The Unsecured £9million Loan?

On the 9th September 2013 Scarborough Borough Council (SBC) voted 23-22 to loan £9million to Benchmark Leisure Limited to construct a water park at the former Burniston Barracks site on Burniston Road.

A closer look at the charges against Benchmark Leisure Limited reveal that SBC have not registered the Borough taxpayer’s £9million loan as a charge against the company.

What does this mean for the Borough taxpayer? If Benchmark Leisure Limited were to go into administration, the way the assets are distributed among the creditors could see the Borough taxpayer lose out. The order in which assets are divided up is as follows:

1. Fixed Charges: e.g. Charges secured against an asset.
2. Winding Up Expenses: e.g Administrator fees, professional advisors.
3. Preferential Creditors: e.g. HMRC, employee pensions, redundancy payments.
4. Floating Charges: e.g. Stocks & shares.
5. Unsecured Creditors: e.g. SBC’s unsecured £9million loan.
6. Any Remaining surplus divided among shareholders.

Because SBC have not registered a charge against Benchmark Leisure Limited, the £9million water park loan could be classed as an unsecured debt. This means that other charges against the company will be repaid before the £9million unsecured loan from the Borough taxpayer.

How likely is it that Benchmark will go into administration? It should be noted that another development company with the same Benchmark directors, Topevent Limited, has recently gone into administration.

Further public scrutiny of the £9million loan is not possible because the council excluded the public from that portion of the meeting and have similarly restricted the financial details. It appears at first glance that SBC are not protecting the interests of the Borough taxpayer.