Council starts legal ball rolling in £200m Chinatown debacle

The Liverpool Chinatown saga took a new twist today when the city council announced it has instructed solicitors to start legal proceedings to forfeit two leases on a showpiece site where a £200m development project has ground to a halt.

The action is being taken against Chinatown Development Company Ltd, and at the same time a statutory demand has been issued for the outstanding sum of £950,000 owed to the council by the developers.

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Read: Big trouble brewing in New Chinatown

Read: Mayor urged to sort out £200m Chinatown fiasco

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Ahead of a meeting of Mayor Joe Anderson’s cabinet at the Cunard Building, each cabinet member received a “Chinese whispers” dossier cataloguing the history of what was hailed as one of Liverpool’s key projects.

A statement from the city council said: “If Chinatown Development Company do not make the payment by Thursday, August 10 the council will apply to court to ‘wind up’ the company and if the petition is successful, the court will put an official receiver in charge of the liquidation.”

The statement added: “In this event, the council would seek repayment and look to work with the liquidator to find a solution to the stalled site as the city council also owns the freehold and is the landlord of the leases.

The city council said its position had hardened in light of new legal advice and financial information which means the site, which has planning permission for 790 new homes, will not be marketed for sale and the council will not be seeking to use Compulsory Purchase Powers, as set out in a cabinet report drafted six weeks ago.

Councillor Ann O’Byrne, Deputy Mayor of Liverpool, said: “Liverpool City Council has explored every avenue and worked with the developer in the proposed transfer of the Chinatown site to a new buyer, but insufficient progress has been made. There are a number of challenges which could affect the transfer to any new buyer and in light of new legal advice and financial information, the approach to market the site has become unviable.

“We have sought reassurances from Chinatown Development Company Ltd but regrettably an agreement could not be reached and the council has been left with no choice but to take this new course of action.

“The council remain committed to the redevelopment of the site and if a liquidator is appointed, we will seek a quick resolution to get the scheme back on track.

“Although the council has no contractual obligations to any investor, we fully appreciate their concerns and the council will look to work with the liquidator in a proactive way to find a solution to the stalled site.”

People close to the development firmly allege that Far East investors have already poured millions of pounds into the project. In advertorial material published in Chinese and Hong Kong media, the promoters of the scheme cited backing from Liverpool city council as one of its selling points and used images of Councillor Gary Millar as further endorsement. 

The published agenda for today’s meeting of the council cabinet described how New Chinatown Developments Limited used a model based on "fractional" sales, where units are sold off plan and investors pay a deposit, ordinarily this would be expected to between 35 percent - 40 percent howeve,r in the case of the New Chinatown scheme, investors paid between 50 percent - 80 percent. 

According to the report: "It is a well-used sales model, but does come with risk and is reliant upon the ongoing sales of units to fund the build contract. In the case of New Chinatown Developments Limited, major fraud cases in Hong Kong involving their sales agent has had a massive impact on sales, to the extent that works on site have stalled and the contractor gone into administration."

It goes on: "The consequences of the fraud case in Kong Hong, nervousness around the ‘fractional sale’ model and unsubstantiated press allegations against a former adviser to New Chinatown Developments Limited has meant that the New Chinatown site now faces a number of reputational issues that can only be resolved by bringing in a new developer to either build out the consent scheme or seek an amended planning consent."