Tuesday 18 January 2011

What If Newham's Enron-Style Loan Is Ultra Vires?

This evening Thursday*, Newham council is holding an 'extraordinary' meeting, with the press and members of the public excluded, which will discuss the latest developments in the plan to loan debt-ridden and relegation-threatened West Ham United a huge sum of money. I have to agree with Mike Law, who suggests on his blog that the decision to hold a meeting is an indication in itself that the deal with West Ham is now "done and dusted".

But here's a thought - the deal involves the creation of a Special Purpose Vehicle, the type of shell company that was much favoured by notorious corporations like Enron because of their ability to understate and obscure any debts or liabilities. It's an unusual way for a local authority to conduct its financial affairs. So what happens if the loan to West Ham is subsequently found to be ultra vires?

Are Newham's councillors fully aware that they would then face an increased risk of District Auditor imposed surcharges in the event of a successful complaint? As this scenario was put to me by a neighbour who I know has already been in contact with auditors Pricewaterhouse Coopers about the West Ham deal, I'd imagine a formal objection is almost inevitable.

So perhaps our elected representatives should consider independent legal advice?

* Thanks to everyone who jointed out that the meeting actually takes place on Thursday!

1 Comment:

Anonymous said...

As a Newham resident I will certainly be seeking a judicial review of any proposed loan.

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