Ratepayers lose out as West Coast Socks firm closes

Councillors who spent $678,000 of ratepayers' money on a failed sock factory are considering placing the company in receivership or liquidation.

West Coast Socks closed on Friday, with the loss of six jobs, after a last-minute bid to sell it failed.

Buller District Council had ploughed in $678,000, including a $450,000 loan to set up the factory three years ago and $120,000 a fortnight ago to pay outstanding creditors.

Officially the business is still owned by Gordon and Dianne Angus, who put in $50,000 equity. They moved to Dunedin before Christmas.

Chief executive Gary Murphy said he was expecting legal and commercial advice on how to wind up the business and dispose of the assets.

The council had two options. It could call in its loan, in which case the company might ask it to appoint a receiver. "We have to have a look at the benefits of that, and the cost, and weigh what the council is likely to recover."

The other option was for the company to go into voluntary liquidation and sell its assets. The council would have to be satisfied that was done "in a business-like manner and they are not just disposing of the assets in the quickest way they can".

Mr Murphy said the council had yet to consider whether to pursue individual directors, who might be held personally liable if they were found to have run the business while knowing it was insolvent.

It is understood some councillors want heads to roll but it is possible the council itself could be deemed a director because it has acted like one.

Councillors could then find themselves in the gun, particularly those who ignored expert advice that the factory would not be viable and was insolvent from the start because it was under-capitalised.

Mr Murphy said the council had kept Audit New Zealand informed. "The Auditor-General is aware of the situation and they do have an interest and they are probably watching very carefully to see what happens."

Mr Murphy said the council's losses - expected to top $400,000 - were likely to reduce funds available for other economic development.

"There's not that much left to go around in terms of large distributions."

The council initially allocated $1 million to economic development from the $7 million it received from the Government's forestry compensation package.

The sock factory was its first and biggest investment.

The story so far

* Buller District ratepayers face a loss of at least $400,000 on their council's investment in the failed West Coast Socks factory.

* The $678,000 invested overall came from the Government's $120 million West Coast forestry compensation package.

* The factory was the council's first, and biggest, investment from its $7 million share of the package, of which it allocated $1 million for economic development.

- NZPA