Public challenge over £10m bankrupt council loan

Woking Borough Council effectively declared itself bankrupt in June

A member of the public has challenged a councillor to provide proof that a £10m loan to an effectively bankrupt council will be repaid.

Berkshire's Wokingham Borough Council loaned the money to Surrey's Woking Borough Council on 8 June, the day after Woking issued a Section 114 notice - a formal notice that a council's spending is expected to exceed its income.

Philip Meadowcroft challenged Wokingham councillor Imogen Shepherd-DuBey, saying there was "no proof as far as I can that the Woking loan repayment is guaranteed either by legally enforceable paperwork or a treasury guarantee".

But Ms Shepherd-DuBey, who is responsible for finance at the Wokingham, said the Woking authority was tied into "a legally-binding contract", and that the loan would be repaid using government money if necessary.

In a meeting on 30 November, Mr Meadowcroft asked for "valid, straightforward and legally enforceable paperwork evidencing that there are no circumstances, whatsoever, which will prevent Woking from meeting its financial obligation" to pay back the £10m, plus £350,000 in interest, on 8 March 2024.

Ms Shepherd-DuBey said laws ensured Woking would pay it.

She added that when councils effectively declare bankruptcy by issuing a Section 114 notice, government officials step in to take control of their finances.

"There has never been a situation where a council in a Section 114 state has defaulted on its payments, and other councils are one of the safest places for us to invest," she said.

She said a council defaulting on its payments would only happen if central government was unable to cover the costs.

Ms Shepherd-DuBey said Woking was legally obligated to pay the money back

Mr Meadowcroft said her answer was "inadequate", and that he still saw "no proof" of a guarantee that the money would be repaid.

But Ms Shepherd-DuBey said: "It's been happening for 20 plus years that councils are lending money to each other in this way and there has never been a problem with any council doing this.

"It doesn’t matter to us whether a council is in a Section 114 state or not because it’s all underwritten by the Treasury."