The Scottish National Investment Bank will lose millions to DRS
Circularity Scotland (CSL) has secured a £9m loan from the Scottish National Investment Bank. However, the latest update from the company’s administrator warns that the company “will not fully repay its debt.”
News of the loss comes just a day after it was revealed that a letter from then First Secretary Nicola Sturgeon had been used to encourage the bank to help fund the company.
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A statement of facts filed last week revealed that CSL owed more than £86.1million to its employees, its bank, the Inland Revenue and dozens of companies.
Unsecured creditors include waste management company Biffa, which is owed £65million for its spending preparing for the DRS.
Supermarkets and drink makers that have paid into the industry-led scheme are also expected to lose around £6million, with the breweries behind Tennent’s, Budweiser and Heineken each owing nearly £450,000 and Perthshire’s Highland Spring owing £130,000.
They owe more than £3m to the British Soft Drinks Association, £38,766 to HMRC and £1.1m to 38 staff and former employees of Circularity Scotland, including £344,611.
In a 93-page proposal submitted to Companies House, administrator Interpath Advisory says Scottish Investments Limited, a company owned by the Scottish National Investment Bank, “will provide the company with a £9million loan in May 2022 Lloyds” Bank PLC (“Lloyds”) provides the banking services and Bank of Scotland PLC (“BOS”) is registered as security agent for floating charge security purposes.”
Interpath goes on to say that the Bank of Scotland is considered a secured creditor for administration purposes.
“While we await formal confirmation of the amounts due under the floating charge security, we understand that this will cover the £9m loan provided by SIL plus estimated interest of around £0.2m million pounds.
“Based on our current estimates, there will be a sliding fee allocation, however, SIL will not repay its debt in full.
“The actual level of distribution will depend on asset realization and administrative costs.”
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Earlier this week, documents obtained by The Times revealed that Circularity Scotland had sent a letter signed by Ms Sturgeon to bank officials on February 9 while they were negotiating a funding package.
The email said: “We thought it would be helpful to share with you and the team this letter from the First Minister confirming the Scottish Government’s support for CSL in deploying the DRS in 2023.”
In the letter, which is undated, Ms Sturgeon said the DRS was an important environmental policy for Holyrood Ministers. She said: “We are committed to working closely with CSL to ensure a successful DRS launch in August 2023 and I have no hesitation in taking this opportunity to recognize the integral role CSL is playing in delivering the program becomes.”
In June, the bank’s chairman, Willie Watt, denied that the loan was the result of pressure from the Scottish Government.
“It honestly wasn’t,” he told MSPs on the Holyrood Economy and Fair Work Committee. “We make all our decisions completely independently of the Scottish Government. We are a highly independent body.”
Meanwhile, the Administrator’s proposals also confirm that Circularity Scotland’s unsecured creditors will receive a “nominal dividend”.
The notice of the proposals states: “Based on current estimates, we believe that unsecured creditors may receive a nominal dividend, the amount and timing of which is unknown.”
“We have yet to determine the amount of that amount, but we will do so once we have completed the liquidation of the assets and payment of the associated costs.” We estimate that the unsecured receivables from the company will increase based on those currently available information amount to C£80m.”
The notice explains that Circularity Scotland had £1.8million in the bank and is also entitled to a £400,000 VAT refund.
The physical assets in the office have already been sold to the landlord for £28,500.
Staff and HMRC are expected to receive all funds at their disposal.
The administrator, Interpath Advisory, stated that it expects “the management process will end by dissolution”.
Administrators have incurred expenses of £150,000 since their appointment in June. The four remaining employees were paid £11,000 plus £5,718 in pension contributions.
The company collapsed after the Scottish Government delayed the introduction of the Scottish Deposit Return Scheme for a further two and a half years.
Lorna Slater, Secretary of State for Circular Economy, blamed the UK government after ministers in Whitehall clarified that the Scottish Government would only get the necessary exemption from the UK Internal Market Act if it made a number of substantive changes.
These included removing glass from the scope of the system and demanding that ministers in Edinburgh agree to standardize deposit charging and labeling with the other UK systems.
Ms Slater said the lack of details on the terms set by Whitehall, including not knowing how much the bail fee would be, meant the deal could not go ahead as planned.
However, CSL denied this, insisting the scheme could meet the UK government’s demands and still come into effect next March.
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As Ms Slater announced in Parliament that the bank would appoint administrators, Tory MP Douglas Lumsden pointed out that the Scottish National Investment Bank had invested £9million in Circularity Scotland.
“Is the money gone now?” he asked.
Ms Slater replied: “The Scottish National Investment Bank is independent of the Government and Ministers are not involved in the decision-making of the Scottish National Investment Bank.”
“His investments are a business and confidential matter between the bank and CSL.”
Both the Scottish Government and the Scottish National Investment Bank have been asked for comment.
