Recently we asked the question: Are Folkestone & Hythe District Council cooking the books? We asked this knowing they do not have the process or procedure within their constitution to appoint a shareholder to any of their companies – Otterppol Park LLP, Otterpool Park Development Company Ltd, or Oportunitas Ltd.
As the process and procedure is not in the council’s constitution, they cannot do something which is not in the constitution. It must follow the constitution. By appointing itself a shareholder in the companies it wasn’t following its constitution.
The council must have a designated “shareholder” to represent its ownership of the entity. The process for appointing a shareholder needs to be set out in the council’s constitution which should also detail how the shareholder reports on the exercise of delegated powers.
The word “needs” in the sentence above, means it is necessary; it is, it is an obligation.
But the issue doesn’t just stop there. As the council cannot be a shareholder in its three companies, it cannot borrow money from itself to lend to the three companies. Even if it could lend money to the three companies, it must loan money to the companies at market rates, otherwise it would be considered to be state aid.
The company should have a set of documented financial policies and procedures which describe areas such as borrowing and overdraft limits and levels which are reserved for council approval. These reserved matters should also be documented in the company’s articles of association.
However, looking at the Articles of Association for Oportunitas Ltd (which for simplicity are its constitution) there is nothing within them that sets out the financial policies and procedures which describe areas such as borrowing and overdraft limits and levels which are reserved for council approval. Not a word. As they are not there, the company cannot borrow from the council, nor can it return any profits it might make to the alleged shareholder. If the company borrows or returns money to the council it is acting beyond the powers of its Articles of Association.
The Guidance requires local authorities to develop quantitative indicators that allow Councillors and the public to assess a local authority’s total risk exposure as a result of its investment decisions. We recommend that, the indicators in the table below are used. Where local authorities have a different risk appetite or different expectation of returns depending on the contribution(s) each type of investment makes, they should consider presenting the indicators, classified by type of contribution or risk appetite.
But of course, such a chart, and/or information is not available for the public to view. As such we cannot know if the council are procuring best value, as per the statutory guidance for the investments it has made via its companies – albeit with the necessary process and procedure in place to allow this to happen.
Our council is a best value authority. It is under a general Duty of Best Value to “make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness.”
This though cannot be true of Folkestone & Hythe District Council, as it has no process to appoint a shareholder within its constitution to any of the companies mentioned; which needs to be there, but is not. It has invested £10m plus of money into Oportuintas Ltd, when Oportunitas cannot borrow money, or repay any profits to the council, as there is nothing in its articles of association to say it can borrow money from the council, or repay them.
As for Otterpool Park LLP, it does not not have articles of association. That aside the council cannot be a shareholder, as it has not followed the process to appoint a shareholder which needs to be set out in its constitution. Therefore, there appears to be only one conclusion; that being the council and Oportunitas Ltd is acting beyond its powers. The same goes for Otterpool Park LLP.
The investments (mainly property) cannot be best value as it was NOT allowed to invest into them.
The only answer to this is yes. The accounts have been overstated, due to the addition of property purchased without the council being able to be a shareholder in the companies which purchased them. Lawyers and accountants we discussed these matters with, are much more forthright about the matter whether the books have been cooked. They simply say yes, what is being done is beyond their powers, or ultra vires.
So what can be done.
First you can write to the external auditor Mr Paul Dossett of Grant Thornton at Paul[dot]dossett@uk[dot]gt[dot]com, setting out your concerns.
Two- you can right to the monitoring officer who is responsible for constitution and ask her to prepare a report of unlawful spending and/or maladministration under her s5 & 5(a) powers within the Local Government & Housing Act 1989. her email is – amandeep[dot]khroud@folkestone-hythe[dot]gov[dot]uk
You can write to the internal auditor and ask her to scope investigations into the three companies urgently. She can be contacted at – christine[dot]parker@dover[dot]gov[dot]uk
We understand the council and the relevant officers are now investigating the issues set out above. If perchance you feel the urge to write to them, it would assist in bringing more pressure to bear on the council; who in our honest opinion are incompetent. But as always, that’s for you to decide.
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