In late January a little known company was put into administration. An innocent looking note on its accounts made up to 31 12 2022, filed on 30 Oct 2023 indicated it was £911,140 in debt, most of which owed to HMRC for non-payment of PAYE, or payroll taxes.
“The company received a letter from HMRC dated 19 July 2023 for chasing payment of £653,229 arising from unpaid PAYE. HMRC may apply for a winding-up order against the company for this debt.
At the date of signing the accounts 30/10/2023 the debt had increased to £911,140.” (page 7)
Why should this matter to the residents of East Surrey?
With the demise of Pathway For Care, the residents of Reigate and Banstead can kiss goodbye to £1.1 Million of their money. Money which the Tory led council appears to have gambled away.
In 2016 RBBC entered a joint venture to create Pathway For Care, a company intended to be a provider of specialist healthcare services.
After just a year the new company was in debt and RBBC threw a cool 1.1 million quid at it in the form of a loan. (See Companies House website entry for 29 June 2018 Statement of capital following an allotment of shares).
The only collateral the council obtained for this money was an allocation of worthless preference shares.
In 2018 £1.1 million was equivalent to about 6.5% of the council’s annual budget. If central government was to lose an equivalent amount of money, This would be almost the entire education budget for the year.
The council does make investments from time to time as part of its long term financial plan.
The pressure to do so is a direct result of central government reducing the grant funding for local councils by over 40% in real terms since 2010.
We’ve seen other councils like Woking effectively declare bankruptcy with debts of around £2Bn, borrowed for ambitious property development projects.
East Surrey Green Party councillor Jonathan Essex said “Local councils are in the business of providing civic amenities, they are not, and should not try to be investment managers, venture capitalists or property speculators. Investment in projects to benefit local communities is perfectly legitimate as long as this does not leave the council finances open to unacceptable risk.”
Even if RBBC’s ‘investment’ into Pathway For Care can be described as necessary and legitimate, there is a big question why Reigate and Banstead Borough Council imagined it was a good idea to provide an unsecured loan of £1.1 million, when according to their first full year accounts, the company had already accumulated £728,669 of debt in it’s first year of trading.
In their first accounts filed with Companies House on 22 May 2018 made up to 31 December 2017 we see that the company built up debt fast and declared a significant amount of money, £103,750, as an ‘intangible asset‘. (page 2). Intangible assets by definition have no intrinsic value, and so it’s arguable whether this could be counted as a genuine asset with value.
It’s hard to find out whether Pathway for Care was recklessly managed, or just unlucky. As a small company, the accounts they submit to Companies House each year do not require enough detail to draw accurate conclusions.
Given that they now owe 911,140 to HMRC and other creditors, as well as the 1.1 million loan to RBBC, they have gone into administration owing around £2 million.
Within a year of the loan from RBBC being issued, it was becoming clear to the council that our money was at risk.
An entry in the Council’s March 2019 accounts said in relation to the loan. “The credit risk is moderate, therefore a provision of £184,695 has been made for 2018” (page 51). Less than one year after extending the loan, RBBC were already starting to write it off.
In the next year’s accounts this figure was increased to the full £1.1 million.
Earlswood and Whitebushes Green Party councillor Joseph Booton added “It’s very difficult to unpack the opaque history of how the decision of the loan was made, but it does appear that if the loan was likely to be at risk in just a matter of months of it being awarded, then surely the due diligence done by RBBC needs a thorough review to ensure this isn’t repeated.”
