Taxpayers’ money amounting to more than £52m was given to companies in Scotland that were later liquidated, dissolved or put into administration over the past five years, The Ferret can reveal.

The total – £52,660,177 – was calculated after a response to a freedom of information request provided by Scottish Enterprise (SE), a non-departmental public body of the Scottish Government and the nation’s main economic development agency.

Opposition parties said that the figure of £52m plus was “deeply concerning” with Scottish Labour calling on the Scottish Government to urgently review SE’s due diligence practices.

In reply, however, SE said its role “is to take financial risks” to generate return, adding that it always undertakes “robust due diligence”.

We asked for details of SE grants to Scottish companies in the five year period up to 28th July 2017 and cross referenced this data with information on Companies House.

Companies given taxpayers’ money who later collapsed included a venture called Team Rock, which ran a stable of heavy rock magazines.

In December 2016, it was reported that more than 70 people had been laid off after Team Rock Limited collapsed. A total of 27 staff in High Blantyre and 46 in London were made redundant.

Its titles and brands included Classic Rock, Metal Hammer, Prog, the Golden Gods Awards and the Classic Rock Awards. Team Rock received £2,399,999 from the taxpayer.

A tech firm called Red Fox Media Limited, from Edinburgh, was given £675,000. It was involved in publishing and advertising but went into administration in 2017.

Ateeda Limited was given £1,011,779 and was in the news in 2014 when it emerged that companies which former Scottish Enterprise chairman Crawford Gillies owned shares in had received millions of pounds of investment from SE.

Mr Gillies was a shareholder in microchip tester Ateeda which folded in 2017.

Vanilla Energy Limited was set up on 19 February 2008 and had its registered office in Edinburgh. It was wound up in 2016 after receiving £400,000.

Likewise, Peekabu Studios Limited was founded on 2010 but folded in 2017 after receiving £100,000.

"This is an astonishing amount of taxpayers’ money that has seemingly been given to firms with little long-term benefit for the Scottish economy." Jackie Baillie MSP, Scottish Labour's Economy Spokesperson.

Commenting on The Ferret’s investigation, Scottish Labour’s economy spokesperson Jackie Baillie MSP said: “This is an astonishing amount of taxpayers’ money that has seemingly been given to firms with little long-term benefit for the Scottish economy.

“Of course every investment is a risk and it’s important that businesses get the support they need, but to have taxpayers’ money pumped into firms only for them to go bust raises serious questions about due diligence by Scottish Enterprise.

“The SNP must urgently commit to reviewing Scottish Enterprise’s practices to ensure proper due diligence is taking place and taxpayers’ money is being put to good use.”

But SE defended its grants and said its role was to develop the Scottish economy which involved taking financial risks.

A spokesperson continued: “In doing this, we’ve supported some of the country’s fastest-growing companies, including Scottish ‘unicorns’ FanDuel and Skyscanner.

“Before we invest public funds, we undertake robust due diligence to ensure we balance the inevitable risks with the scale and prospect of economic returns.

“We have robust processes and criteria that must be met by companies seeking our financial support. However, the nature of business growth means that some companies will fail in the end, despite our support.

“When we invest or award a grant to a company that subsequently fails, we always attempt to recover the appropriate public funding.

“We recognise that business failure is part of the economic landscape, with companies that fail still generating economic impact over their lifetimes through wages, income taxes raised directly, IP created and jobs supported through the supply chain.”

"We have robust processes and criteria that must be met by companies seeking our financial support. However, the nature of business growth means that some companies will fail in the end, despite our support." Scottish Enterprise

Another firm to receive taxpayers’ money was Freescale Semiconductor Holding UK Ltd. It was awarded £2,589,050 but was liquidated in December 2017.

A waste water recycling firm called ReAqua Systems Limited received £1,475,000 but was wound up in 2015.

Pelamis Wave Power Limited was given £7, 238, 602 but was dissolved in 2014. It was viewed as an icon on marine renewables industry but failed to secure funding to develop.

The Edinburgh-based firm was testing its wave energy converters at the European Marine Energy Centre in Orkney for a number of years.

Announcing the administration move, the company said: “The directors of Pelamis regret to announce that they have been unable to secure the additional funding required for further development of the company’s market-leading wave energy technology.

Patrick Harvie MSP, of the Scottish Greens, also voiced concern over SE’s grants. He said: “At a time when public services are under severe pressure, the Scottish Government and it’s agencies cannot afford to throw cash around whenever the private sector holds out its hands and asks for more.

“When public money is invested in private businesses it must be on the basis of a fair return to the public purse. No other investor would expect to be lavish with the chequebook and not expect a fair return.”

Scottish Liberal Democrat economy spokesperson Carolyn Caddick said: “There is always a risk of start-ups not making it and investments going wrong,” but added that the amount of lost money was “extremely disappointing.”

“The Scottish Government’s record for picking winners is looking pretty ropey. Of course, they did hand millions to Amazon despite the fact they pay workers below the proper Living Wage.

“The Scottish Government must ensure that stringent checks take place before they hand over a fat cheque.”

Amazon cashes in on public money while workers pay for buses

However, the Scottish Government’s Economy Secretary Keith Brown, defended SE’s grants and said: “Investing in job-creation and innovation is a vital part of supporting and growing the Scottish economy – it seems Labour, the Greens and Lib Dems are not interested in that and would cut funding to support companies.

“Obviously, there are no absolute guarantees on the viability of individual firms, but the overall impact of these grants can result in substantial economic gains for the country as a whole.”

Between 2012 and 2016, SE generated £74 million of income from its equity investment activities which were ploughed back into Scottish businesses.

The agency added that it invested £63.5m into 146 Scottish companies which leveraged a further £106m of private sector investment into these same firms in 2016/17.

In 2017, SE “innovation grants” secured £424 million of investment in new research and development activity in Scotland while generating £750 million of new revenue from innovation projects.

For more background on risk capital investment and economic reward, SE suggested that people read an article by its interim chief executive, Paul Lewis. 

Download the data

Details of every Scottish Enterprise investment in the five year period to July 28 2017 are included in the download below. In addition, there is a separate file containing details of firms that received investment and were subsequently dissolved, or went into liquidation or administration.

There could be more stories here so help us investigate by joining The Ferret and downloading the data.

Download “Scottish Enterprise investments” Scottish-Enterprise-Investments.zip – Downloaded 8 times – 76 KB

Research by Ferret director, Ally Tibbitt.

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Comments

  1. Hmmm
    Not sure about this as without the context it is difficult to know if this is concerning figure or one that we should be pleased about. For example of how much was invested in the same period, how many jobs were created, supported, revenue created, taxation generated etc
    If SE job is to take calculated risks then we would need to allow it to do so and accept that on occasions that risk will mean a loss.
    The only way to be certain of no loss is to make no investment

    1. My thoughts exactly, Mr Williamson. Context is singularly missing from this piece. Some hints of the overall picture tacked on at the end in Keith Brown’s comments after a parade of negative opinions from opposition politicians. Could have been a very interesting article – eg contrast between the failed investments and the benefits accruing from others in the appropriate time frames as you suggest. Businesses fail for all sorts of reasons. An examination of factors leading to dissolution of some of the major investments would have been welcome. All in all a disappointing read – shoddy work lacking balance and analysis.

  2. The amounts for the two failed marine energy firms are runaway league leaders but get less attention in this article than others, though noted elsewhere: for example BBC Dec 2014 (http://www.bbc.co.uk/news/uk-scotland-scotland-business-30400411) or Scotsman Nov 2017 (https://www.scotsman.com/news/environment/government-s-200m-wave-energy-plan-undermined-by-failures-1-4602617).
    A similar analysis in the Scotsman in January assessed a £94.9m total in failed firms over a decade (https://www.scotsman.com/news/politics/scottish-enterprise-wasted-100m-on-failed-businesses-1-4655109).

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