Scottish National Investment Bank could lose millions on DRS

It looks as if the bank could get back just over £1.6m.

News of the loss comes just a day after it emerged that a letter by the then first minister Nicola Sturgeon was used to encourage the bank to help with the company financing.

READ MORE: Lorna Slater damned for 'incompetence' over £86m wreckage left by DRS

A Statement of Affairs lodged last week revealed that CSL owed staff, its bank, the taxman and dozens of businesses more than £86.1m.

Unsecured creditors include the waste management firm Biffa, which is owed £65m for its outlay preparing for the DRS.

Supermarkets and drinks manufacturers that paid into the industry-run scheme are also set to lose around £6m, with the brewers behind Tennent's, Budweiser and Heineken each owed almost £450,000, and Perthshire’s Highland Spring owed £130,000.

The British Soft Drinks Association is owed more than £3m, HMRC is owed £38,766, and 38 of Circularity Scotland’s staff and former staff are owed £1.1m, including one due £344,611.

In a 93-page proposal filed with Companies House, the administrator, Interpath Advisory, says that Scottish Investments Limited, an entity owned by the Scottish National Investment Bank, had “provided the Company with a £9 million loan in May 2022, with Lloyds Bank PLC ('Lloyds') providing the banking facilities and Bank of Scotland PLC ('BOS') registered as security agent for the purposes of the floating charge security.”

Interpath goes on to say that the Bank of Scotland is considered as the secured creditor for the purposes of the administration.

“Whilst we await formal confirmation of the amounts due under the floating charge security, we understand this will encompass the £9 million loan provided by SIL in addition to estimated interest of c.£0.2 million.

“Based on our current estimates, there will be a floating charge distribution, however SIL will not recover its indebtedness in full.

“The actual level of distribution will be dependent upon asset realisations and costs of the administration.”

The accounts show that the floating charge has been allocated £2.1m of the assets, with the remaining £700,000 going towards money owed towards employees, HMRC and unsecured creditors.

However, the statement of affairs suggests that this book value of £2.1m has a realisation value of £1.6 million, putting the loss for the bank at closer to £7.5m.

READ MORE: OPINION: Just why did our national bank blow £9m on DRS?

Earlier this week, documents, obtained by The Times, revealed that Circularity Scotland sent a letter signed by Ms Sturgeon to bank officials on February 9 while they were in talks about a funding package.

The email said: “We thought it would be helpful to share with you and the team this letter received from the first minister reiterating the Scottish government’s support of CSL to deliver the DRS in 2023.”

In the letter, which is not dated, 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 that a successful DRS is launched in August 2023 and I have no hesitation in taking this opportunity to recognise the integral role CSL will play in delivering the scheme.”

In June, the bank’s chairman, Willie Watt, denied that the loan was the result of pressure from the Scottish Government.

“It honestly was not," he told MSPs on Holyrood Economy and Fair Work Committee. "We make all our decisions totally independent of the Scottish Government. We are a fiercely independent institution”.

Meanwhile, the administrator’s proposals also confirm that Circularity Scotland’s unsecured creditors will receive a “nominal dividend.”

The notice of proposals says: “Based on the current estimates, we anticipate that unsecured creditors may receive a nominal dividend, the quantum and timing of which is unknown.

“We have yet to determine the amount of this, but we will do so when we have completed the realisation of assets and the payment of associated costs. We estimate that unsecured claims against the company amount to C.£80 million, based on the information currently available.”

The notice explains that Circularity Scotland had £1.8 million in the bank and that it was also due a VAT refund of £400,000.

Physical assets in the office have already been sold to the landlord for £28,500.

Employees and HMRC are expected to receive the full monies owned.

The administrator, Interpath Advisory, explained that it anticipates “the administration process will end via dissolution”.

Since being appointed in June the administrators have incurred costs of £150,000. £11,000 was paid to the four remaining employees, as well as £5,718 in pension contributions.

The firm collapsed after the Scottish Government delayed the launch of Scotland's Deposit Return Scheme by another two and a half years.

Circular Economy Minister Lorna Slater blamed the UK Government, after ministers in Whitehall made clear the Scottish Government would only be given the necessary exemption to the UK Internal Market Act if they made a number of substantial changes.

This included removing glass from the scope of the scheme and a demand that ministers in Edinburgh agree to standardise the deposit charge and labelling with the other UK schemes.

Ms Slater said the lack of detail around conditions laid down by Whitehall, including not knowing what the deposit charge would need to be, meant the scheme could not go ahead as planned.

However, CSL disputed that, insisting that the scheme could comply with the UK Government's demands and still launch next March.

READ MORE: Deposit Return Scheme: Circularity Scotland calls in administrators

When Ms Slater announced in parliament that the bank was appointing administrators, Tory MSP Douglas Lumsden pointed out that the Scottish National Investment Bank had invested £9m into Circularity Scotland.

"Is that money now gone? he asked.

Ms Slater replied: "The Scottish National Investment Bank is independent of government and ministers are not involved in the decision-making at the Scottish National Investment Bank.

"Its investments are a commercial and in-confidence matter between the bank and CSL."

Scottish Conservative MSP Maurice Golden said: “We don’t yet know exactly how much of the £9 million loan to Circularity Scotland from the Scottish National Investment Bank will have been lost thanks to this fiasco.

“But we do know that it is ultimately Scottish taxpayers’ money, and that it was risked and wasted thanks to the incompetence of the Scottish government, the false assurances of Lorna Slater, the minister responsible, and her stubborn refusal to listen to advice or make the changes required.

“Hundreds, if not thousands, of firms have lost enormous sums. People have lost jobs. Taxpayers now face a huge bill. Yet, disgracefully, the minister still refuses to take any responsibility, and has not yet been sacked.”

Labour's Daniel Johnson said: "Interference from senior members of the Scottish Government has played its part in costing the taxpayer £9 million.

"This is simply unacceptable and we need real answers over what has happened in this fiasco and how exactly the government was involved."

A spokesperson for the Scottish National Investment Bank said: “The Bank provided a debt facility to Circularity Scotland. The Bank is in regular discussions with the administrators as a secured creditor and this process is ongoing. 

“It would not be appropriate for the Bank to make a statement on the possible recovery amount as there are other creditors to consider.

“The administrators are working with all creditors but this will take time, as it would with any administration process and the numbers could be subject to change throughout the process.“

Responding to the administrator's proposals, Ms Slater said: “The Scottish National Investment Bank’s investment decisions are made independently, and on a commercial basis.

“We made it absolutely clear to the UK Government that vetoing our scheme would result in lost investment, but that did not stop their deeply regrettable last-minute intervention which undermined the viability of Scotland’s deposit return scheme.

“The Scottish Government remains committed to the delivery of a successful deposit return scheme, but the onus is now on the UK Government to make progress so that as much as possible of the investment made by businesses in Scotland can be put to good use.”