Shetland Islands Council expects to receive only 20 per cent of an outstanding £530,000 owed by Whalsay Fish Processors when the beleaguered company collapsed last week.
The SIC has admitted it may struggle to claw back more than £106,000 now the troubled firm has entered administration.
News of the shortfall came as the community sought a new beginning for the 60-strong workforce who have lost their jobs in an island of 1,000 people.
Last summer the SIC’s economic development unit gave the go-ahead for a £725,000 loan to help Whalsay Fish buy new equipment to secure its future.
Its owner and founder, John Tait, sold out to Aberdeen company SCAF Ltd, owned by four industry figures including Framgord’s Frank Johnson.
At the time the company was pinning its hopes on a new business plan based on using frozen whole fish, rather than depending on chilled whole salmon which had proved difficult to source.
However the plant was mothballed earlier this year as the company began to suffer from the high price of its raw material. The firm had been a main source of employment on the island for 40 years.
The council took all the company’s assets as security when the loan was granted, although it is not known how much the processing equipment used in the Symbister factory will fetch, especially given continuing high salmon prices.
In a statement to The Shetland Times, head of the SIC’s economic development unit Neil Grant estimated only a fifth of the public money still due would be recouped.
“Council awarded a loan of £725,000, of which only £605,000 was drawn down. Repayments were made against the loan to take the outstanding sum to £530,000.”
He said it was “difficult to say in an administration process” how much the council was likely to get back, but said “we are estimating approximately 20 per cent of outstanding sums”.
“The administrator, in the first instance, will try to sell the whole operation, recognising that the building is owned by Slap [Shetland Charitable Trust’s property trading arm], and I am hopeful that there may be some interest in this.”
The decision to lend the money in the first place has been criticised by Jonathan Wills, who described last year’s take-over as a “holding venture”.
He said people in Whalsay had the skills and manpower to run the factory for themselves.
“It’s very sad but I think it was inevitable. I don’t think it ever had any hope of success since last year,” he said.
“It seems to me that if Whalsay has a factory run by Whalsay people and helped by the council, and if Whalsay has a large number of skilled and intelligent people, and if it also has a fishing fleet, then it should not be beyond the wit of man and woman to have a successful fish processing factory.
“I hope that there will be a new proposal from Whalsay to get something going again, and I hope the council will be in a position to help it. I don’t think it [the council] should [have loaned the money]. “Twice I voted against it because it seemed unsustainable to bring in frozen fish with huge freight costs, to incur very large costs defrosting it then, once processed, to incur large costs re-freezing it and then to ship it out. “The future probably lies in some other branch of fish processing. The experts live in Whalsay. If they can come up with a reasonable project I hope we can support it.
“I remember when John Tait started the first factory. That got going against the odds. The markets have changed but I’m sure it can be done. “They’ve got the right people and they’ve got the boats. I don’t think it’s the council’s job to go and start industries, but it is the council’s job to give what support it can to practical proposals, and I don’t think that was practical. It was a holding operation.
Mr Johnson denied that the business model operated for the factory was flawed.
“The business was profitable to begin with. The business was profitable for the first four months but events overtook us. The severe winter affected us very much. It was a dramatic event that none of us could have forecast.
“Whatever business model in the world you set up you can’t compensate for half the normal harvest. There’s nothing anyone can do when you have halve the raw materials.”
He said there was every possibility the factory could be reopened by another operator once the price of raw materials comes down again. He added the fact the company was unable to attract raw materials in Shetland did not help its cause.
Development chairman Josie Simpson defended the development committee’s decision to award the six-figure sum.
He insisted the SIC could not have forecast the downturn in business brought about by a shortage in raw materials, which led to the dramatic increase in salmon prices.
Mr Simpson said he felt for the community but insisted efforts would be made to find a new tenant for the factory building.
“It affects a lot of people. Quite a few households depend solely on that place for their income,” he said.
“It’s certainly a very bad blow for Whalsay. It was very useful for when students came home in the summer time – they were able to get a job there, and that’s now also gone. It’s very, very disappointing.
“When Framgord took it over that last time we looked around quite a lot for new tenants. I think at that time there wasn’t much interest at all. We have to keep working and hopefully we can get something in there. I don’t know if there’s any scope for a killing station. We have to look at everything we possibly can.
“I think we knew when we made the decision that there was a risk there, but with nearly all investments from development there is an element of risk.
“There was a firm that came in with a business plan that said it could take the business forward, and on that basis we took the decision to back it. The first three months he was there things went very well. They were working five to six days a week and everything seemed to be very good.
“But when they had a big shortage in raw materials, that’s what crippled them.”
He said the cold winter in Norway meant producers “only harvested 50 per cent of what they normally do”, which had an adverse effect on the company.
A statement released by the company last week said this “totally unexpected development” resulted in some members of staff being paid off in February.
New product concepts Whalsay Fish had been working on had failed to come to fruition, and the company was also facing high transport costs because of its location.
Employees even supported the business by delaying their redundancy entitlement. Mr Simpson said the council was left with no choice but to allow staff the £171,000 redundancy pay they were due.
Chairman of Whalsay Community Council, David Hughson, said losing the factory would be a “massive blow” for the community.
He said the collapse of Whalsay Fish was “on a par” with the RAF pulling out of Saxa Vord in Unst.
He added the closure would put extra pressure on the already strained ferry service, as more people sought new jobs off the island.
“The factory has provided full-time jobs and part-time jobs for people that want to work. It also gave skill-seeker opportunities and work experience.
“For everybody that wanted a job, or was looking for a job, you could nearly go to the factory and get one. For a small community it’s a massive blow. “Whalsay Fish closing is nearly on a par with the RAF pulling out of Saxa Vord. “It was nearly all local people there. With the closure of the factory it’s going to put a lot more strain on the ferry system, because it’s nearly at capacity at the moment, and it doesn’t leave much room for people wanting to leave the island for work.”
Asked if he thought the island could recover from the blow he said: “I certainly hope so, but it will take quite a while to get everything back on its feet again.”