Six weeks on, council makes first public comment on £400,000 Judane debt write-off

Shetland Islands Council has publicly defended its controversial decision to write off £411,000 of debt owed to the public purse by knitwear firm Judane, saying it was the best deal that could be secured in the circumstances.

In the first official statement on the matter – six weeks after councillors took the original decision – development committee chairman Josie Simpson confirmed that members had decided against trying to force Judane into receivership to recover more of the money the SIC was owed. That was because of fears of a lawsuit for up to £2.3 million by the firm relating to bad advice it received from the planning department when it was seeking to sell the building to budget salesman Chris Hodge.

In a confidential circular from head of economic development Neil Grant issued to elected members last week, it was stated that a “significant proportion” of the £411,000 debt owed by Judane to the council which councillors have agreed to write off consisted of compound penalty interest built up in the last six years.

Mr Grant’s note did not specify how much of the figure was made up of that interest, but he advised the council’s lawyers believed it might be difficult to enforce payment of such sums against the company, which have accrued since 2004.

Judane borrowed a total of £860,000 in two separate loans from SDT, now the economic development unit. It was given an initial £525,000 loan in 1993 to build and equip the Blackhill Industrial Estate factory and, a decade later, a further £335,000 was loaned as working capital – less than two years before the company collapsed. So far, a total of £761,000 has been paid back and under the terms of councillors’ decision last month, a further £190,000 is to come – leaving the £411,000 shortfall.

Mr Simpson said he believed many of those who have argued that the SIC should have forced Judane into administration – an option for which three councillors voted last month – would be the same people who would have been complaining had the matter proceeded to a drawn-out court battle. If that had happened, he said, the council would have been left even more out of pocket but in return for the debt being written off, Judane has agreed not to pursue its claim for losses.

“It’s the best deal financially that we could get out of the situation we are in just now,” he said. “We could have pushed them into liquidation but we’d have ended up worse off, and we didn’t really know what the outcome of that would be. Once the figures come out we’ll be able to prove that on paper, that it is the best deal that we could get.”

Mr Simpson said councillors had “acted on the advice that we got” and that the SIC had remained silent because they had to be “very, very careful” not to jeopardise the ongoing negotiations.

And because a legal agreement is still being worked out, he said he was  unable to answer any more specific questions, including what proportion of the money written off was made up of penalty interest payments and why the council’s lawyers believed those payments would be unenforceable given they had been included in the original contract.

Mr Simpson said there was a full paper trail backing up Caroline Miller’s statement last week that all payments made to her Northern Isles Knitwear account ended up being used to repay Judane’s creditors. He also blamed <i>The Shetland Times</i> for “starting all of this”, saying he felt the media had “handled it very badly”.

Should a potential sale of the Blackhill Industrial Estate factory to local firm T&N Joinery  go ahead it would appear that a sizeable chunk of the proceeds, expected to be somewhere in the region of £500,000, from selling the factory will go towards paying off Judane’s creditors. It has remaining debts of £200,000 secured against the factory to priority creditor the Royal Bank of Scotland, and £150,000 to the SDT. The company is also saddled with additional debts of £178,000, including directors’ loans. Judane also owns a second, smaller factory at the town’s North Road.