What now for the flagship Gala?

DURHAM City Council describes the city's Gala Theatre as a "spectacular regional resource" and predicts it has a bright future. It is keen to move on from the turmoil of recent months and plan a way ahead for the £14m arts venue which only opened in January.

But, as in so many instances, moving on means burying the past first.

The bare facts are that, in managing the theatre, Entertainment Durham Ltd lost £700,000 in a matter of months and is now in liquidation. Liquidator Alan Marlor, whose job it is to distribute the little cash left, disputes council claims that the company and its parent, Full House Management, had enough working capital in place to make the venture work.

He says: "There was always going to be a problem because it just had no access to this - the project was entirely self-financing. They forecast by the end of February that they would have £600 cash in hand and it was not too much to expect that this would not be available by then, particularly as they were setting up a new venture which may not go to plan."

Mr Marlor also says there was nothing in any contract between the council and Entertainment Team Ltd to say the parent company Full House would meet the costs of an opening event at the Gala. Yesterday, the council said that, had it been financed in this way as agreed, the management company could still be trading today.

The opening event, featuring a concert by boy band Westlife, flopped and the council has since accused its former managers of withholding information over the huge costs. These have been blamed for helping to plunge the management company into a debt from which it never recovered.

Checks made by the council on the background of the Entertainment Team Durham Ltd also remain in question. Its director, Michael Power had already seen a business venture - Entertainment Team Rides Ltd set up to manage a James Bond simulator ride in London - collapse with debts of more than £1m. Another of his companies, Shaping A Nation Ltd, had a short-lived tenure in charge of a multi-themed tourist attraction in Edinburgh.

Having chosen its managers and then terminated their contract, Durham City Council now finds itself back in charge of the Gala for a temporary period. It says there is interest from national operators in taking the Gala over. But what if that interest comes to nothing? And what of the 60 staff who work there?

City of Durham MP Gerry Steinberg realises difficult decisions are to be made. He says: "I don't think it is the job of the local authority to run a theatre such as this, that should be left to professionals. I do worry, though, for the staff. I think the theatre is over-staffed and I would be amazed if the same number of posts are maintained if new management comes in."

Questions which must be answered

The Northern Echo asked the Gala Theatre's owners, Durham City Council, to answer ten questions over the financial crisis which has hit the venue. Here, we list them in full.

1. Why didn't the council ensure that there was enough working capital in place to make the Gala work before it accepted the business plan put forward by the management team?

2. Was the advice of accountants PricewaterhouseCooper, who reviewed the business plan, taken on board before the award of a contract?

3. Why were 350 of the 500 seats available at the launch event said to have been given to councillors and other officials and not made available to the paying public?

4. Why is the authority owed more than £200,000, as revealed in a list of creditors, when publicly it had previously said it was owed just £75,000 from an interest free loan given to the management team?

5. What checks were made on the background of the Entertainment Team and its directors?

6. Why did the council fail to keep a handle on the financial situation of the management team allowing it to accrue such large debts?

7. Why were there delays in the opening of the Gala's bar, restaurant and caf which meant crucial income was lost?

8. What does the council plan to do with the Gala - has there been any interest in taking it on and what about future shows?

9. Can the council continue to reassure tax payers that, as a result of its involvement with the Gala, there will no knock-on effect on next year's bills?

10. How likely is it that the council will take legal action to recover its debts from the management team?

A statement from Durham City Council

THE heart of the story is that a company - Entertainment Team Durham Ltd - has gone into receivership because of the catastrophic results of a decision it made about the opening event of the Gala. If the company had done as it agreed in pre-contract discussions and financed the event through its parent company, it is possible it could be trading here today.

Durham City Council could not have done more to check the company's financial stability and its ability to perform under the contract. Two sets of company searches were carried out through two separate specialist London firms, which showed the Entertainment Team to be more than capable of managing a multi-function venue of the size of the Gala. Extensive references were taken up.

There was never any evidence of a shortfall in working capital from the parent company. There were no liquidations in either of the comprehensive searches for either Michael Power or Nicholas Rule.

The Entertainment Team business plan was put together in conjunction with PricewaterhouseCooper on behalf of the city council. The accountants' advice, such as a reduction in the assumptions on catering income, was incorporated within the final plan. The business plan was also examined by consultants acting for the Millennium Commission and arrangements were discussed with the District Auditor. Two presentations by the company were given to councillors at all-party committees before we signed the contract.

The city council maintained constant monitoring of the company and insisted on a monthly financial meeting. Entertainment Team Durham withheld information on the vast expenditure of the opening show. The trading figures supplied by the company showed there would be a slight cash flow deficit of £75,000 which would be repaid by October. The city council funded the gap with a loan secured on personal guarantees. We will be taking legal action to recover that money. The performance levels at the Gala were in line with the accounts being presented.

When creditors started to ring us after the cash injection from the council, we immediately took action. Entertainment Team finally admitted the comprehensive position on May 16. The council's director of finance visited the London offices of Entertainment Team to examine all accounts and books on May 17 and, by May 23, we had ceased trading with the company. The entire operation took four working days and was as speedy, efficient and responsible as possible.

Delays in the opening of the Gala bar, cafe and restaurant were due entirely to Entertainment Team's failure to deliver. The company, as part of its contract, was meant to fit out the kitchen, but it was neither designed nor equipped in time.

The city council is extremely proud of the Gala. We used the launch event to invite national and local influential figures and bought, at full price, 250 tickets. The venue is now under our management for 13 weeks, during which time we will be fully investigating how best it should go ahead. We are currently talking with national and local producers, consultants, groups, directors and operators.

There is already interest from national op e rators in the runn ing of the Gala. The programming has been reviewed and we have taken out weaker shows. This rigorous filtering will continue in the light of bookings. We are proposing to introduce some wonderful new shows which will appeal to local audiences and we are supplementing this with market research which will identify audience preferences.

We know there is some concern that the debts accrued by Entertainment Team will affect next year's council tax figures. We can reassure local people that there will be no knock-on effect from this year's invoices to next year's council tax bills.

The Gala is an exciting new venue which needs the support of local people to fulfill its potential seven days a week at all times of day and evening. Durham City Council is doing all it can to underpin its strong, confident future as a spectacular regional resource.

The real news is that the Gala will grow stronger and more exciting in coming months and will do so more readily with the help of local newspapers and those in them who support the nurturing of entertainment, arts and community events for this and future generations.