Middlesbrough Council will wind up a company it owns following a damning audit.

On 6 September, the local authority’s executive discussed the process of closing Middlesbrough Development Company (MDC) including minimising ‘financial and reputational risks to the council’.

In 2018, MDC was set up by the council to build homes. MDC is separate from the Middlesbrough Development Corporation, which is regenerating the town centre.

It was reported to Middlesbrough Council in January this year that MDC posed a risk to the authority as it did not comply with guidance. The council’s executive voted to close the company.

In August, the council's corporate affairs and audit committee saw a report into MDC by internal auditors Veritau.

Veritau's audit found there was a ‘lack of any formally defined independent responsibility within the council for holding the company to account’, which was ‘a significant departure from recommended practice’.

It found that ‘full consideration’ had not been given to conflict of interest issues, including the appointment of key council decision makers as directors of the company.

The audit also said it was ‘not clear whether MDC has effective control over the work it undertakes on behalf of the council and ultimately on the overall management of the business.’

The council set up MDC with a £10.6m loan and has since provided £4.7m from Section 106 funds for affordable housing.

Director of regeneration and culture Richard Horniman reportedly said the council would get the £10.6m loan back but could not answer ‘with certainty’ whether the £4.7m had been spent and whether the authority would ‘recover much, if any, of it’.

To address governance concerns and ‘complex conflict of interest issues’ relating to MDC’s board, the board has been suspended during the wind-up period, with closure issues to be discussed between relevant council staff and MDC’s managing director.

A Middlesbrough Council spokesperson said: ‘The company had been identified as posing a potential risk to the council following the publication of guidance produced by the Chartered Institute of Public Finance and Accountancy (CIPFA).

‘As the company was coming to the end of its current range of projects, and the changes needed to meet the new standards would require significant investment, the decision was taken to cease trading and close down the company completely.’