Suffolk County Council loan – statement by Halesworth Campus trustees 17 Jan 2017

Background

1. In January 2012 1,100 people took part in a local referendum, jointly commissioned by Halesworth Playing Fields Association (HPFA) and Halesworth Campus Ltd (HCL). 95% of eligible voters responded ‘Yes’ to the following question – “Do you support Halesworth Playing Fields Association in releasing the current Dairy Hill site for housing development in order to support The Campus Project, so that the town’s sporting and leisure facilitiescan be extended and improved for the benefit of all residents of Halesworth and surrounding parishes?”.
2. In September 2013 the HPFA committee approved key elements for a ‘Heads of Terms’ agreement with the then preferred developer of the Dairy Hill site. These terms included “HPFA shall dedicate the Dairy Hill residential sale proceeds towards The Campus development in accordance with HPFA’s charitable objects”.
3. This commitment was reiterated by the Chairman of HPFA in a letter to Castlemeadow Care’s Land and Property Adviser in March 2016, in which he said “I am writing to you to confirm it is the intention of Halesworth Playing Fields Association to invest monies raised from the sale of Dairy Hill in the new sports facility to be built on the old middle school site in Halesworth. [Obviously this is subject to all the procedural checks…..]”.
4. These facts underpinned HCL’s belief – reasonably held during late 2013, 2014, 2015 and early 2016 – that HPFA was committed to investing the proceeds of the sale of Dairy Hill in the new developments on The Campus. And, indeed, this was the view of the other key parties to the project – Hopkins Homes (the early preferred housing developer), Castlemeadow Care (CMC – the later preferred developer of the Dairy Hill Site), Pulse Fitness and Sentinel Leisure Trust, all of whom invested significant resources into the project on that assumption.

Rationale for, and use of the loan

5. The first phase of development on The Campus had to be the drainage and preparation of a grass pitch, to allow Halesworth Town Football Club to begin its move from Dairy Hill to The Campus, thus providing vacant possession to CMC. This work had to be carried out at least a year in advance of the new pitch being playable and, therefore, at least a year in advance of CMC completing their purchase of Dairy Hill.
6. In financial terms this meant that the drainage and pitch preparation works had to be finished and paid for well before the capital receipt which would otherwise be used to fund the works. In short, the work had to be somehow funded ‘up-front’, with reimbursement later from the capital receipt.

7. Neither HCL nor HPFA had the cash reserves to fund the works at the time they were required, so HCL volunteered to take on a loan to pay for the works. This was reported to HPFA and is recorded in the minutes of their committee meeting of June 2014 – “The discussion moved to drainage of The Campus field. Simon Weeks said that talks had taken place with Sport England regarding a grant, however, their offer included drainage over a 3 year period with various strings attached. Currently Campus have an offer on the table for the drainage of one football pitch at a cost of £40,000 with this pitch available for use at the start of the 2015 football season. Suffolk County Council have offered a loan to cover this cost.”
8. In the event, two pitches were later drained and prepared (rather than one) at a cost of approximately£88,000, paid for by HCL, using a loan of £85,000 from the County Council and with the active involvement of the Chairman of Halesworth Town Football Club. HCL sought, and SCC granted this loan in good faith, believing it would be repaid from the capital receipt from the sale of Dairy Hill, in line with HPFA’s commitment set out in the ‘background’ above.
9. HCL regarded (and still does) the loan offer by SCC as an action which was very helpful in allowing the project to move forward from a potential sticking point. In this regard it benefitted all the project parties, including HPFA. It also benefitted HPFA particularly, in that the end result was two good quality grass pitches to be used primarily by HPFA’s largest club – Halesworth Town Football Club.

Tensions over the loan

10. Relationships between HCL and HPFA began to deteriorate from the second half of 2015, (with the arrival at HPFA of a new group of trustees nominated by Halesworth Town Council, following the local elections of May 2015). This made already complex negotiations more difficult – particularly those concerning the merger of the two charities and the option agreement for CMC’s purchase of Dairy Hill. Both of these agreements, had they been concluded, would have contained legally binding commitments by HPFA to put the proceeds of the sale of Dairy Hill into The Campus Project, including reimbursement of the cost of the pitch drainage works.
11. On a number of occasions, however, HPFA threatened to ‘take its investment elsewhere’ if HCL did not agree to HPFA’s negotiating demands. If such threats were to be carried out it would, of course, have derailed the whole project. In relation to the loan specifically, it would have meant that HCL could no longer rely on the capital receipt from sale of Dairy Hill for reimbursement of the cost of the pitch drainage works.
12. In March 2016 the two pitches on The Campus had been sucessfullydeep-drained at a cost of approximately £58,000. They required approximately £30,000 more to be spent on surface preparation in order for them to be playable the following winter.

13. It was against the backdrop of the tensions at the time that HCL felt the need to seek reassurance from HPFA that the cost of the pitch works would, indeed, be reimbursed from the Dairy Hill sale proceeds. This request was put to the HPFA representatives at a meeting of the Joint Management Group (JMG) on 6th April 2016. The confirmed minutes show that the HPFA representatives agreed the request and would take it to their board meeting the same evening for formal approval by trustees – “Funding would be via a County Council loan facility 1.5%. HPFA agreed that at a later date this could be drawn down from capital receipt subject to approval and recommendation at this evening’s HPFA meeting.”
14. The minutes of that HPFA board meeting of 6th April show that the loan was mentioned by the Chairman, along with HCL’s request for confirmation that repayment would be from the proceeds of the Dairy Hill sale, but that he did not seek the board’s approval – “Campus will be drawing down an £85K loan from Suffolk County Council to ensure the work gets done by a suitably qualified sports ground contractor company. HCL have asked that we give our agreement to pay this when we sell the Dairy Hill site. I think this question is academic as before then we should be one charity”. As the liquid assets of the new, merged charity would consist almost entirely of the proceeds from the sale of Dairy Hill, HCL took this minute effectively to mean that HPFA was confirming that the loan should be repaid from the sale proceeds.
15. However, through a series of subsequent actions, the HPFA appeared to try to distance themselves from the position of supporting the loan and agreeing that it should be repaid from the proceeds of the sale of Dairy Hill:
    • In correspondence relating to ‘due diligence’ in advance of the merger of thetwo charities, HPFA started to insist that the loan should be repaid by HCL before the merger could go ahead. HCL found this a bizarre request since (a) it went against what we believed had been previously been agreed and (b) if we had had the cash to pay off the loan, we would not have had to seek a loan in the first place.
    • The HPFA board passed a ‘vote of no confidence’ in the HCL board, which it then passed to the local press for publication.
    • On 6th September, at a joint project meeting with representatives from the other parties to the project, as well as representatives from HCL and HPFA, the HPFA Chairman tried to claim that HPFA had had no knowledge of the loan before it was declared by HCL to HPFA through due diligence. HCL representatives pointed out to him that the relevant meeting minutes suggested otherwise. The minutes for this joint project meeting record that: “JC pointed out that DT had been aware of the SCC loan recorded in minutes of JMG meeting of 6th April 2016 and those minutes agreed correct in subsequent JMG meeting of 13th April 2016 (minutes of 6th April passed to RK [secretary]). DT said he concedes it is in minutesbut has no recollection of the discussion. JC pointed out that DT was Chair [on 6th April] and suggested he should also look in HPFA minutes of April 6th 2016 [see paragraph 14 above]”
16. On 17th November, at a meeting of representatives of HCL and HPFA and their lawyers, HPFA tabled a finance paper showing the repayment of the loan as a cost against the proceeds of the sale of Dairy Hill. It seemed, at this point, that HPFA had changed their minds and agreed that the loan should be repaid from the sale proceeds.

17. However, by 22nd November the HPFA leadership had evidently changed their minds again – the loan was cited, at an HPFA extraordinary general meeting, as one of three reasons behind the resolution to terminate all negotiations with HCL on the merger.
18. In the meantime, when it had become clear that HPFA would not allow any further progress on the project with the loan surety being tied to the asset value of Dairy Hill, HCL went back to SCC to get that changed. The surety for the loan is now tied to one of HCL’s own assets – the former caretaker’s bungalow

Conclusions

19. HCL had a long and reasonably held belief that HPFA was committed to putting the sale proceeds into The Campus Project, the first phase of which was the grass pitch drainage and preparation and that, right up until the point when HPFA withdrew from the project, we were working on getting this commitment embedded in legally binding agreements.
20. HCL accepts that, in hindsight, it could be accused of being too trusting of HPFA and too willing to bear what should have been shared risks in order to accommodate HPFA’s needs/demands, to try and move the project forward. But we reject any idea or assertion that HCL knowingly or intentionally did anything wrong in relation to this loan.
21. Furthermore, we can see no fault in SCC’s behaviour in relation to the loan. Our view is that their loan offer was a genuine attempt to help move forward what would have been a project of huge community benefit in this part of the County.
22. HCL cannot see any merit in HPFA pursuing a complaint about the loan – either against HCL, or against SCC because:
    • The loan was sought, offered and used for the intended purpose in good faith.
    • HPFA now bears no financial liability as regards repayment of the loan
    • We fail to see how pursuit of any complaint about the loan would be in the best interests of the charity’s beneficiaries – the people of Halesworth and surrounding parishes

23. HCL therefore calls on HPFA to stop its pursuit of a complaint about the loan.

Statement approved by HCL trustees on 9th January 2017