Croydon Council plunges into Insolvency crisis

Croydon Council plunges into Insolvency crisis

November 12, 2020


Insolvency: Why is Croydon Council declaring itself insolvent?

Croydon Council became only the second UK local authority in twenty years to declare itself insolvent when it issued a Section 114 Notice on 11 November, confirming that it cannot fulfil its statutory obligation to balance its books. Northamptonshire County Council was the first back in February 2018.

The immediate effect is to freeze all non-essential spending for 21 days, while a task force sent by central government works with the Council’s officials to map out a way forward through a programme of emergency cuts.

The Council is said to be facing a £66m shortfall, blaming the Coronavirus crisis for slashing its income. Whilst this is undoubtedly a major issue, as it is for all local authorities, there have been persistent criticisms of risky property investments and lax financial controls dating back to well before the pandemic.

Croydon’s own auditors heavily criticised the council in a report last month, which said the authority’s former leaders had ignored more than three years of internal warnings about its finances. It accused the council of “collective corporate blindness” and of tolerating a poor governance culture, under which poor spending decisions were not robustly challenged.

Financial challenges for other local authorities?

Whilst this is a tragedy for Croydon, it is a clear warning that financial problems exacerbated by the pandemic could overwhelm local authorities up and down the UK. There is a strong possibility that other councils will be forced to follow suit by issuing their own Section 114 notices.

Opus Partner, Jo Rolls who runs the firm’s Croydon Office said:

“This situation threatens not just the livelihoods of council employees and those who depend on Council services, but it will also be a major blow to a host of local businesses who provide goods and services to the council. It could not come at a worse time as the country wrestles with the economic effects and disruption of the second national lockdown in the run up to the festive season.

“We stand ready to help and to advise any business that has been affected by this desperate development.”

If you would like to speak to Jo Rolls, Partner at Opus, please contact the Croydon office on +44 (0) 20 3862 2940 or email Jo directly at jo.rolls@opusllp.com.

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