A FAILED waste company majority owned by two North-East councils has gone into liquidation with debts of £19m.

Furious small business owners have accused Durham County Council and Darlington Borough Council of allowing Premier Waste Management to continue trading when they knew it was insolvent.

The company, which is majority owned by Durham Council with the Darlington authority holding a smaller share, has about 150 creditors, with the biggest being the staff pension fund which has been left with a £12.5m black hole.

The scheme is now likely to be passed to the Pension Protection Fund, which would issue compensation to members - although potentially not 100 per cent of what is due to former employees.

The company, based at Aykley Heads, in Durham City, entered a Company Voluntary Agreement (CVA) in February after Durham County Council handed the contract for domestic waste collection in the county to a rival company.

The company stopped trading at the end of May and joint liquidators from KPMG were brought in earlier this month.

About 50 staff transferred to the new contractor, however 11 were made redundant ahead of the liquidators' arrival.

Plasrec Ltd, based in Shildon, operated two public recycling centres for the company and is owed about £10,000.

Managing director David Atkinson believes the company signed the last one-year rolling contract knowing it would not be able to pay.

“If I had done what they had done I'd be in jail,” he said.

“They're supposed to be helping small businesses in Durham but they seem to have taken relish in shafting us.”

Mr Atkinson, who is considering taking legal action against the authorities and plans to write to Government ministers, said there were numerous small businesses on the creditors list.

He has been told that firms owed money may only get 30p in the pound.

Independent Durham county councillor John Shuttleworth is also furious with the way the authorities have handled the company.

“It's an absolute mess - there should be an investigation into what's gone on,” he said.

KPMG's Mark Firmin and Howard Smith were appointed joint liquidators of Premier Waste Management and its parent company Durham County Waste Management Company (DCWM) on July 1.

Mr Firmin, KPMG’s regional head of restructuring, said: “After the loss of DCWM and Premier Waste’s key contract it was no longer financially viable for the businesses to continue.

“The CVAs were a tool for achieving an orderly wind down of the companies and have enabled a much smoother transfer of services back to the council and new operators than would otherwise have been envisaged under an immediate liquidation scenario.”

Wrongful trading - trading when a directors are aware a business is insolvent - is a breach of the Insolvency Act 1986.

However, Don McLure, Durham County Council corporate director of resources, denies any rules have been broken.

He said “Premier Waste Ltd has been trading through a regulated Company Voluntary Arrangement since February 2013 under which all creditors have been paid in full between then and 31 May 2013 when the company ceased trading.

“The company is now in the process of voluntary liquidation and the outstanding creditors will have made a claim through KPMG who is the liquidator.

“There has been no wrongful trading and county council officers on the board of the company are subject to the same legal duties and responsibilities as all other directors.”