Official Report (Hansard)
Date: Thursday, 22 November 2007
Northern Ireland Events Company
Mr Edgar Jardine (Department of Culture, Arts and Leisure):
Thank you, Chairperson. You will appreciate that things are moving at a fair pace, largely because of the need to get a paper to the Executive this afternoon, for reasons that I will explain later. My colleague Mick Cory has been immersed in this matter day and night over the past number of weeks, and will have some of the detail. I have to say, however, that we are still not in a position to give a huge amount of detail: a lot of work is going on, and that will have to continue for some time.
The Minister and I spoke to the Chairperson and the Deputy Chairperson of the Committee on Monday, to give them a “heads up”. We hope to get a paper to the Executive today; it is still being worked on and finalised. Our approach has not been totally tied down yet, but it will be before the Executive meets. On the assumption that the Executive takes a decision today, the Minister will plan to make a statement to the House early next week, so that the House is appraised of the situation. The Committee will appreciate that this is a difficult and sensitive situation, and I am indebted to the Committee for addressing the matter in a closed session. Many people are involved and there are significant consequences generally.
I will now give the Committee some of the background to the matter, and then Mr Cory will talk in general about the options that we are considering and the options that the Executive will have to contemplate this afternoon, if they agree to take our paper.
The draft accounts for the year ending 31 March 2007 reflect a current deficit of about £1·2 million. The Department has commitments to the Northern Ireland Events Company (NIEC) for its normal expenditure between now and the end of the year, which, as it stands at the moment, would result in a deficit, at the end of this financial year, of about £655,000, taking into consideration the £1·2 million and the money that we would be entitled to pay to the Northern Ireland Events Company. That is the best information we can give the Committee at the moment. A significant amount of work is ongoing in the events company, both by auditors and by a person that was put in as a financial controller — well, we have identified that the company agreed to take that person on as a financial controller. A lot of work is going on to try to “bottom out” those figures, not only retrospectively, but taking future commitments into consideration.
Our best evidence to date is that this deficit arose over the previous two years; it is not just within this year or even last year. It arose from a significant overspend against budget on a number of events on one side.
The other side is income from anticipated sponsorship, which did not materialise. The bulk of the deficit is made up by those two factors.
Given that the budget for the company is around £2·1 million a year, the deficit is of a size that can only be regarded as rendering the company insolvent. One of the concerns at the moment is that the individual directors are at risk of being held to have traded while insolvent. In a strict legal sense, the liabilities and the contingent liabilities of the company are precisely that. They are the liabilities of the company, not the Department. The Department has not underwritten or guaranteed the debts of the company. However, the situation gives rise to difficult policy and presentational decisions for the Department and, ultimately, the Executive because it is a significant and controversial matter for Northern Ireland. The Department of Finance and Personnel have a key interest in the issue, and Mr Poots and Mr Robinson have been kept in close contact with it over the last few weeks. The company has recently taken advice from an insolvency practitioner, and Mr Cory will say more about that shortly.
It may be helpful to the Committee if I were to give some background on the company’s administrative and legal framework. The events company is limited by guarantee and is bound by companies legislation. It is dependent on financial support, mainly from its sponsor Department, DCAL. Within the system, it is treated as if it were a non-departmental public body in the public sector. It is run by a group of non-executive directors, who give their time voluntarily. They are unpaid, and they are appointed by the Department. Those directors are supported by a small executive team. The authority of the Department to pay grant in aid to the Northern Ireland Events Company for promotional activities and events is contained in article 5 of the Financial Provisions ( Northern Ireland) Order 2004. The relationship between the Department and the company is governed by a management statement and financial memorandum. That requires that the NIEC should not, without prior approval, enter into any undertaking or incur expenditure which falls outside its delegations, or for which is not provided for in its budget, as approved by the Department. It is the responsibility of the company’s board, in the first instance, to ensure that it receives and reviews regular financial information that concerns the activities of the company and that it provides positive assurance to the Department that appropriate action has been taken with such concerns. That accountability is exercised through quarterly monitoring meetings, where representatives from the Department discuss accountability issues with the company and enquire about their corporate and business plans.
The Department was first made aware of a potential deficit on 20 September 2007. Prior to that, we had no indication of any impending deficit. On the basis of emergency board meetings that the company’s board of directors held in the interim, it appears that the directors were also unaware of the deficit. The company’s accounts for 2005-06 were unqualified, so there was no indication from those accounts that there was a problem. However, the investigations that have taken place suggest that the deficit stretches back into 2005-06.
Earlier this year, the company was due to move to the Tourist Board as part of the RPA (review of public administration). Partly as a result of the need for due diligence in considering the company before it was transferred and also because of some matters that were drawn to the attention of the Department, we put a comprehensive internal audit review into the programme for this year. That piece of work was completed in August 2007, and it concluded that there were some risk-management control and governance arrangements within the company that were satisfactory in part but contained a number of significant weaknesses.
The company and the Department had been working to develop an action plan to deal with those when they were made aware, on 20 September 2007, that there was a potential overspend. That also emerged from the work on the 2006-07 accounts by the auditors. That coalesced around the end of September.
In accordance with the RPA’s recommendations, we assume that the function of promoting events will transfer from the Department of Culture, Arts and Leisure to the Department of Enterprise, Trade and Investment and thence to the Tourist Board. Under that arrangement, the company would, in any case, have been dissolved in a solvent state by the current directors because it is not moving across: rather, the function is moving across to be covered by the Tourist Board. The Department of Enterprise, Trade and Investment has indicated that it remains committed, in principle, to the transfer but, in the light of ongoing disclosures, that is subject to its being satisfied with the results of current work. The conclusion of that “due diligence” work will be relevant to any decision on timing of the transfer.
That is the main thrust of my presentation. We have been assisting the company to consider its available options. They are neither extensive nor entirely palatable. However, my colleague Mr Cory has been working on the detail of that. This afternoon, in the Executive paper, we want to paint a picture of what those options are and ask the Executive to take a view on which they prefer. I hope that the Executive will take a decision today: however, they may well require more information. We will impress upon them that early decisions are needed because the company is already technically insolvent. That puts directors in the invidious position of trading illegally. Therefore, we need decisions to be taken quickly; hence the frenetic activity last week.
I have three or four —
It might be useful just before that if Mick were to give an indication of the framework within which decisions must be taken.
Mr Mick Cory (Department of Culture, Arts and Leisure):
Edgar has already made the point that, on the basis of our financial information, the company is technically insolvent. The directors have asked the Department to assist in meeting the liabilities of the company and that matter is before the Executive. The way the company is dealt with over the coming weeks and months depends upon the Executive’s decision.
The company has secured the advice of an insolvency practitioner to inform it of what its options are and what the best route is for it to take. We have had some discussions with him. I am not an expert in insolvency: I am informed only by that insolvency practitioner. The options are few. One is to cease trading now. Choosing that will depend on whether it is solvent liquidation — that is, the company is solvent and the Government will cover its liabilities. That option allows the board of directors to liquidate the company’s assets.
If that is not the case, then it would be an insolvent liquidation. Effectively, the company would be deemed to have gone bust and its assets would be divvied up amongst existing creditors.
The second option would be a managed wind down of the company and for it to cease trading in March 2008 or sooner if it could be made to happen. Again, the same options: solvent or insolvent liquidation. The decision will depend on the position with debtors and whether the Department would be willing to cover some of those debts.
Technically, in the wind-down option, if the Government directly discharged creditors, waived any debt against the company, and proceeded to liquidate the company in a managed way; the liquidator would then be required to cover contingent liabilities. That would be dependant on the Government’s position as to whether they wished to support the companies financial deficit.
We must also factor in the way in which we manage future events — and there are some significant events in the pipeline. For example, significant cancellation fees are a contingent liability with the motocross events. Therefore, in order to reassure event organisers that Northern Ireland is still capable of mounting such events, the manner in which we handle those matters in the coming weeks will be critical and should inform our decisions.
Those are the principal decisions that are before the Executive. What happens will hinge on the Executive’s decision on whether to fund those liabilities, bearing in mind that it will ultimately be the board of director’s decision as to whether the company is solvent or insolvent and whether to call in an administrator — not the Department nor the Minister because that would create a shadow-directorship issue, in which, if we instruct the company, we technically become liable for those debts.
I will sum up in one sentence. The Executive should bear in mind that events have been one of the major drivers of tourist bed-nights and, should we lose such events, there would be a significant issue with our reputation. Events are scheduled a number of years in advance, and, if we were able to continue, we would have to consider which of those we could stick with or drop. There is also the personal position of directors to consider. Those are people of high standing who have public-spiritedly and voluntarily given their services to the company, and there is some obligation to them.
Are they not remunerated?
No. Typically, DCAL does not remunerate. There are some isolated examples in which directors have been remunerated. For example, chairs and vice chairs of the Arts Council, Sport Northern Ireland and so on are usually remunerated — but not members. No one gets remuneration in the NIEC.
My final point concerns creditors —
You are telling me that that is a board of directors — set up under company law — and that those directors are not remunerated in any way. I do not know of any board of directors that has been set up under company law and which operates in that way.
Apart from expenses, in NDPBs such as the Arts Council, Sport Northern Ireland and National Museums and Galleries of Northern Ireland (MAGNI) we pay chairs and vice chairs a fairly nominal sum. Members are not remunerated, but are all entitled to travel, subsistence and other such expenses.
My final point is that there are creditors out there, some of which are small businesses that are relying on us. Those are the considerations.
The Executive must also consider the precedent that would be set by helping this company. Next week or the week after, there will be others.
Thank you for that, Mr Jardine and Mr Cory.
Mr D Bradley:
It is unfortunate that the company has found itself in its current situation. There is general agreement that it had been doing good work and that it had brought major events to Northern Ireland, which were organised effectively and efficiently. It also helped smaller events.
With regard to trading while insolvent, does that entail that the directors were trading recklessly? Why were the difficulties not identified earlier under the scrutiny of the annual accounts? If outstanding sponsorship had been received, would it have averted the difficulties?
We do not believe that the directors were trading recklessly. However, that must still be considered. We are not aware that the board of directors was given information that it should have dealt with but did not. That is the situation at present. Potentially, it may well be the case that the board was given incomplete, misleading and inaccurate information.
If the company enters insolvent liquidation, the insolvency practitioner or administrator will have to produce a report on the exact circumstances in which it arose. Those matters will be considered. Significantly, in that instance, the company’s board of directors have taken on board an insolvency practitioner’s advice on the situation. At present, they are content to continue to operate until such time as it is clear as to whether the company is insolvent. That is largely dependent on how the £1·2 million deficit is handled by Government.
Mr D Bradley:
My understanding was that if a company continued to trade while insolvent with the object of overcoming the insolvency, that is one matter; but if a company continues to trade while insolent without any hope of overcoming the insolvency, it is then trading recklessly.
That is precisely the urgency and why the Executive’s consideration is important.
On the question of whether the problem could have been identified earlier, if the appropriate information had been provided to the directors and to the auditors, it might well have been.
Mr D Bradley:
Surely, if the annually audited accounts, which all companies must produce, had been scrutinised properly by the auditors and the directors, the difficulties should have been identified as far back as 2005-06.
That is a fair point, Mr Bradley. The comfort of unqualified accounts was misplaced.
Sponsorship would certainly have helped. However, there were two sources of difficulty. One was the income from outstanding sponsorship. Obviously, if it had come in, it would have helped. The other source of difficulty was that the company work at two levels; for example, if a sponsor comes along who wants to promote an event for £50,000, he or she takes the risk and takes on the event. That is fine: if the event folds, that is the sponsor’s responsibility.
The Department believes that the company has overrun in its capacity to promote events itself. For the sake of argument, let us say that the company takes on the promotion of the Tennis Legends event — I am not saying that the company promotes it, but I shall use it as an example. In that situation, exposure is much greater. It seems that the rest of the deficit, apart from the income, has come from that. Therefore, recovery of outstanding sponsorship would have helped, but it could not have dealt with that.
Mr P Ramsey:
My concerns are for the staff and about the fact that someone is culpable for the situation. Genuinely, I feel that the staff have a great capacity to deliver programmes. Although the company could not always deliver money, it helped projects, programmes or festivals to access other money, commercial or otherwise. Therefore, I am worried about that capacity and about DETI’s concerns.
The Department referred to whether the Executive will accept the paper with its recommendations for trying to protect the product. Everyone around the table will know of events that are planned for the future. For example, in Derry, there is the Foyle Cup and the Milk Cup. Those events are central to the tourism industry and to bringing young people together. What is going to happen to those events? Who will take the responsibility now that, no matter what happens, the Northern Ireland Events Company is gone?
The capacity to deliver those events, and whether they continue, are interdependent. The Executive will decide what happen to the events. If Government takes on the liabilities, the way that the company is wound up will be critical in determining whether — and how — those events continue. The Minister is concerned about Northern Ireland’s reputation to manage events, and that the organisers of the World Police and Fire Games have Austria waiting in the wings to take over if there is any uncertainty. Therefore, I have no doubt that those factors will be considered by the Executive. As the Committee will appreciate, I cannot say what the decision or outcome will be.
It is a specialised area; it is not the sort of thing that someone can be seconded in to do. The staffing issue is absolutely critical.
How many staff are involved? What about the grants to small companies? At what stage was the Department aware that there was a deficit? I am concerned that negative vibes may come from the issue, which could impact on a future events company in the Province. How will that be managed?
In other words, what about the reputation issue that was talked about?
Those are all very good questions. I think that there are nine or 10 staff.
Currently there are 12 members of staff but three are on contract — so technically there are nine.
Grants to small companies will — as Mick said —depend on how the events company is wound up. Presumably, if it is wound up insolvent —
If the board of directors vote tomorrow that the company is technically insolvent and should be wound up, then the administrator makes the decisions regarding grants that are still outstanding.
Mr P Ramsey:
From this year’s budget, but not next year’s?
That depends on how next year’s budget is managed, with the Northern Ireland Tourist Board taking over the functions of the events company. That is how such issues are handled under company law. The question is whether it is worth being voted insolvent by the board of directors tomorrow. That depends on the Executive’s decision.
I will answer Mr Shannon’s other questions. The acting chief executive asked for a meeting with the relevant head of branch on 20 September, which was the first indication that we had that there was a problem. As a result of that, the Department set a series of actions in train to try to find out what that deficit was. Therefore, 20 September was the first indication that the Department had.
Has that had a negative impact?
Yes; it has.
Mr P Ramsey:
The impact will be awful.
It will be and that will depend on the decision that is taken. The damage to Northern Ireland’s reputation is something that the Minister is conscious of, which will be high in his thinking when he talks to his Executive colleagues today.
I am indebted to the witnesses for the speed in which they responded to the Committee’s request to attend here today. Obviously, the Committee is nervous about this issue. It is proper to put on record that the organising of many of those events has been good for Northern Ireland, and has been much appreciated. However, now that we know at what cost those events have been organised, whether we have the capacity to host those events needs to be considered.
I want the witnesses to be clear with us regarding the deficit that exists. One member has used the term “trading recklessly”, and I have heard your answer. However, I am unable to understand, or to appreciate, how the accounts did not draw attention to the deficit much sooner. We need an answer to that.
It beggars belief that a company could end up with a deficit that is more than half of its budget. I do not know who the accounting officer is, but an accounting officer in the commercial world would not last very long after compiling such a report. Given that the deficit could not have been a secret and could not have been hidden if people were properly fulfilling their responsibilities, it took a long time for the report to be compiled, published and for the information to be made available to the Department.
Can the Department, through this Committee, assure the public that there was no criminal misappropriation of public funds? A large sum of money is involved, and the public need to be made aware of what is happening. We are entering into Budget debates next week, and budgets are tight. Some £1·2 million is unaccounted for, and that deficit needs to be accounted for.
It was mentioned that there may be liabilities if the Motocross event was to be cancelled. This Committee does not know enough regarding whether it should be cancelled. Have Motocross events in the past made a significant contribution to the deficit? It is important to ensure that that does not happen again should another such event take place in the future. The Minister and his Department should be able to tell the public how, if it is true, Motocross events were able to contribute to half of the deficit. We need answers on that.
I appreciate the analysis of the future options that has been given. There is an issue regarding honour. The message that the witnesses should take to the Minister is that creditors and people with outstanding grants should not suffer. Many people and community organisations have acted in good faith, and should not be denied payment for their invoices. Otherwise, as has been said, the community aspect of those events would be on a much smaller scale.
We need assurances that the Department will promote a case in the Executive for the company to be assisted to resolve its difficulties, with the least damage to creditors and people, without standing grants. We also want assurances about a mechanism for future events in Northern Ireland. Would that necessitate a review? If so, it similarly necessitates that urgent and immediate commitments are given to continue with events where the Department may intervene and deem them to be value for money. We must protect events that are some years ahead, such as the police and fireman’s games, which is a marvellous event that Northern Ireland will benefit from greatly. We must have assurances that events will not be dragged down, and sucked into a bureaucratic quagmire, because we must give assurances to the public, to this Committee, the Assembly, and to the people who have entered into negotiations and contracts with us in good faith.
Those are cogent points, which I will deal with as far as possible. The last point is particularly pertinent as my observation of the world of event organising is that although those involved may be good at organising events, they may not always have due regard for the finer points of public sector accountability.
They have directors to control that.
One of the advantages of the company model is that it allows them to be fleeter of foot than the bureaucratic system, as you said. Why did the deficit not come up earlier? At this stage, my assessment is that if the proper returns had been made to the directors and to the auditors it would have come up earlier.
The accounting officer resigned in April or May, at the beginning of this financial year. Under the financial memorandum the accounting officer does bear responsibility in that area although ultimately the permanent secretary of the Department of Culture, Arts and Leisure is the first accounting officer, so that is where the buck stops.
The accounting officer of the Department is seeking to make a thorough investigation into the controls and how they operate in that company in order to answer those questions more thoroughly.
That smacks of the current Chancellor of the Exchequer trying to do something after the horse has bolted. What is the reason that the situation has got this far?
Will you incorporate your answer into the answer for Francie and Ken’s questions?
With all due respect Chairperson, although time is not on our side, this is a significant issue of public money. There are questions that must be answered in case we are asked about them.
I am happy to deal with them quickly. First, I cannot assure you that there is no criminal involvement at this time; all I can say is that there is no evidence from the work that we have done to date that there is any fraudulent activity. That work has some distance to go, but the auditors tell us that there is no such evidence at the moment.
You asked about Motocross, which was a contributor. We are told that Motocross delivered 7,000 bed-nights, and there is the potential to run that in the future. However, it was one of those cases where the events company took on a sponsorship role, so the exposure is considerable.
That is precisely the kind of event that we need to consider and decide what the risks are. Even if there is a penalty for pulling out, it may well be that that is the more sensible option. However, we will have to consider those one at a time.
If that is what the Committee wants to do, I hope to report to the Minister on this meeting before he attends the Executive meeting, which is in literally 15 or 20 minutes. I will be happy to relay the sentiments that I share, as has been indicated.
I had a phone call on my way here today from a company that did work for the events company and are owed £9,000. They are obviously concerned about the issue.
Maybe I do not fully understand the role of the events company. Over the years, I had the impression that it did not proactively seek events. I know that when I worked with Edgar on issues regarding the Smithsonian Festival, and also to ensure that the World Police and Fire Games are to be hosted here, the work was done by the Department.
The work regarding the Smithsonian Festival was done by the Department. The events company made a significant and positive contribution in getting the World Police and Fire Games to be hosted here.
There is an impression that the Department does the work and presents it to the events company, and they then decide whether the funding should be given to that event, or whether they have enough funding.
It is more typically the other way round. Those two examples are atypical.
If the Department was largely responsible for staging the events that brought into the public purse the kind of money that you were talking about — for example the bed-nights for Motocross — that then throws the responsibility on to the Executive to ensure that all the people to whom they owe money get that money.
Those people were part of the system that earned that money for the public purse, such as the company that spoke to me this morning that is owed £9,000. They did what they were asked to do. They were involved in a Motocross event at Toomebridge. You have probably heard about that, Edgar.
People who are owed money will be approaching us, as elected representatives. They will point out that they have completed their work, and will ask questions about what we are doing here. They do not care about the finer points of events.
They could go out of business too, Francie.
Yes, some of them could be hit hard. I think that the company that I am referring to will survive.
When I spoke to that company, I said that I did not think that the Department or the Executive would not stand over the commitments that were made to people who are owed money.
Mr K Robinson:
I assume that the chief executive was the principal accounting officer and that is who has resigned, and has been replaced by the gentleman who appeared on the news last night.
Yes, he is the acting chief executive.
Mr K Robinson:
This Committee is considering this issue from a governmental and departmental point of view. The directors are human beings. Is there are a possibility that the directors, in order to safeguard their own particular situation and perhaps their potential business situation in other spheres, may take other action prior to the Department or the Executive coming to a decision? In other words, are we trying to solve a problem that could suddenly be outside of our control?
That is a possibility. I understand that the directors held an emergency board meeting yesterday. They have not made that move yet. However, they are geared up to hold another emergency board meeting in the next few days.
Mr K Robinson:
Therefore, nothing may not be decided today. That is a danger for us. As I have said, they are human beings, and they have business concerns, their good names and their trading credibility to consider. They may feel that there is an alternative course for them, which may not be the case that we are contemplating.
I thank the Committee members and senior officials from the Department of Culture, Arts and Leisure for attending today.
We appreciate the role that the Committee is taking on regarding this issue. Obviously, we will help in any way that we can. I am sure that the expertise around the table will be of use to the Department.