Prompted  by the discovery that the NWDA did not obtain guarantees from both the directors of Lucy’s of Ambleside Limited I asked them this question:

Given that any personal guarantee is only as good as the financial standing of the person giving it, would you please tell me what the due diligence process provided in the way of evidence of Mrs Nicholson’s personal worth to assess the value of the guarantee, i.e. what assets did she own and what value was placed on them and by whom?

Their reply is interesting, to say the least!

An assessment of her assets was made as part of the application process, and at the time it was not considered that it would be necessary to seek repayment under the guarantee as the business was judged to be viable and capable of servicing the loan which was advanced from the Fund as well as its other borrowings going forward. The advance of the loan was not conditional on there being sufficient assets to cover the guarantee but the guarantee was taken as an insurance to enable the Fund to potentially recover some or part of the loan in the event of a default. As important is that the guarantee was taken in order encourage a greater personal commitment from (in this case) the controlling Director within the business and to ensure personal responsibility for decisions taken and implemented.

You will appreciate that a purpose of the Transitional Loan Fund (TLF)was to provide finance to viable businesses which were unable to access funding that they needed from commercial sources, as well as to preserve jobs in the North West region. Businesses applying for loans through the TLF were by their nature ones that could not meet the commercial lending criteria of banks or other institutions for various reasons for instance due to lack of an established track record of earnings growth, or lack of security. The business in this case fitted that profile.

I cannot understand how the “the business was judged to be viable and capable of servicing the loan” when I, with only minimum financial information, said at the time the loan was given:

1. The company’s balance sheet at 30 September 2008 showed net assets of £122 (2007 – £18,100) having taken into account an overdrawn directors’ loan account (included in debtors) of £52,777.
2.  There is a note in the accounting policies “As the company has significant current liabilities at the balance sheet date the going concern basis is dependent upon the continued support of the company’s creditors”. This is “accountants’ speak” for the company is unable to pay its debts. It is also extremely rare for accountants to qualify their opinion. In other words they think things are really bad.
3.  As noted above the company has financed its fixed assets with current liabilities, a situation prophesied by the directors themselves in September 2006 in an interview with the local paper, The Westmorland Gazette. The article reveals Lucy Nicholson, one of the directors, has invested nearly half a million pounds in the project but then she adds “Goodness knows where the money is coming from”!
4.  The “half a million” investment isn’t in the accounts. I think she may be confusing spending (other businesses’) money with investment.

I just wish I could say

Well, at least it’s not my money which has been lost

but I can’t because it’s ours as taxpayers.