A FAILING development company set up by Mid Devon District Council is expected to be wound up after racking up a debt of more than £21 million.

Members of the Liberal Democrat council’s cabinet voted unanimously to recommend the full council agrees that 3Rivers Developments Ltd should stop trading.  It says forming the business in 2017 was “a poor decision”.

Councillors want a “soft closure” of the company rather than calling in administrators, as it offers a better financial return.

Two of the company’s projects – St George’s Court in Tiverton and Haddon Heights, Bampton – will be completed in the next six months, which should go some way to save the council’s reputation, they said.

The company, 3 Rivers Developments, was set up to construct “high quality” local homes while generating a profit for the council, but it was impacted by the pandemic and a deteriorating trading position due to a lack of sales at St George’s Court.

Councillors heard that with no projects in the pipeline, the company is facing a challenging future with rising interest rates and uncertainty in the housing market.

The council had loaned the company more than £21 million and an annual sales turnover of around £3 million to 3.5 million is needed just to cover overheads.

In its 2021/22 and 2022/23 accounts, the council made provision for potential company losses of around £5.3 million and it is likely further write offs would need to be made.

Councillors were asked to make an urgent decision following a report on the company by accountants Francis Clark, which was considered in a session which the press and public weren’t allowed to observe. The report was put together after councillors rejected three variations of a business plan.

Members of the public who attended the cabinet meeting heard concerns from former independent council leader Barry Warren who questioned whether it was right that deputy chief executive of the council and chief financial officer Andrew Jarrett should also be founding directors of 3Rivers.

Cabinet member for finance Cllr James Buczkowski (Lib Dem, Cullompton St Andrews) said it was not unusual for a deputy CEO to be in that position and as head of finance he would expect him to be involved in the discussions around the finance of the company. The decision to set up the company was made by councillors not officers, he said.

“It is clear that poor decisions have been made by councillors in the past, particularly the previous administration, likely due to a commitment bias to a failing and unviable project,” he said. “These poor decisions and sometimes indecisions have resulted in the most serious situation for the council with significant financial implications.”

The company’s property and assets would be sold off over a ”sensible short term period.”

A thorough analysis of all the options to close the company were made to maximise the return for the council but “a risk free scenario” could not be guaranteed.

Cllr Rachel Gilmour (Lib Dem, Clare and Shutton) said she is “delighted and relieved” that experts had become involved and asked for a “stringent survey” of the properties to be done by someone independent of the council.

Deputy council leader Cllr Jane Locke (Lib Dem, Canonsleigh) added: “If I were coming here to buy a property and I got reports of the discussions we are having tonight I might be wondering about investing many hundreds of thousands of pounds into a property being built by 3Rivers Development Ltd.

“I hope in order to maximise the income from these properties this council will do what it can to reassure any potential purchasers that they are making a sound investment, unlike this council did, as I would hate to see us discount properties massively just to see them get sold and that all guarantees from buying a brand new property will be honoured in the future.”

The full council will make the final decision on winding up the company on Wednesday, September 6.