Highlands & Islands Enterprise (HIE) is set to face a petition for judicial review that will aim to require it to retake funding decisions that passed £0.12m to Sandstone Press.

EU Commission advised of multiple suspected State Aid breaches.

Nicola Sturgeon has benefited: Sandstone is publishing a book of her speeches using some of the funds derived from HIE.

Nicola Sturgeon has evidence of suspected Scottish Ministerial Code breach by Cabinet Secretary Fiona Hyslop MSP in relation to Sandstone.

Sandstone’s distributor’s MD is spouse of the First Minister’s party’s Business Convener (Chair)/Deputy Leader at Westminster.

We have previously evidenced how CS facilitated Sandstone’s funding by ignoring its false claims.

HIE scored Sandstone’s business location as 4/5 instead of 1/5

HIE’s assessment of Sandstone’s PERF application deliberately ignored the company’s IV2 7PA business location, ensuring that the company received funding to which its application did not entitle it.

HIE recommended that applications scoring fewer than 12 points be automatically rejected. Based on the company’s IV2 7PA business location – approximately 2 miles from the centre of Inverness – here’s how the application should have been scored (had it been eligible):

And here is how HIE scored it:

Geographic Location is a matter of fact. The ONLY allowable score for a ‘business activity based in Inverness’ was 1 point. HIE awarded 4.

How did HIE try to justify its invalid scoring? This is from its assessment of Sandstone’s application:

‘Whilst a score of 1 is relevant to a business based in Inverness it is not deemed a fair reflection in terms of the business’s pivotal nature within its sector and the region. A score of [redacted, understood to be 4 out of 5] is considered much more reflective of the business’s position and pivotal nature within the region and is the score that a similar exercise this time last year would have brought.’

Below are the criteria HIE stipulated for assessing Geographic Location. Importance to the local economy was assessed via other criteria, whereas Geographical Location ONLY assessed where a company was based.

HIE was required to assess the application on the facts as they were, not on what it thought they had been at an arbitrary point in history. (Sandstone would not have been entitled to a score of 4 even if it had not relocated.)

For completeness, here are the other criteria. The position of ‘[Redacted]’ indicates the score given.

Was HIE entitled to mis-score Sandstone’s application?

No.

But don’t take our word for it. Take HIE’s. This is what its website tells unsuccessful applicants:

It ‘had to prioritise applications according to the published criteria’ which were (per HIE website):

EU Commission notified of suspected State Aid breaches

Rescue Aid disguised as Growth Aid

HIE acknowledged that its March 2019 rescue of Sandstone was State Aid, but did not acknowledge that it was Rescue Aid. Instead, it badged its £0.175m rescue as Growth Aid…to a company whose most recent accounts prior to the loan being offered showed that its net assets were shrinking at an alarming rate and that it had just made its largest ever trading loss: £0.11m.

State Aid maximum exceeded?

The table below shows Sandstone’s CS and HIE funding. The ‘€equivalent’ column indicates that:

  • the €200k State Aid limit was breached in Mar 2018; and
  • HIE’s funding has breached the limit since May 2020.

(The PERF award was made before a June amendment to the Temporary Framework for State Aid, so the ‘undertaking in difficulty’ test still applied.)

Was Rescue Aid provided?

This matters. Rescue Aid must be provided in accordance with the ‘one time, last time’ principle. Aid provided before Rescue Aid is repaid is illegal.

Sandstone’s £0.175m HIE loan has not been repaid. If it was Rescue Aid then the following would be illegal:

  • CS’s Apr 2020 £30k award (made after CS repeated Sandstone’s false governance claims)
  • HIE’s May 2020 £70k PERF award (which breached the published criteria)
  • HIE’s Sep 2020 £50k award (which was invalid because it depended on the PERF award that breached the published criteria).

Undertaking in difficulty

Firm in difficulty: a firm is regarded as being in difficulty where it is unable, whether through its own resources or with the funds it is able to obtain from its owner/shareholders or creditors, to stem losses which, without outside intervention by the public authorities, will almost certainly condemn it to going out of business in the short or medium term.

EUR-Lex

In March 2019, Sandstone was unable, through its own resources or with funds from owners/creditors to stem losses which, without HIE and CS intervention, would have condemned it to go out of business in the short term. At imminent risk of running out of cash , it was the definition of a ‘firm in difficulty’.

HIE would have recognised that the £0.175m loan would never to be enough to prop up the failing company. Had HIE acknowledged that the loan was Rescue Aid, any further aid would have been illegal. Badging the Rescue Aid as Growth Aid to the shrinking company held open the door for further rescues.

Suspected breach of Scottish Ministerial Code

Cabinet Secretary Fiona Hyslop MSP appointed Jenny Todd to the Creative Industries Advisory Group, which she chairs. A short time later, Sandstone appointed Jenny Todd as its non-executive director; HIE part-funded that appointment. Ms Todd resigned on 31 January 2019, the date on which the funding ended.

The Cabinet Secretary was informed that Sandstone claimed, for a further 15 months while it obtained £0.2m from CS & HIE, that Ms Todd was still its non-exec, despite Companies House showing her resignation. Ms Todd made the same false claim. In fact, she was its advisor. In full knowledge of the false claims, Fiona Hyslop allowed Ms Todd to remain the sole publishing representative on the CIAG. The minutes show that she has, on occasion, used that role to to lobby for Sandstone’s interests. The Directors of Creative Industries of Sandstone funders – CS and HIE – are CIAG observers, so she is also able to access them.

Failure to record meetings with known Sandstone representative

As shown below, at no point have the CIAG minutes acknowledged Ms Todd’s interest in Sandstone, either as its non-exec or advisor. Therefore, it seems that Fiona Hyslop has not recorded having met with a person with an interest in Sandstone, despite having been told that she had and during a period when CS and HIE – both within her remit – provided the company with £0.3m.

The Scottish Ministerial Code requires that such meetings are recorded.

From 1 Feb 2019 to May 2020, Sandstone claimed that Jenny Todd was its non-executive director. Companies House shows that she resigned on 31 Jan 2019, the date on which HIE’s funding of her role ended.