Councillors are being warned that there may be no chance of legal action against a company that owes Brighton and Hove City Council more than £3 million.
Coin Co International (CCI) went into administration in November 2014, just three months after the council ended its cash collection contract because of poor performance and slow payments.
The company was paid almost £300,000 a year to collect more than £11 million cash from council parking meters and £8 million cash from council offices and schools. It also handled £21 million in cheques.
A report to the council’s Audit and Standards Committee said that taking legal action would be high risk.
When the committee met last July, Conservative councillor Tony Janio said that the council should go after the company even if it was just for deterrent value.
The administrators started legal proceedings for breach of duty against the directors of the company and achieved a settlement of £550,000.
This action, according to council officials, may prevent the council from being able to bring a claim for wrongful trading.
The report also cautions against taking legal action against Coin Co’s bank and the administrators.
It said: “Bringing claims against the former administrators and/or the company’s banker is evaluated as very high risk.
“The ability to bring claims is very uncertain and would need external legal advice.
“In addition, both are large, well-resourced organisations who would therefore be able to mount strong legal defences.
“The legal costs to challenge either would be very substantial and therefore present a very high financial risk to the authority.”
According to the report, administrators believe that Coin Co may have been trading insolvently from 2011, just a year after it started handling the council’s cash.
Administrators found that the company was losing money for years because of a flawed business model and pricing structure.
Moving cash from a wide range of clients across several bank accounts meant that the company could support its cash flow for a while.
Coin Co went into administration in November 2014, owing its creditors more then £10 million. It went into liquidation on Friday 30 November last year.
Problems with delayed payments started in 2012, with the council asking for improvements.
They deteriorated again in 2014 when the council ended its contract in the August and demanded the £3.243 million it was owed.
The report said: “It is now clear that during 2014 other smaller creditors had also given notice, presumably due to similar performance concerns, and this ultimately resulted in the company’s insolvency.
“During the period of performance concerns there were constant communications between officers and the company’s directors, including site visits.”
In June last year, the four directors, former Metropolitan Police officer John Baker, 71, and his wife Doreen Baker, 72, of Hassocks, their son Sean Baker, 48, of Burgess Hill, and daughter Joanne Baker, 46, of Belton Road, Brighton, were banned from running any business for eight years each.
Officers advise the committee against pursuing the directors for the cash as they have already paid substantial legal costs in their disqualification case, the £500,000 settlement and have outstanding fees and costs to pay.
The council is not a secured creditor but the bank Santander is – and it is still owed £333,000 after administrators recovered stock and cash worth just over £2 million.
The council has since reduced the number of parking machines that accept coins and has switched increasingly to payment by card, phone or app.
The Audit and Standards Committee is due meet on Tuesday (8 January). The meeting, which starts at 4pm, is held in public.