Scottish National Investment Bank expects 'significant losses' due to collapse of DRS firm

The bank invested £9m into Circularity Scotland, the firm set up to run the scheme.

Millions of taxpayer cash invested into the company set up to deliver the ditched Scottish deposit return scheme is likely to be lost after Circularity Scotland entered administration.

Chiefs at the Scottish National Investment Bank said the £9m loan provided to the company would result in “significant losses”, potentially losing all of the money.

Circularity Scotland collapsed into administration this week after companies withdrew their support following the Scottish Government’s decision to delay the scheme until 2025 at the earliest, effectively scrapping it.

Lorna Slater, the minister in charge of the deposit return scheme, survived a no confidence motion tabled by the Scottish Conservatives last night.

The scheme, which would have seen an additional 20p deposit placed on cans and bottles that was returned when they were recycled, saw the UK Government use the Internal Market Act to reject the inclusion of glass, forcing Scottish ministers’ hands.

Circularity Scotland said the scheme remained viable without glass, but the government’s decision to pause the scheme sparked the company’s collapse.

Willie Watt, chair of the Scottish National Investment Bank, was asked by MSPs in Holyrood’s economy committee whether the bank would lose the £9m it had invested in the company to help it with start-up costs.

He said there would be “significant losses”, adding “we don’t know what the result of the administrators’ work will be.

"But how would you define significant, over 50 per cent? I’m sure the losses will be in excess of over 50 per cent but I hope that they are less than 100 per cent.”

Pressed on whether the whole investment could be lost, Mr Watt admitted that was a possibility.

He said: "We know it is a bad situation and there will be people who lose money but we don’t know exactly the state of that. But there will be small creditors that will lose out.”

Al Denholm, chief executive of the bank, also said that the organisation would have to consider whether they could consider Holyrood bringing forward legislation as a “reliable” factor to base investments on, due to the impact of the Internal Market Act.

Asked about this, Mr Watt said: “The company itself had been in long discussions with the UK Government regarding the impact of the IMA and the bank’s view was that the IMA was a hurdle that had to be gone through but that we believed that that hurdle would in fact be jumped and permission for the scheme would be given under the IMA as indeed it was.

"We’re not as fully aware of the facts as we are now. The way that the IMA and the permission from the UK Government played out is somewhat different to what we expected at the time but we took the IMA risk into account in making the decision that we made."

He added: “I wouldn’t say that [it was a minor hurdle], I would say that it was an important part of the decision making process for the scheme to go ahead.

"But the UK Government’s approach to the IMA was evolving during the period we were making the investment and it had committed to a UK-based scheme.

"The company were talking throughout the whole period to DEFRA in a UK context that is responsible for the scheme and the company’s view was that even without glass the company felt the scheme was still viable.

"The impact of the IMA is significant, but the IMA itself was not a reason why this company failed.”

Mr Watt also rejected the suggestion SNIB could sue Alister Jack, the Scotland Secretary, but said the bank would consider “all options” to try to recover the money.