Written evidence submitted by Derek Dishman
My name is Derek Dishman, I am a Barnet resident. In my professional life I assist Licensed Insolvency Practitioners to maximise the income for companies in their care by managing the debt recovery department.
As a hobby I also write the Mr Mustard blog which is intended to highlight blunders, the democratic deficit and profligacy within Barnet Council but also strays into other areas.
The burgeoning movement of councils trying to become property developers and/or investors worries me greatly because it is so outside their normal areas of expertise and shouldn’t, in my opinion, be a power they are allowed to exercise.
On the 23rd of October 2018 the Policy and Resources Committee of The London Borough of Barnet decided to loan £22,900,000 to Saracens Copthall LLP in order to demolish and rebuild the West Stand. The loan item was only passed by using the casting vote of the chairman, Cllr Richard Cornelius, who was the leader of the council at the time. The terms of the loan were that it was at a rate of 6% for 30 years. It was anticipated that the monies would be borrowed from the Public Works Loan Board and the rate payable at that time would have been 2.93% although I do not think that such a loan has yet been taken up.
Saracens Copthall LLP already had the benefit of a 99 year lease at a rent of £1 p.a. from the London Borough of Barnet for the stadium within Copthall Playing Fields currently known as the Allianz Stadium which was entered into on 3 July 2015.
Saracens Copthall LLP manages the stadium.
They rent the stadium out to Saracens Ltd which is the entity which fields the Premiership rugby team.
In the year to June 17 Saracens Copthall LLP lost £1,906,988 and in the year to June 18 it lost £1,457,639
In the year to June 17 Saracens Ltd lost £2,685,814 and in the year to June 18 they lost £3,886.925
No-one with an ounce of commercial acumen would be lending in such circumstances. In fact at the July meeting of the same committee, when the loan was first mooted, the report said:
Saracens sought bank funding to construct the West Stand, but were unable to raise sufficient investment at an appropriate price. Consequently, Saracens approached the council as an alternative funder.
The London Borough of Barnet doesn’t have a track record of making other similar loans. In fact, they had to change the Treasury Management Strategy at a meeting of full council on 30 October 2018 in order to allow it, as follows:
The Council will allow loans (as a form of investment) to be made to organisations operating in the borough that bring community benefits. The Council will undertake due diligence checks to confirm the borrower’s creditworthiness before any sums are advanced and will obtain appropriate level of security or third party guarantees for loans advanced. The Council would expect a return commensurate with the type, risk and duration of the loan. A limit of £25 million per counterparty (and £50 million in aggregate) for this type of investment is proposed with a duration commensurate with the life of the asset and Council’s cash flow requirements.
Aside from the loan to Saracens Copthall LLP there has been no other subsequent loan perhaps because the council haven’t publicised the option nor the method of applying.
The council have obtained a guarantee for £10,000,000 of the loan with ‘Company A’ the identity of which they have kept hidden. What they have told the public is that Company A must have net assets of at least £20,000,000 but what mechanism prevents those assets being moved into another company we do not know. That still leaves a lot of the loan at risk should the worst come to the worst.
I have asked under Freedom of Information legislation for a copy of the loan agreement but so far the London Borough of Barnet have refused to release it, not having even offered a redacted version.
So far, £3,179,790 has been advanced in instalments from March to October 2019 to Saracens Copthall LLP but the original West Stand is still standing. Further payments have ceased for now.
Since those payments have been made there have been unforeseen changes.
The Saracens team was subject to a 35 point penalty and a fine of £5,360,000 in November 19 and then relegated in January 2020 thanks to being found to have exceeded the salary cap of the Premiership. Those penalties were not possible events that featured in the London Borough of Barnet risk register.
In March 2020 all mass sporting events came to a sudden halt due to Covid-19 and accordingly the financial position of both Saracens Ltd and Saracens Copthall LLP will have worsened. A pandemic, or even an interruption of rugby games for any reason, were also events which didn’t figure in the risk register.
I think that what this set of facts shows is the level of risk associated with any commercial property investment, as the council themselves termed it, are not appreciated by councils and the risks far outweigh the possible rewards, which councils should not undertake given that if they get it wrong, council tax payers have to foot the bill.