Collapsed drugs charity Lifeline Project owes £1.6m to creditors

A document posted with Companies House reveals the results of a meeting with creditors

Lifeline Project: worked on drug issues
Lifeline Project: worked on drug issues

The collapsed drug and alcohol charity the Lifeline Project owes almost £1.6m to its creditors, according to a document that reveals the results of a meeting of creditors, which was posted with Companies House earlier this week.

The Lifeline Project collapsed in May this year and transferred its entire staff and the majority of its projects to the charity Change, Grow, Live in June.

According to the document, £250,000 is owed to preferential creditors, with the expectation that they will be paid in full.

There are approximately 5,300 potential creditors according to the document, and it is currently estimated that there will be sufficient funds available to pay unsecured creditors, although there is no estimate available yet for how much this will be.

The document says the charity had almost £3.2m in the company ledger when administrators were appointed.

Major creditors include: the Tees, Esk and Wear Valleys NHS Foundation Trust, which is owed £217,104.78; the NHS Business Services Authority, which is owed £79,795.37; and the vulnerable persons charity Changing Lives, which is owed £40,767.33.

According to the joint administrator David Thornhill, the sale of the Lifeline’s Project’s main programmes and assets to CGL is a better result for the charity’s creditors than if it had simply been wound up.

The document says that although Lifeline had grown significantly between 2006 and 2016, with income rising from approximately £13m to £62m, this fell to £53m in the 11 months to February 2017.

Much of the growth of the charity had been funded from cash flow and reserves, which were "virtually exhausted" due to funding losses on contracts in the year before Lifeline’s collapse. The document says that internal financial controls and business infrastructure had "not developed at the same rate" as the charity’s growth.

"Despite successful tendering for contracts in recent years, it appears that several key contracts have been entered into without proper consideration of the cost structure and longer-term financial implications for the wider business," the document says.

"In addition, certain contracts were agreed on a payment-by-results basis which simply did not generate the level of income needed to generate surpluses."

According to the document, the three largest loss-making contracts reported cumulative losses of £1.4m in the 11 months to February 2017, in addition to unfunded work the charity carried out to further its charitable purpose, which cost more than £600,000.

Another £700,000 in legal and professional costs was also spent dealing with various property and employee disputes, the document says, which meant Lifeline had trading losses of £2.9m in the 11 months to February 2017.

The document says that a finance controller left the charity in February 2017 and was not replaced, and a further key individual left the finance team two months later, which meant the charity’s finance function was "weakened".

This led to discussions with CGL from April this year, which in turn led to the sale of the business and its assets to CGL on 2 June.

The document says that 1,300 staff were transferred to CGL, which mitigated £7m in redundancy and associated costs.

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