Thanet District Council was right to allow TransEuropa to defer payment but wrong to include those funds in the budget.
Thanet District needed TransEuropa to remain operational for as long as possible. Indeed ideally Thanet could still do with her being operational. So to increase the viability of the company Thanet District Council was right to give them a deferment option. What they did wrong was fail to protect themselves against the debt exposure.
Any company worth it's salt that finds that it has one debtor worth more than 10% of the yearly budget would immediately seek to share the risk with another organisation. One option would be to leverage the debt using loans or bonds whose value or viability was entirely fixed to the debt. Banks do this all the time and this allows them to keep lending (although we all know what happened when they got silly with this).
It was right to preserve the ferry operation from Ramsgate but it was wrong to allow the council's budget to carry the risk.
When Chief Executive Sue McGonigal and her team (including Sarah Martin, Financial Services Manager) advised The Council on to defer payment Ms McGonigal was doing so from the safety of a six figure job that combined the old Chief Executive role and the Chief Financial Officer role. At that sort of money one expects the Chief Executive to know that the debt exposure was massively too high and should be refinanced or ideally packaged up and sold on.
Continue Reading: TransEuropa's £3.3m debt was not the mistake