Editorial: The Old Rock 22.01.10
Councillors seem finally to have recognised the need to start explaining to the electorate why they agreed to waive more than £400,000 owed to the SIC by knitwear firm Judane. Development committee chairman Josie Simpson argued this week that the alternative, forcing the company into liquidation and thus potentially provoking an expensive court case with Judane which the council’s insurers had advised it might lose, was worse. Given such “rock and hard place” advice, there is at least strong logic behind the decision.
But many questions remain, and we share Mr Simpson’s vaunted frustration at the lack of answers. Firstly, another argument, this time made by Neil Grant, head of the economic development unit, goes as follows: a “significant proportion” of what is owed is in the form of penalty compound interest. How much is a “significant proportion”? Half? Three-quarters? We should be told. And why should that matter in any case? The council’s lawyers apparently argued that such payments might have been “unenforceable”. If that’s the case, what is the point of having such penalty clauses in the loan agreement in the first place? And in admitting this, the council is effectively saying to other firms that borrow money, “Och well, if you can’t pay your loans back and you stack up more debt as result there won’t be a problem as we don’t have the power to enforce any financial sanctions against you”. Given their legal obligation to get best value in their use of public money, councillors need to ensure this sort of feeble practice is tightened up.
As this column argued last week, it is not the principle of lending that is at issue here but the proper management of it.