Lynton and Barnstaple - Operations and Development

To be fair, the structure at the L&B is such that many of those commitments might not sit under the Trust.

 

True. I keep forgetting that the L & B isn’t a simple organisation.

 

There is a lot of work required to get this group back to what would be called a well managed charitable trust.

 

This talks about the £250,000 loan being agreed in 2020. I could not find it shown in the Trust's balance sheet at 31.12.2022 - it is not in debtors, so assumed it was made in 2023 at the time of purchase around March time. It has not been explained why an unsecured loan said to be at commercial rates is at 5% interest when the private secured loan is at 6%. The Trust holds £50,000 in A voting shares and £203,000 B shares in LBBC. If these B shares were donated, as this second response states, why were both lots of shares shown as investments in the 2022 Balance Sheet (at £252,175 being £253,000 less the £825 loss LBBC made in 2022). This is a simple matter of debit and credit - when the £203,000 donations that are related to the B shares came in - either donated, in which case nil entry in the books, or cash to pay for them in which case debit cash, credit donations. Has a credit entry been created to balance the figure in investments ? This is why I said the exposure in the event that the business fails is £503,000 because this asset of £252,175 showing as an investment in the 1922 accounts balance sheet along with the loan of £250,000 (wherever that is or will be in future accounts) will become at risk of loss if there is nothing left over after the £580,000 secured lender gets his money back. I hope someone will prove me wrong. Surely the £250,000 loan has not been shown in the accounts as an investment which would explain a lot of this. Meanwhile I am still confused.

 

It is all rather baffling. What concerns me here is that the non-disaffected (righteous?) Trustees appear to be playing fast and loose with monies with which they have been entrusted.

 

The apple cart has been well and truly upset for some time, but it makes me think just how long has all this been going on? If you like, just how much money before all of this took place has been wasted that we don't know about?

 

I see the Exmoor Associates website has removed the Minority Newsletter that was visible a day or two ago. I wonder whether they were leaned on and, if so, what was said to make them do this?

 

After reading the documents again I think that the minority report is largely vindicated by the statements made by the LBBC and Land B trust. Even if in some matters of detail the disaffected were unable to produce numbers that agreed with those now shared (which of course was not their fault having been denied access to those numbers).

The majority of trustees (I.e. those not authoring the report) have:

- presided over the strategic calamity of losing the planning permission to extend the line

- spent a vast sum of money on a road which is not on any conceivable critical path

- failed to ensure that there is money to pay for a bridge which may not be adopted if not completed soon, and is in any case needed for the extension that they are determined to pursue, despite

- as a result of the first item, having upset most of the locals in the vicinity of the extension

- created a situation where the business risk associated with the OSHI has been added to the list of risks held by the trust (leasing the business may have been a better option

- moved substantial sums of money about without it being clear that the decisions were taken by properly called and quorate boards and in some cases it appears without minutes.

- continued to act as a board whilst excluding correctly elected members

- failed to ensure even the meagre level of reserves required and probably therefore also failed to take into account all risks

- made a loan which almost certainly does not conform to the CC guidance

- allowed legacies to be used to purchase shares in a trading company - this is on the fringe of acceptability, there would have to be an investment gain to be had, to comply with the guidance. It is a pretty risky investment by most measures, particularly in “B” shares.

By their own admissions they have committed more than 10years of profit to the OSHI. (CIC profit being £38k and the total put into the OSHI being £503,000).

 

I've been away with work for a week, which is why I can't be at the Gala which I hope goes well. So it is really helpful to have @21B and @Michael B 's forensic analysis to come back to to try and understand what has been going on. Both raise very sensible questions, which it is pretty clear the missives from the majority of Trustees do not begin to answer.

I also see that we now know that at least £1.8m was spent on OSHI. But the natural understanding of "how much did you spend on something?" includes all of the costs pf purchaing an item - but the unsigned author of this latest update excludes non-Residential Stamp Duty and any professional fees, as well as the £50,000 that the Trust appears to have spent on the land for the new trackbed. On £1.8m, Non-Residential Stamp Duty is £79,500 (and this assumes that the whole transaction including the house was at the lower non-Residential rate) and the legal fees, searches and whatnot will not be free. If the former owners are renting the house for a sub-market rate, as has been repeatedly suggested, then the difference between the market rate and the amount being paid is also a direct cost (in this case, foregone revenue) which should be included in the cost of the transaction: based on the suggested rent and length of the lease, this figure could be measured in the tens of thousands of pounds - but yet again the Trust is silent on this (ironically, as the Trust is spending in the region of £300,000 at Rowley farm to deliver a two bedroom converted milking parlour for staff accommodation).

Finally, the points about the loans and exposure that @Michael B makes are excellent, and suggest that he is an accountant with professional experience in this. The interest rate that the L&BRT's loan was set at has to reflect commercial rates at the time it was drawn down - that is, the interest rate in the open market at the time of the transfer of £250,000 to LBBC - which appears to be in the last 12 months, when the unsecured interest rate would have been, post-Truss, well above 5%. As has been repeatedly said, it is inconcievable that an unsecured commercial loan should be cheaper than a secured one.

So even this response - which provides much more information that we have had, despite repeated requests - is still incomplete - why not just be straightforward?

Moreover, why was a penny more than the professional valuation paid for OSHI? What is the basis for this £250,000 "premium" over the valuation given the economic outlook in 2023 versus 2015, when more than 500 pubs have closed in the first six months of the year? Just because something may have been true in 2015 doesn't make it true now.

I don't know enough to assess whether £250,000 is the right amount to pay for the Renewable Heating Incentive (RHI) payments, but I'd observe that this implies that they're worth £22,700 a year, and I presume that this will vary based on usage (ie, on the weather). As a result, even if the amount is correct (and @Isambard! is our local expert on this) what Messers Miles and Cowling have done in doing this is to transfer the risk from the seller to the Trust, via LBBC. Why not simply leave the RHI payments with the former owners, and have them bear the risk?

All of which brings us back to Newsletter 81, the Minority Report and the response to the Minority Report. I'd observe the following:

- Newsletter 81's claims that we have the money to Build Bridge 65 as the key first step of the extension have been debunked both by the Minority Report, and ironically, by the response from the Trust, which with a careful reading actually substantiates the Minority Report's principal concerns;

- It is clear that the Minority Report's publication has forced the other Trustees to provide the transparency that should have been there in the first place, and on that alone, Chris Duffell, Anne Belsey and Mike Whittaker deserve our sincere thanks;

- The financing of OSHI is clearer, and the Trust's exposure to OSHI in the case of the business failing - no one wants this, but a responsible Board must consider the worst case - is at least £503,000 plus interest rather than the misleading (that word again) £350,000 cited by the Trust. Is the intention to mislead, or do Messers Miles and Cowling simply not understand what they're signing the Trust up to? It's indicative of our current position that the two possible explanations of the Trust's publications are an attempt to mislead or rank incompetence.

- Even though the total amount spent by the Trust/LBBC is not yet clear (Stamp Duty, legal and professional fees, submarket rent), and it is now for those responsible to explain how the £580,000 secured loan at 6% was agreed. Specifically:

• Who else was given a chance to lend to LBBC?
• How was 6% decided as the correct rate? Where was the market testing?
  
• Were debentures offered? Why not?
• Given that the loan is from a Director of the CIC, were all the steps recommended and required by the Charity Commission for related party transactions followed?

Of course, if the "premium" and the RHI elements of the purchase price had been omitted, the price would have been £500,000 lower, and much of the £580,000 loan would have been unnecessary.

As has been consistently the case with the Trust over the last 12 months, the more information that becomes available, the more questions arise. A sorry tale, and one which demands accountability from those who got us into this state.

 

No, definitely no leaning! I doubt many people knew it was there tbh. It was posted there just to assist EA Shareholders and L&B Trust members who had not received it by email as had been intended. Due to some "technical issues", the bulk email system they use had blocked sending it to many members, but that has now, AIUI, been resolved. Surprisingly, the L&BRT had never attempted a bulk email to all members before! Who knew?

 

(Not my video)

 

Despite all the recent politics, remember that THIS (see video) is what brings us together, what drives us forward, and what feeds the passion we all share.

 

Politics aside, if this is going to get done we need to be totally open and honesty about how it is going to be done and to recognise that not everyone is going to want a railway in their back garden. But it is down to the Trust to try as best as they can to persuade those of the benefits of having a railway in North Devon. We can no longer say it was someone else's fault, we have to learn from our mistakes and continue to go forward, we also need a plan that everyone can understand and make it their own in the process.

 

To move forward Some people have to realise they are not the people to take things forward, and step aside, i shan't name them but most people will know who i mean, Ian concerned that buying the pub and running it was a mistake, and could potentially bring the whole thing down, and all the hard work be for nothing, it would have been far better to have either protected the land needed and sold the rest on, or leased itto someone so that way, if it folds, it won't bring down the entire project, What the RVR, did with some land, which included a farm, was to buy the entire plot, keep what was needed, then sell the rest on, so protecting what was needed, without risking the rest of the project, and by selling on the farm, covered the purchase of the track bed, , i believe the L& B could learn from how the RVR went about aquiring bits of track bed, and the PR they had to have to gain support against an sometimes hostile local population.

 

In fairness to the L&B family, they've proved quite adept at this: Fairview (just north of Parracombe Halt) and the cottage immediate south of Parracombe Halt were both done this way, and EA/YVT have done this too, I believe. But lessons from RVR and elsewhere are always welcome and sharing best practice - both things that have gone well and less well - must be a good thing.

 

Which make me wonder even more why the OSHI could not have been done in the same way.

 

Quite - or at least lease it out to a landlord.

 

Without a significant change at the helm, I predict that within 3 years, the pub will go under, the railway will go under, or both.

In defence of the interest rate on the L&BRT/LBBC loan....if the earnings of the OSHI have to pay less interest, then it can repay more capital, or similar.
If the lender and the borrower are effectively the same body, what is to be gained from a higher interest rate?

 

It's a regulatory requirement for such a loan to be at a commercial rate, @Ross Buchanan.

As any homeowner coming off a fixed rate mortgage in the last year knows, the interest rate that matters is the one in place at the time of the loan is drawn down, not at some point in the past. Though there is much to disagree with the Trust Notice, but it tells us that the Trust believes that the interest rate on the loan to LBBC should be a minimum of 4.75% above BoE base rate. Whilst this is almost certainly too low for an unsecured loan to a difficult sector in a challenging economy, it gives us a floor of what the Trust thinks the interest rate premium LBBC should be paying for the £250,000 loan.

The loan appears to have been drawn down in 2023, so that applicable BoE base rate was a minimum of 3.50%, rising to 4.25% by 23 March 2023. This means that even on the Trust’s estimate of the interest rate premium over base rate, the interest rate that LBBC should be paying the Trust is 8.25% - 9.00%, not 5.00%.

An unsecured loan will always be more expensive than the secured equivalent. In this case, the reverse is true, therefore making it impossible to claim that the Trust’s loan is on commercial terms – as is required by the Charity Commission – if it is cheaper than a secured loan. Yet this is exactly the position that the Trust is in, demonstrating that the L&BRT loan does not conform with regulatory requirements and is therefore illegitimate.

More generally, on my reading the two Trust Notices actually shows that the Minority Report is correct, but the Trust's responses actually raise more questions that they answer.