Credit union writes off value of €450k lease

Mallow Credit Union has written off the full value of a controversial lease it signed with Co Cork VEC, which is now being probed by the Comptroller and Auditor General.

The move reflects Co Cork VEC’s decision not to draw down a €200,000 loan it had arranged without informing the Department of Education to cover a shortfall in the construction of a €1m grant-funded creche.

Mallow Credit Union is not the subject of the inquiry. However, CCVEC’s practices in using the lease in lieu of unauthorised borrowing to build the loss-making childcare facility is.

In 2008, CCVEC signed an extended 20-year lease for the Youthreach premises outside the town in exchange for a 20-year loan. As a result, CCVEC surrendered its right to buy the property outright in 2011 for a nominal sum.

The department, the Public Accounts Committee, and the C&AG have all sought answers from CCVEC as to how and why it arranged a loan when had not been given official sanction.

It was the third time CCVEC arranged for an unapproved lease from Mallow Credit Union for the same site.

Last year, the credit union’s accounts recorded the lease as being worth €450,000.

This was the original value of the contract it agreed with CCVEC in 2008. However, in its 2013 annual report, which has just been published, it valued the property at zero.

CCVEC will now buy out the site in 2018 for a token sum of €6,349.

The 2012 accounts said the lease had been valued by ERA auctioneers on Oct 31 of that year and that it was worth €450,000.

However, the latest accounts said the same auctioneers had carried out an updated valuation this year and it was booked as “€nil”.

When matters regarding CCVEC’s handling of the lease emerged early last year, Mallow Credit Union said it had been informed in 2011 that the loan would not be drawn down.

It said it had been writing down the value of the lease over the lifetime of the loan.

“In 2011 Cork County VEC informed Mallow Credit Union Limited that it did not require the funding and that it would be exercising its option to purchase the site. A closing date for the buy out of €6,349 (£5,000) was mutually agreed at 2018. This is the only remaining payment due to be paid by Cork County VEC,” it said last year.

CCVEC said it had since arranged a new lease, to run until 2018, during which time no rent is due.

CCVEC told the department it agreed to this so that the credit union could stagger the write-off over a six-year period.

Separately, Mallow Credit Union’s accounts revealed that it had managed to absorb losses it was hit with following the decision in 2011 to burn junior bond holders in Anglo Irish Bank.

Treasurer Tadhg Curtis said the credit union stood to lose €4.9m by this move but it had been able to manage its reserves to avoid hitting its members.

“Fortunately due to decisions taken by the board of directors over the years to build up a general reserve we were in a position to buffer the majority of this loss,” said Mr Curtis.