Having now properly read the report now, here's some interesting snippets (spot the theme that keeps popping up):
This public interest report concerns NBC’s loan to Northampton Town Football Club (“NTFC”) and reports on significant failures of corporate governance and items of account that are, in KPMG’s view as the Appointed Auditor to NBC, contrary to law.
The agreement at the in principle stage included that the £5m proceeds of sale of the development would be used by the Council to offset the debt owed by NTFC. In our view that was inappropriate and there seems to have been no or insufficient benefit or any discernible rational reason to NBC to reduce NTFC’s debt in this way. Furthermore, although the sale did not in the event go ahead, if the £5m had been applied as outlined in the 17 July 2013 report it would have, in our view, run a high risk of constituting unlawful State Aid to NTFC;
. In our view the Council did not ensure that it followed the correct steps to ensure that the loans were lawful and did not represent State Aid;
The then Chief Executive authorised loans totalling £13.5m which was in excess of the “up to £12m” quoted in the Cabinet paper of 17 July 2013. The Council
advanced a further £1.5m for the stadium in April 2014 with inadequate due diligence undertaken as to why the extra money was needed nor what the previous £4.5m loaned until that point had actually been spent on. Officers had sought legal advice which determined that although the background in the Cabinet report referred to “up to 12m”, since the recorded decision did not
reference a specific figure, additional Cabinet approval was not required and entering into facility agreements for up to £13.5m was in line with the existing decision. In KPMG’s view this advice was incorrect and the delegation as to amount was subject to the overall limit quoted in the report and it is unreasonable to interpret this as being given authority to approve any size loan. We have concluded that in our view this decision went beyond the delegated authority and was therefore unlawful;
The Council was prepared to enter into a conditional agreement to sell land to a company (CDNL) that was proposed by NTFC without going through any competitive procurement process. NTFC and CDNL had directors on common, which is a further issue with regard to legality and financial and corporate governance which we would have expected the Council to have picked up onand considered the implications
Whilst one of the conditions required of the Chief Executive was satisfied and two conditions could be deemed as being partially satisfied, two were in our view definitely not satisfied: we have concluded (and subsequent independent reviews, reports and events have borne out), that the security provided by NTFC was neither sufficient nor tangible; and, there was no robust contractual arrangement in place between NTFC and a financially sufficient third party. In KPMG’s view, failure to meet these conditions rendered the decisions taken further to the delegated powers unlawful;
In KPMG’s view, the Director of Regeneration, Enterprise and Planning should have been able to foresee the risk of the Council being exposed to financial loss or liability and should have mitigated that risk accordingly. In KPMG’s view, failure to meet this condition rendered the decisions taken further to the delegated power unlawful.
Thus, NTFC’s average attendance in each of the previous five years was around 4,500 and the capacity of the stadium was 7,500. Yet the Council never questioned whether there was really a need for a stadium that per the loan application seated 10,000 people, i.e. NTFC were asking for an additional 2,500 seats. Similarly, at that stage there was, in KPMG’s view, inadequate critical review or challenge about whether there was demand for conference facilities or a hotel and/or the impact that additional provision might have on existing facilities elsewhere, with no clear partner agreements such as an agreed hotel developer for the site.
I do think KPMG are rather missing the point on this one - look down the road to MK for an example. Granted, a look at the league table shows it doesn't guarantee success, but their growth in support since relocating is still pretty impressive and if anything, their relative lack of footballing success in the same time frame points to the scale the facilities having an impact. Either way, this isn't a helpful statement when it comes to progressing the current situation...
However, the Council continued to advance money to NTFC even when it was obvious that something was seriously wrong. Quite apart from the lack of progress on site, NTFC submitted a revised planning application on 1 August 2014 which significantly reduced the scale of the stadium expansion.
The project was championed by the former Leader and, other than the points raised by three non-Cabinet Members attending Cabinet meeting and noted at paragraph 38 above, it appears to have been agreed without having been subject to any robust challenge by his fellow Cabinet Members. None of the other Cabinet Members were even aware that the Paper they approved contained a provision where it was intended that £5m of Council Taxpayers’ money loaned to NTFC was not going to be paid back. We were told by some of the officers and Members we interviewed as part of our review that there had been pressure to complete the deal (mainly from the Leader).
Tut tut, Fat Mack...
[one of the conditions was] That there were robust contractual arrangements between NTFC and a financially sufficient third party (i.e. a hotel chain). There was no such arrangement
The process which councils must follow when they sell land assets are set out in the Local Government Act 1972 section 123. Under case law interpreting this provision, a council/local authority will only have complied with its duties to its residents and protecting the public purse if it has (i) taken proper advice; (ii) followed that advice for reasons that can be justified; and (iii) not followed advice that was so plainly erroneous that in accepting it the local authority must have known, or at least ought to have known, that it was acting unreasonably. Principal among the requirements is that the Council must achieve best consideration (which can include non-monetary factors). The obvious way of doing this is to go through some kind of competitive process to identify the developer. In this case, the development company was proposed by the officers of NTFC and it would appear that at the time the Council’s
officers, using their delegated authority, accepted the recommendation without question. In the Cabinet Report of 17 July 2013, reference to ‘a developer’ was made, however CDNL or its relationship to the owners of NTFC was not. We consider this was inadequate, and the Council’s view that this does not matter because the sale did not go through is irrelevant because the Council did enter into a conditional agreement to sell and all the conditions could have been met without resolving this fundamental problem.
So basically, the council should have ensured NTFC went to tender to find a development partner but instead it was just given to CDNL. Owned by....?
The Council continued to advance money to NTFC even when it became clear that something was already fundamentally wrong with this project. Notwithstanding the lack of progress on site, NTFC submitted a revised planning application on 1 August 2014 which significantly reduced the scale of the stadium expansion. By this stage the Council had alreadyadvanced £7.5m for the stadium development and it subsequently advanced a further £1.5m on 19 August 2014 despite knowing that the proposed development had changed fundamentally. NTFC’s original planning application, submitted in November 2013, was to increase capacity by 2,347 seats and add a conference facility, but their revised application reduced that to just an additional 422
seats and no conference facility.
The Leader led the Council’s side of discussions with NTFC and many of these discussions were not minuted and not attended by any other Council representative. This resulted in a series of phone calls, texts and emails (on some occasions from a personal email account) from the former Leader instructing officers to take actions as he negotiated the Council’s position. For instance, the project was still being changed significantly by NTFC in the run-up to the Cabinet meeting on 17 July 2013. A draft version of the 17 July 2013 Cabinet report, which was dated 7 July 2013 states that the loan was to be for £10m to NTFC (and £2.5m to the Rugby Club), but this was then changed to up to £12m to NTFC following a meeting between the then Leader of the Council and NTFC (also the loan to the Rugby Club had doubled to £5m by the time the report was finalised). Following our various interviews of Council Members, officers,
and review of reports, we have seen no clear evidence to explain why the amount increased or that the Council considered the impact of the increase on, for example, the viability of the project or the security required.
There's also an extended section on what may or may not constitute state aid, which might colour any future arrangements between the club and the council, as might this recommendation:
Any future land sales should, other than in exceptional circumstances and where the law allows, be undertaken via means of a competitive process, in order that prospective parties are able to tender for the purchase, by submitting their plans for development. Each bid should be appropriately appraised, and consideration should be given to any relationships either with Council Members or related parties as part of the awarding process. The ultimate decision on who to award the sale to, should in a matter of this significance be undertaken by Cabinet
following receipt of a formal tender evaluation process, which includes the results of the due diligence undertaken against each bid. When considering best value for the land, the Council may (in limited circumstances and subject to the particular facts) be able to take into account ethical considerations.
Still quite a lot to read there, but hopefully a bit more concise than the 35 pages of repetition and waffle I've just slogged through!