In the absence of the Economic Development Minister on Government business, I and the Treasury Minister gave a presentation on Friday to Members of Tynwald on the reasons for Council of Ministers’ decision to support the Sefton Group. However, I am happy to set out the reasons again now.
After careful consideration of the facts, Council of Ministers agreed that support for the Group is in the national interest for 3 key reasons.
Firstly, the core business is profitable, sustainable and provides vital hotel accommodation. The Sefton Group represents around a quarter of all hotel beds in the Island and nearly half of all 4-star accommodation – so there can be little doubt this business plays a key role in the visitor economy, which remains a key part of the Island’s economy as a whole.
Also detailed financial information from the Group show its hotels are profitable and should remain so as a result of this re-structuring. So this can in no way be characterised as putting public funds into a failing business. Rather, this is government playing a role in the Group’s wider re-structuring to ensure this important business continues to play a key role in our economy for years to come.
Secondly, the failure of such a high-profile local business could also adversely affect wider business and consumer confidence, causing further economic and fiscal contraction. Off-Island, confidence of both tourist and business visitors would be adversely affected, causing them to change or even cease travel plans to the Isle of Man. In the run-up to TT, the adverse publicity and economic impact could have been very negative.
On-Island, while the economy as a whole continues to grow, we must recognise that many local businesses and their workers are struggling, so a high-profile business failure could cause businesses and consumers to reduce spending. This could have caused significant further harm to both the economy and government income.
Thirdly, if the Sefton Group were to cease trading, this could result in many job losses as well as substantial losses to many local creditors (including government), which could lead to further job losses. The Sefton Group typically employs over 300 people directly and spends over £7m annually in our economy.
I understand the Group owes approximately £1.7m to local private creditors, so if the Sefton Group were to cease trading it would have been highly likely that some local businesses would have incurred substantial losses, leading to further job losses and business closures on the Island. As a result, the total cost to the economy and to government revenues would in all likelihood have been significantly greater than the direct cost of the failure of the group.
Some have suggested that the Group could have been placed into receivership and then acquired by another business so that only the Sefton’s shareholders would have borne any losses. Anyone with experience of receiverships will know that this is an over-optimistic simplification. In all likelihood, any acquirer would seek to cherry-pick the best assets with no obligation to honour all debts.
Receiverships are costly and complicated so in all likelihood such a route would have involved substantial costs to customers of the Group as well as the economy and government revenues. Based on all the information available, Council therefore agreed to participate in a deal which enabled Sefton to continue to trade, while taking all available measures to minimising the risk to public funds.
It is important to note that government is playing a relatively minor but key role in the total re-structuring which has allowed the Sefton Group to reduce its borrowings by approximately £72m to £24m. As a result, creditors, customers and the wider community can have far greater confidence in the Sefton Group than prior to the re-structuring.
The Middlemarch site has been acquired for £3.2 million from the land acquisition reserve and the Sefton Group has leased it back over the next five years with a provision to purchase the site after that period for the purchase price plus inflation. In addition, the Group has been provided with an interest-bearing loan of £1.3 million from the Economic Development Fund.
In this manner government should recover the full £4.5 million. As I said at the outset, I provided all of this information to Honourable Members at the briefing on Friday. I have also provided this information to the media to enable the public to understand why this action was in our national economic interest.