Council writes off £400,000 debts owed by knitwear firm

Shetland Islands Council has had to write off nearly £400,000 in debts owed to it by local knitwear firm Judane, it has emerged.

The Shetland Times can reveal that around £200,000 of a sum approaching £600,000 owed by Judane in loan repayments and interest will be paid back over the next two years. But because of a complex legal situation the public purse will be left substantially short, a scenario caused partly by bad advice given to the firm when it was days away from selling its large Gremista factory to budget salesman Chris Hodge.

Judane received a £525,000 loan in November 1993 to establish the knitwear business and, two years ago, £140,000 of that was still outstanding. The company received a further loan of £335,000 in April 2003 towards product expansion and market development, with substantial interest added in the past six years, but up until now no repayments have been received.

Lawyers for both the council and Judane have been trying to reach a settlement for months and councillors decided behind closed doors during Wednesday’s Full Council meeting reluctantly to accept around one third of the money owed.

The situation was complicated by the insurance claim and a writ served by the knitwear firm against the council following losses incurred as a result of a U-turn by the planning department several years ago. It is understood that SIC insurers’ advice was that Judane had a valid claim, but a settlement was able to be reached because of the firm’s reluctance to go down the road of a lengthy legal battle.

It is also understood that an unsuccessful attempt was made by a trio of councillors to force Judane into bankruptcy during Wednesday’s meeting. Lerwick North councillor Caroline Miller, whose husband is the firm’s managing director Frank Miller, did not take part in the discussions, while Jonathan Wills also left the chamber due to a dispute between himself and Mr Miller.

One source said the majority view was that clawing back around £200,000 was the “least worst option” for the council after it found itself “between a rock and a hard place”, although another said the whole situation was “disgraceful” and questioned some of the legal advice the council had been receiving.

The faulty advice from the planning department back in 2005 was that a change of use application was not required to allow Mr Hodge to sell his produce in the warehouse. Mr Hodge finally vacated the building 12 months ago following a lengthy dispute with the SIC and, latterly, the Millers after he ceased making rent payments for use of the factory.

Because of SIC chief executive David Clark’s close relationship with one of the Judane directors, he has taken no part in negotiations since taking up his post in June. Discussions have been carried out by the council’s head of legal Jan Riise and head of economic development Neil Grant.

Mr Grant said on Thursday that he was not in a position to make any comment at this stage, but that once everything had been tied up a public statement would be forthcoming. Mr Miller had not responded to a phone call from The Shetland Times by 5pm on Thursday.

A council source suggested the loan to Judane had been a laudable attempt to maintain employment in the community by propping up a company when the private sector would probably not have been willing to provide assistance. Judane was at one time a major operation which sold Shetland knitwear worldwide, before dwindling trade led the company to fold – leaving 15 people out of work – in February 2005.

Earlier this year, councillors were informed that Judane had rejected a competitive bid from T&N Joinery to buy its huge factory at the Blackhill Industrial Estate, which would have seen all but £50,000 of its debt to Shetland Development Trust being recovered. If the council had tried to force Judane to sell, however, it is likely that the insurance claim would have proceeded.

It is not clear at this stage what will happen to the factory, though there has been speculation that Judane’s preferred solution is to sell at least part of it to wool brokers Jamieson & Smith.

Judane also still owns its smaller factory next to the Shetland Hotel on the old North Road but has run into planning issues with its plans to turn it into a block of flats. There is a slim hope that the council could recoup more of the money owed if the value of the two factories increases in the next two years. The Royal Bank of Scotland takes priority over the SIC as a creditor.

Mr Riise advised councillors in April that reaching a negotiated settlement would improve the chances of securing a return on the loan rather than trying to force the company into receivership.