Plans have been drawn up for winding up a council-backed housing developer which was hit with a damning audit report.
The Middlesbrough Development Company (MDC), witheringly called “a lesson on how not to do it” by one councillor, ran since February 2019 and received about £11.9m from Middlesbrough Council. An audit, which was described as scary, shocking, shameful and worrying, found it was unclear whether the company had effective control over its work.
Now the council has set out the plan for closing down the MDC, which is separate from the Middlesbrough Development Corporation now driving regeneration in the town centre and Middlehaven, by the end of the year. It says it is taking steps to improve practice and minimise “financial and reputational risks to the council”.
Councillor Philippa Storey asked about guidance, non-compliance, completed and outstanding projects, risks, conflict of interest issues and unlawful decisions at a council executive meeting.
Councillor Theo Furness, cabinet member for regeneration, said the company had completed projects at the former Tollesby shops and Boho Village but there had been issues with governance.
Richard Horniman, director of regeneration and culture, said: “There’s lots of potential for conflict of interest. The board has on it, at the moment, at officer of the council. They are required to take decisions for the good of the company but they’re also an officer of the council.
“So that can provide all sorts of ‘which hat am I wearing today?’ sort of questions which I think can be navigated if they’re set up in a particular way from the start. There’s clarity about how you would do that now that wasn’t there when it set up.”
Cllr Matt Storey asked how much of £10.6m loan funds would be returned to the council and what would happen if it was not recovered.
Mr Horniman said: “We will recover money and property to a value that exceeds that loan that we can then choose to liquidate or keep. So yes, we’ll receive all of the loan back.”
Asked whether all £4.7m of “Section 106” development money had been spent, he added: “At this stage I can’t answer that with certainty because there’s a final reconciliation to be done when the company finally closes down. Those accounts are not closed down yet.
“Inevitably we’ve spent a large proportion of that because it’s a grant and it’s been spent on what the grant is for, which is the creation of affordable housing. I don’t know whether we’re going to recover much, if any, of it.
“There will be some grants which will also get returned to us, and it’ll just mean the council will spend those funds rather than the development company.
“In terms of assets, it’s largely Tollesby shops. There are a very small number, it might be less than three, residential properties.”
On Tollesby shops, he said: “There’s a couple of decisions that have been made and a couple still to be made. It’s transferring back to the council and under the council’s management, and some of the work is going on at the moment to finalise contracts for letting the commercial properties.
“There’s plenty of interest in those. There is an agent currently appointed.
“Whether the council takes that function on in the longer term hasn’t been decided yet. Whether the council retains Tollesby shops in the longer term hasn’t been decided yet.
“There is one ongoing contractual dispute that’s going through arbitration in terms of the Boho Village. The company won’t close down until that’s resolved.”
Image: LDRS
Mayor Chris Cooke proposed sharing a report on findings and learning from the experience with other councils and the Tees Valley Combined Authority. He said: “While this has been a not particularly great experience for the council, I think if we don’t take some learning away from it and have some sort of use from it, it’s almost going to be a bit of a waste.”
This was agreed along with the recommendations of a report, which says the use of the company board has been suspended in response to “complex conflict of interest issues” and replaced by shareholder meetings between the managing director and council staff to manage the closure. The company will adopt council policies on risks, procurement and project management.
