Loans given to the Sefton Group as part of a government bail-out deal were not lawful, according to independent legal advice.
Treasury Minister Eddie Teare MHK made an announcement in Tynwald today following the explosive findings of UK barrister Richard Moules, which were received by government last night.
The legal counsel concluded that ‘more likely than not’ both the original £450,000 loan made in 2012 and the £1.2m cash loan given the following year were ‘ultra vires’ - i.e. not lawful.
He concluded both loans should not have paid out as the Sefton Group was not an ‘eligible business’ under the Enterprise Act as it was in arrears with tax and had incurred civil penalties.
The purchase of the Middlemarch site (on the corner of Walpole Avenue and Lord Street in Douglas) for £3.2 million, however, was lawful as it did fall within the scope of the Land and Property Acquisition Fund.
Mr Moules points out that the government could seek to sanction the loans retrospectively.
Economic Development Minister John Shimmin MHK tendered his resignation this morning as a government minister over the matter. But it has not been accepted.
Michael MHK Alfred Cannan has asked for an emergency debate on the matter this afternoon.
In his statement to Tynwald this morning, Mr Shimmin said: ‘As Members are aware, this decision was taken with the honest intention of protecting jobs and businesses on the island.
‘In this regard I believe we have been successful. Recent figures released have indicated that the number of creditors has been significantly reduced in the last 12 months; the prospects for the Sefton Hotel (and indeed the tourist sector) are promising and therefore the losses which would have potentially brought about the demise of other local firms appears to have been reduced; the confidence in the economy was maintained and is currently in a very healthy position; and the taxpayer continues to receive repayments of the loans with interest.
‘However, it is apparent that we did not have the legal vires to make the two loans and for that I apologise to the Court and the people of our island unreservedly. It is vital that Government acts within the law and when wrong doing is identified then someone is held accountable. I take full responsibility for this failure and as a result this morning I have tendered my resignation to the Chief Minister.’
Mr Teare, acting in the place of the Chief Minister who is off the island, told the court that he was not accepting his resignation and would not be passing the resignation to the Governor.
He told the court: ‘It is clear to me that the Minister acted in good faith in the best interests of the island’s economy and people. On the understanding that he has offered a full and sincere apology to myself, the Council of Ministers and to Tynwald, I am not going to forward his resignation to His Excellency the Lieutenant Governor.
‘The Council of Ministers recognises the importance of respecting the legal process in these matters and acknowledges that an error was made in this regard. I would like to add my sincere apologies to this court and those of my colleagues in the Council of Ministers.’
He said the position would be reviewed again in light of the latest legal advice to ensure it did not arise again.
In his legal opinion, Mr Moules concludes: ‘It follows from my advice that it is more likely than not that the loans of £450,000 and £1.2 million were ultra vires i.e. not lawful under the EA 2008 and the 2009 Regulations.
‘This means that the government has a power (although not a duty) to seek restitution of the monies from Sefton. Such a claim would, however, be subject to the usual defences to a claim for restitution, including the defence of change of position.
‘As an alternative to seeking to recover the money, legislation could be enacted to validate the transaction retrospectively.’