WHILE more questions are being asked over an extra £20m investment in shares in Redwood Bank, Warrington Borough Council says it remains confident in the investment and welcomes scrutiny and discussion.
It follows the latest Audit and Corporate Governance meeting when opposition Tory member Cllr. Mark Jervis pressed Labour members on the additional investment flagged by external auditors Grant Thornton.
After the meeting, Cllr Ken Critchley (Conservative finance spokesman) said: “At the Warrington Borough Council Audit and Corporate Governance Meeting held on Thursday the 21st of July, several Labour Councillors became agitated as Cllr Mark Jervis asked the External Auditor if they could confirm that, the original Redwood Investment Agreement signed by the Executive Board at their January 2017 Board meeting, meant WBC could have bought a near 33% share in Redwood for just £10M and without any contractual duty to make any further investments?
“The external auditor confirmed, “that is our understanding” and added that the subsequent Deed of Amendment to the Investment Agreement that was signed was a material change to the Investment Agreement and it therefore should have gone back to Cabinet.
“Perhaps we can now understand the agitation of some Labour Councillors, an agreement to invest £10M and obtain 1/3rd of the shares is very different to an agreement that requires a further £20M to be invested in total £30M to achieve a 1/3rd shareholding. At a time when the other investors invested approximately £5M for a 2/3rds shareholding. Of course, Warrington Borough Council have now impaired this investment by £17 million close to the same amount of the agreement variation.
“Who authorised this transaction and why? when the external auditors state, “it remains unclear as to why the acceleration of capital funding required the terms to be modified in such an unfavourable way to the Council”, it is very concerning and goes to the heart of governance at Warrington Borough Council and its use of public money.
Cllr. Critchley added: “An investment agreement that left the principal investor of £30 million with one-third of the shares whilst the other investors contributed £5 million for 2/3 of the shares has always been a concern to me.
“To now learn that the Council agreed to a variation of the agreement that required the Council to invest an additional £20 million to maintain the one-third shareholding leaves me incredulous regarding the financial management and decision-making surrounding this transaction.
“The more questions that are asked and facts uncovered regarding this highly unusual financial transaction the better.
“I worry at the reaction of some Labour members of the Audit and Corporate Governance Committee to the posing of this question.
“Why was this decision made by whom and who knew about its financial consequences, is now a question then goes to the heart of the financial and governance credibility of Warrington Borough Council.”
Richard Buttrey
“The original agreement, approved in January 2017, was for a 29.7% share of the bank in return for a £10m investment. Sometime after that approval, it appears talks took place, presumably between the principal owners of Redwood, (David and/or Jonathan Rowland) and the council’s legal advisers, and months later a second agreement, replacing the first agreement, was approved. This was for a 33% share for a £30m investment.
“The auditors say this second agreement was never approved. The council say it was since it was included amongst later budget papers that were approved.
“Irrespective of who is right or wrong about the second agreement being approved, the auditors are clear. The council could have obtained Redwood for £10m had they stuck to the original agreement.”
Mr Buttrey added: “Who instigated the further discussions with the Redwood majority owners? Why did WBC negotiate the financially disadvantageous second agreement which has cost WBC an extra £22m, and benefitted the private shareholders?
“Was it just sheer incompetence, negligence, or something more sinister and concerning?
“If there is a simple explanation, four years of questions to the council have failed to unearth it. It seems the only way an explanation could be drawn out of the council is if a higher authority is asked to investigate. Were that to happen and anything untoward were shown to have taken place, then anyone who had had concerns but never raised them might find themselves in an uncomfortable position.
“It’s time for the Cabinet to stop complaining about ‘keyboard warriors’ raising concerns and doing a disservice to the council. It’s time for the Leader to stop saying Redwood has met its business plan, which forecast profits of £23.8m for the first five years, when its cumulative loss is £8m.
“It’s time for councillors and officers who know anything about this matter, to come clean and explain how this huge overpayment benefits the council taxpayers of Warrington and why it was necessary? A little honesty and openness is called for.
“Until such time, this investment will continue to dog the council and be the subject of speculation.
A council spokesperson said: “We remain confident in our investment in Redwood Bank.
“Matters related to the bank were discussed at the recent Audit and Corporate Governance Committee on 21 July. We welcome scrutiny and discussion, and further queries that were either not raised or addressed at that committee, can be revisited at the next committee on 22 September.”
Deputy leader Cllr. Cathy Mitchell
“The bank continues to perform highly despite the difficult current market conditions and it has done exceptionally well to produce a profit in its fourth year of trading.
“What is more important however, and what as a council our policy for the bank focuses on, is that since its inception it has helped to provide vital support to SMEs in Warrington and beyond, and we’re pleased to see that more than £140 million worth of loans have been made to businesses in Warrington and the North West.”
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4 Comments
This investment seemed wrong from the outset and unfortunately the Council leadership continues to present it as a success without providing the core information which citizens would need to be able to assess it objectively.
Whilst I can appreciate the need for some confidentiality, with public money at stake we need a much higher level of public scrutiny than these investments have received. In this particular case, if the situation really is as described – that WBC invested an extra £20 million for little benefit – then we need an external, independent investigation into the decision-making process which led to such a strange decision.
The “confidentiality” with which this administration continually cloaks its explanations for remaining tight lipped on the investments it enters into seems more designed to conceal the details of the transactions and so protect the reputations of those leading the “investment” charge, rather than safeguarding commercially sensitive information.
Shortly after Richard and Chris questioned the substance of of the Redwood investment there was a short and briefly aired explanation for the disparity in share prices (other investors £5 million for 2/3 of the shares against WBC’s £30 million for 1/3 of the shares). This suggested the other investors were benefitting because they had obtained the banking licence. An explanation which does not explain why subsequent investors have also had the benefit of a more beneficial share price than WBC.
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