Coventry City Council provided a £1m loan to a culture trust despite it owing the authority money and being at risk of financial failure, according to a report.
In October 2022, the authority approved a loan of £1m to the Coventry City of Culture Trust.
However, following the loan being granted, the trust publicly announced in February 2023 that it was in a “difficult financial position” and later confirmed that it was entering administration.
A report by Barry Hastie, Coventry’s interim chief executive and s151 officer, outlined that in August 2022 the council was informed by the culture trust that it was having “financial issues”.
The trust told Coventry that it had predicted an overspend for 2021/22 of up to £1m due to a “historic problem which was causing a temporary cashflow challenge”.
The trust’s cashflow requirement led to its request for a £1m loan from the council to meet the short-term financing shortfall.
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The report also outlined that the council was already owed £0.6m by the City of Culture Trust at the time the loan was granted.
It said: “The decision to recommend a loan was a judgement call balancing the potential to rescue a very difficult position for the trust set against the level of risk that part or all of the loan might not be recoverable. The risk was made clear as part of the authorising report.”
Hastie’s report stated that the decision to grant the £1m loan in October was due to “potential positive outcomes” such as securing the employment outcomes for the trust’s employees as well as the existing £0.6m owed to the authority, “a sum that it was almost certain to lose in the event of the trust going into administration at that point”.
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