THE liquidator responsible for dissolving a failed theatre company has expressed doubt that it had the necessary financial backing.

Following a "disastrous" opening event in January, the Entertainment Team (Durham), which ran Durham City's new £14m Gala Theatre got into serious financial difficulties, ending in its recent failure with debts of almost £700,000.

Durham City Council, which owns the building, and gave the company a £75,000 interest-free loan, stepped in to take over the running of the theatre until its future was decided.

At a meeting of creditors last week, it emerged that as the Entertainment Team only had £7,500 in assets, the council was unlikely to recover any of its £209,000 debt, and that other local creditors would also be left out of pocket.

Yesterday, liquidator Alan Marlor said he had concerns about the original financing of the company.

"I am concerned that a company with a £2 share capital was clearly very likely to need a considerable amount of additional funding to carry out a venture of this size," he said.

"It will be part of my duties to establish where that funding was intended to come from and how much was meant to be available.

"The operation of the Gala Theatre was governed by a contract between the City Council, Full House Management Limited and the Entertainment Team.

"Clearly, I will need to review that contract as part of my investigations."

Mr Marlor said the contract included a business plan forecasting performance and cash flow. The business plan was reviewed by PriceWaterhouseCooper and Full House Management and approved by the city council and the Millennium Commission.

He said: "From January onwards, it seems to be based on the theatre being self-financing.

"I'm very surprised that there wasn't any cash available for contingencies."

Mr Marlor said he would be scrutinising the relationship between the Entertainment Team, its parent company, Full House Management, which loaned it £60,000, and the council.

Mr Marlor said he would keep creditors updated on a report he was preparing for the Department of Trade and Industry.

In a report of the creditors' meeting last week, Mr Marlor was quoted as saying: "If they (the council) had applied the accepted techniques, they probably wouldn't have employed them. There are a lot of lessons to be learned."

Although the comment was made directly after a creditor had criticised the council, Mr Marlor has asked us to point out that he was was, in fact, referring to creditors.

He did not, as stated, highlight a lack of credentials of the two directors of the company, Michael Power and Nicholas Rule, or suggest that they should never have been trusted with the venture. The latter comment was, in fact, made by a creditor. We apologise for any confusion caused.

Mr Marlor said: "The two directors have considerable experience of front of house management and Durham City Council tell me they received satisfactory references to that effect."