Marketing Gloucester went bust owing £1million - and the final figure is likely to be much more
By James Young, Andy Merrell and Mark Owen | 28th February 2020
The catastrophic extent of Marketing Gloucester's failings can now be revealed with the company owing nearly £1million when it went bust.
And Punchline can reveal that a leaked report into the finances of the Gloucester City Council-owned company has stated that the true extent of the financial black hole is still not known.
That is because of a "myriad of potential unidentified costs" relating to the UK Digital Retail Innovation Centre, a new company set up by Marketing Gloucester's former CEO and bookkeeper.
Bristol-based Bishop Fleming have been engaged to manage the insolvency process at Marketing Gloucester having been appointed to the role by the MGL board.
They have written to the company's 53 known creditors explaining the liquidation process and detailing the staggering amounts owed by the now defunct company.
The total owed comes in at an eye-watering £995,174.36.
Small businesses, predominately from Gloucestershire form the list of so-far known trade creditors that totals £105,939.92.
Amounts owed range from £5.99 to one individual, to more than £21,000 to Gloucester Quays. Gloucester Rugby are owed £6,056 and there is a £1,600 bill for a luxury Wotton-under-Edge hotel.
Moose Partnership Ltd, the publishers of Punchline-Gloucester.com are also on the list of creditors to the tune of £1,920 as MGL sponsored an edition of Punchline magazine in 2019.
There is also more than £750,000 of public money outstanding, with a £400,000 deferred grant for establishing the UK:DRIC listed as a creditor and Gloucester City Council owed £352,327.76.
Total assets available to service those creditors comes in at just £25,130.57 - basically equating to the amount in the company's bank account when it went into insolvency.
It is so unclear whether Gloucester City Council, as owner of the solitary share in Marketing Gloucester will be liable for any of the outstanding public funds.
Three key reasons for failure
A report by Bishop Fleming sent to the creditors details the history of Marketing Gloucester from its inception in 2008 through to the financial problems of recent years.
It summarises the company's failings into three key points.
The reduction in grant funding, that saw MGL receive £486,000 from the council in 2015/16 down to £269,000 in the current financial year, is one of the key points raised.
However, the report also notes that "this was not a situation unique to Gloucester, local authorities all over the UK have been faced with challenging public spending decisions."
The second point states "the company failed to deal with the reduction in core revenue.
"Attempts to find new and alternative sources of revenue were inadequate and, when this became evident, there was little attempt to cut costs and reduce activity accordingly."
Documents seen by Punchline show how Marketing Gloucester increased spending on salaries rose by 12 per cent in the last year, despite the number of employees being reduced from eight to seven.
There were also marked increases in the spending on travel which rose 72 per cent (rising £3,098 from £4,293 to £7,391), sundry expenses also increased by 53 per cent to £9,097 from £5,917.
The spending on the company's accountancy and bookkeeping more than doubled - going up by a whopping 131 per cent from £5,917 to £12,631.
Punchline also understands that £1,295.90 was spent to install a tap at offices shared by Marketing Gloucester and the UK:DRIC.
The proposed reduction in funding should have been of no surprise to those running the company.
The council confirmed the grant funding would fall in June 2017 and gave detailed breakdowns at the time of when and by what amounts the money would fall - and yet spending still increased.
Against that backdrop, Marketing Gloucester's then CEO Jason Smith made an application for a £400,000 pot of government money to establish the UK:DRIC.
That came from the Gloucestershire First Local Enterprise Partnership (GFirst LEP) and was approved by Gloucestershire County Council and given to Marketing Gloucester.
And the uncertainty over the UK:DRIC and relationships with another city-based entity is reflected in the third summary key point made by liquidators Bishop Fleming.
'High-risk projects with Insufficient business and financial planning'
The report states: "Too many high-risk projects were entered into with insufficient business and financial planning.
"The company deviated from its core purpose and neglected to focus on prudently managing the day to day business."
It adds: "Pressure on the company was further exacerbated by potential liabilities emerging from partnerships and arrangements."
These include the "UK:DRIC, the Gloucester Business Improvement District, and involvement with a Heritage Lottery Fund project."
No business plan has ever been publicly released for the UK:DRIC and the limited company registered at Companies House has just two named directors.
They are Jason Smith, the former CEO of Marketing Gloucester, who was sacked for gross misconduct at the end of 2019 and Richard Brooks, the bookkeeper who was also sacked.
'We have no idea what costs may be under the rug'
Punchline has seen a leaked report made to the board of Marketing Gloucester ahead of the decision made by the board to put the company into insolvency.
That report states that lack of information regarding the UK:DRIC and "the poor financial administration of the company" means its creditors are yet to be discovered.
It states: "the poor financial administration of the company" has led to "numerous contracts and obligations being created in incorrect company names."
That has led to "a myriad of potential unidentified costs to the entity over and above" the figures known by the Marketing Gloucester board.
The report adds: "We have no accounting records, bank accounts etc in relation to the UK:DRIC. As such we have no idea what may be hidden under the rug in relation to this entity."
"Numerous contracts and financial obligations appear to have been created for this company, either in the name of UK:DRIC or in the name of Marketing Gloucester.
"The actual substance and contracts underlying any of these obligations is uncertain at present due to a lack of available records."
However, Punchline has received further documents that state the funds spent by the UK:DRIC in its first year of operations.
They show that all of the £400,000 of public money has gone - in fact the company overspent by more than £75,000.
The problems with Marketing Gloucester first rose to prominence when the company approached the council for a £224,000 loan in early 2019.
In May, former City Council leader Paul James - who had been a board member of Marketing Gloucester since inception and chairman since 2013 - stood down from his role on the board.
He then stood down from his role as leader of the city council in November, immediately prior to the full extent of the crisis unfolding.
Last night, at a full meeting of Gloucester City Council, it was revealed that councillors have approved £200,000 of new funding to support the development of a new destination marketing organisation to replace MGL.
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