Coventry Culture Trust: Administrators rule out legal action due to ‘risk and cost’

Administrators investigating the collapse of Coventry City of Culture Trust will not pursue legal action, saying the “risks and costs” of doing so “outweigh any potential benefit” following a lengthy probe involving forensic accountants.

The trust, which ran Coventry City of Culture 2021, had a total income of around £45m but collapsed in February 2023 with debts of more than £4m.

Since then administrators have been working to sell off assets to try to pay back creditors as well as investigating the circumstances of the collapse, with forensic accountants being hired to assist amid claims of ‘financial profligacy’ before it went bust.

A final report by the administrators, published this month, states that the administration period will formally end tomorrow (27 February), adding that a notice of dissolution, which will result in the trust being removed from the Companies House register in three months, has been filed.

‘Number of matters’ investigated

The report says the decision not to pursue legal action was taken following consultation with a committee of creditors, members of which are bound by confidentially having signed non-disclosure agreements.

“One of the responsibilities the joint administrators have is to review the company’s books and records together with any information provided by creditors to establish if there are any areas which may warrant further investigations,” the report, written by joint administrator Mike Kienlen, head of restructuring and insolvency at Armstrong Watson, states.

“The purpose of these investigations is to establish whether there is the possibility of making further recoveries for the benefit of creditors.

“I previously reported that after my initial review of the company’s accounts, management accounts, bank account statements and available books and records, a number of matters that required further investigation were identified.

“Following the completion of further investigations and discussion with the committee into whether there were any potential causes of action which could be pursued for the benefit of creditors, it was determined that the risks and costs of undertaking any such actions outweigh any potential benefit to the company and its creditors.”

The report states that the administrators were successful in realising assets of £555,000 but at a cost of £507,000, including nearly £46,000 for investigative work.

Former employees of the trust who made claims for wages, holiday pay and redundancy will receive a full payout, while HMRC will receive a payout of 53p in the pound in relation to deductions from employees’ wages and outstanding VAT.

Unsecured creditors will not receive any money.

Other investigations

The work conducted by the administrators is one of several probes into the collapse of Coventry City of Culture Trust.

An investigation by the National Audit Office, the findings of which were published in July 2023, was commissioned to examine public bodies’ oversight of money provided to Coventry City of Culture Trust prior to its collapse.

The Charity Commission is also conducting an investigation. A spokesperson for the commission said: “We are in contact with the administrators and have received their closure report.

“We are currently assessing that report to determine our next regulatory steps. Our compliance case remains ongoing”.

No formal allegation of misconduct has been made and nothing has been proven. However, the administrators do have a duty to report anything that could lead them to conclude unfit practice may have taken place as soon as they become aware of it.

“[A responsibility] of the joint administrators is to report to the Secretary of State [for business] on any matters that come to their attention that could lead them to conclude that any past or present director may be unfit to be involved with managing the affairs of a company in the future,” the administrator’s final report states.

“This report is confidential and it is legal requirement that I do not disclose the content of this report.”

Once a report has been provided to the Secretary of State it is down to The Insolvency Service to consider the evidence and decide whether it is in the public interest to investigate further and potentially seek for a director or directors to be disqualified.

The Insolvency Service, an executive agency of the Department for Business and Trade, told Arts Professional it does not comment on its investigatory activities.