Council owed £6m from housing firm which made ‘financial loss’
- Credit: Copyright: Archant 2018
A housing company owned by the city council has lost money on its first scheme and not repaid a £6m loan from the authority.
Norwich Regeneration Limited (NRL) was set up by the city council in 2015 to provide more housing and generate income for the council, which was being hit by budget cuts due to austerity.
Families have moved into the first tranche of housing at the Rayne Park development, in Three Score, Bowthorpe, with 40 properties currently occupied.
But this project did not prove profitable, as council documents reveal the firm "developed its first scheme at a financial loss" and cannot afford to repay the £6.4m it owes to the city council.
The authority is now faced with increasing its reserves - money set aside for unexpected costs - to manage the risk that NRL may not be able to make the repayments.
A further £11.4m was pledged to the company in December, when councillors voted behind closed doors to lend the cash to build a further 70 homes at the same site.
And at a meeting of the council's scrutiny committee on Thursday, February 7, councillors again discussed the company in secret after a vote to exclude the public from discussions was held.
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Records filed with Companies House show that NRL lost more than £700,000 in the last financial year - and more than £685,000 in the previous twelve months.
And papers published ahead of Thursday's meeting revealed: "NRL is currently in a challenging trading position having developed its first scheme at a financial loss to the company.
"As at December 31 , the company has a loan outstanding with the council of £6.4m and insufficient assets to cover this liability in full.
"Considering this position, it is proposed to significantly increase the balance on the reserve to £4m at the end of the financial year."
The council has not borrowed money to loan to the housing firm - instead using cash holdings to temporarily fund payments - but this has increased its level of debt.
While the authority predicts it will see income of £133,000 a year from lending to the company from 2021 onwards, and will continue to access the loan's recoverability.
The council has said it is prepared to loan up to a further £11,433 to the company in 2020-21, £10,100 in 2021-22, £8,705 in 2022-23, and £8,995 in 2023-24.
The only other existing loan on the council's books is £121,000 to the Norwich Preservation Trust.