HLF money has already been drawn down on Morwellham. Those works combined with other works on the TVMHP total £1.59 million. Further HLF funds are available to complete the project, subject to any new owners satisfying the original terms of the grant offer. There is a potential difficulty here as the HLF do not normally fund works which benefit a privately owned asset. It is therefore important from the Borough’s perspective to try and develop a side agreement that a new owner of Morwellham would be prepared to entertain, such that the clawback provisions can be avoided. This will have to be negotiated in parallel with the process of sale and it needs to be recognised that the interests of the local authorities in this respect cannot be used to usurp the role of the Administrator. If this agreement cannot be reached then the two local authorities are vulnerable to the HLF clawback provisions being invoked if the administrator proceeds with the sale, unless another form of agreement can be reached which will satisfy the HLF.
4.10 The administrator has been in direct contact with the Chief Executive of the HLF to appraise her of the situation and the need for an early decision from the HLF Board of Trustees about the future use of the site to enable the administrator to fulfil his legal responsibilities and if possible proceed with a sale to the preferred bidders.
4.11 The Administrator has the power to go to Court for an Order if it is believed that any secured creditor is behaving unreasonably and obstructing the process of the administration.
4.12 The Administrator’s preferred bidder for Morwellham has orally indicated to officers a willingness to continue to provide public access to the Morwellham site and a desire to complete the outstanding intended works for the site. The Head of Economic and Community Development had discussions with the preferred bidders before the close of the bid process. He explained in some detail what aspects of the site would need to continue to provide public access and the potential HLF funds that may still be available to draw down, providing the necessary formal agreements over access can be secured.
4.13 The HLF have indicated that public access would need to be provided under a formal agreement for 30 years. The HLF are also seeking assurances that the TVMHP can continue to achieve the original approved purposes both in respect of investment already made and any future project work at Morwellham. This will include an agreement with any purchaser on how this can be achieved and may include leases with a public body (probably WDBC) on any future project works.
4.14 At the time of drafting this report officers are trying to develop a form of agreement that the HLF Board of Trustees would be willing to accept so as to avoid the claw back provision being invoked and which would also be acceptable to the preferred bidders. These discussions are ongoing and of necessity an oral update will be provided to Members at the meeting.
Proposed future use of Morwellham and implications for the Borough Council
4.15 The preferred bidders currently operate a visitor attraction elsewhere in Devon and another leisure related business. Their intentions are to re-open Morwellham to the public throughout the year through an overall admission charge and possibly free entry in the winter months. The preferred bidder is keen to maintain and develop Morwellham Quay’s links with schools and other education establishments. Its proposed role within the World Heritage Site as a key centre is welcomed and the bidders wish to embrace links with the Cornwall and West Devon Mining Landscape working in conjunction with the TVMHP and help to continue to deliver the project.