BUSINESSES owed hundreds of thousands of pounds for work done on Alnwick’s new youth hostel will not be paid, despite a six-figure buy-out being agreed by county council chiefs.
The authority’s ruling executive approved the use of capital receipts on Monday to buy the venture on Green Batt, which was spearheaded by Alnwick Community Development Trust (ACDT) and officially opened by the Queen last June.
In September, the trust collapsed, blaming spiralling costs for the project which left it owing creditors more than £938,000.
But the council’s £650,000 offer for the hostel – which also includes three flats at Clive Gardens formerly owned by the trust – falls £105,000 short of what was expected from the sale of the charity’s assets, which are being handled by administrator Tait Walker. While the secured creditors – Dutch bank Triodos, Lloyds TSB and Northumberland Estates – will be paid as a priority, they will not get all their money back.
And the unsecured creditors, which include many small or family-run traders who have done business with the trust, will not receive any of the £223,000 in total they are owed.
However, the council’s purchase of the hostel is being heralded as a victory for the town, by safeguarding a valuable asset for the benefit of the community, while the flats will become social housing.
It also saved the taxpayer the prospect of repaying £160,000 in grants, which would have been clawed back by funders if the hostel had closed.
Gordon Goldie, administrator for Tait Walker, said: “The three creditors – Triodos, Lloyds TSB and Northumberland Estates – who had a charge on trust assets will be paid as a priority, but they will not receive the full amount. It is regrettable that the unsecured creditors won’t get anything back, as we can only realise what the assets are worth at the time.”
He added: “We are pleased to see that the community will continue to have the youth hostel available to it.”
Under company law, the remaining trustees are legally prevented from commenting until the trust is formally dissolved.
Council Executive Member for Corporate Resources Andrew Tebbutt said: “I’m sure that everyone is aware that very sadly the Alnwick Community Development Trust has gone into administration and the council has a duty and responsibility to protect itself from the claw-back of grant funding.
“As a consequence, the council is to purchase the youth hostel and the three rental properties at a cost of £650,000.”
Ed Ford, who is chairman of the hostel’s directors, said the council buy-out would safeguard the equivalent of three full-time jobs and a supply network worth £30,000 to the local economy.
“It’s a good investment for the rate-payer and the town will still have its youth hostel,” he said. “We are very relieved that it has been bought by the council because the demise of the trust was a great cause for concern. Had it been lost, it would have been a great pity because of the amount of time and effort put into the redevelopment of these premises.”
Mr Ford added: “We are very relaxed about the possibility of the management being put out to tender and hope to form part of the tendering board, which will allow us to set the criteria for the running of the hostel for the benefit of the community.”
But one trader who lost out, who asked not to be identified, said: “While it has yet to be proved a good investment for the local taxpayer, it is certainly not a good outcome for traders and creditors of the former development trust.”
The financial meltdown at the trust began in 2010 with a combination of grant cuts and increasing costs, including the loss of crucial market town funding from Government regional development agency One North East, which was axed that year, and the end of core funding from the Northern Rock Foundation.
Plans for the hostel continued, however, as it was hoped that the business would provide a secure source of income.
But with the budget for the project soaring, the trust found itself defaulting on mortgages and loans, leading its board to call in the administrators in August of last year, just two months after the hostel was opened by the Queen.
Unable to access additional funds, insolvency papers were filed in court on September 13.