A NORTH-EAST council was criticised yesterday for giving control of its £14m new theatre to a company which collapsed with debts of almost £700,000.

A creditors' hearing was told that the firm responsible for running Durham's Gala Theatre amassed the debts within four months of the venue's opening.

At the meeting, Alan Marlor, the liquidator for The Entertainment Team (Durham) Limited, said it was unlikely any of them - including Durham City Council, would recover their debts, leaving council taxpayers £209,000 out of pocket.

He highlighted the two company directors' lack of credentials, and suggested that the council should have been more careful in choosing who should run the flagship venue.

Durham City Council took over the Gala's running last month after The Entertainment Team, part of London-based firm Full House Management, went into liquidation.

It followed the council's decision to grant an interest free loan of £75,000 only the month before, after the firm complained of a shortfall in working capital.

Yesterday, Durham City Council's chief executive, Colin Shearsmith, who recommended the loan along with the council's director of finance, said they had no idea of the extent of the financial problems.

He said: "The assistance offered was commensurate with the scale of the problem as it was presented by the contractor to the council. Unbeknown to the city council, the situation was worse than had been disclosed."

He said the Entertainment Team was chosen to run the theatre after it was the only viable respondent to a Europe-wide advert, and claimed that Full House Management's credentials, as the firm behind successful West End shows, were thoroughly checked.

But according to Mr Marlor, the newly established Entertainment Team's co-directors, Michael Power and Nicholas Rule, should never have been entrusted with the venture.

He said: "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."

At yesterday's meeting, at which some of the firm's almost 200 creditors, including The Northern Echo, were present, it emerged that the directors' only financial contribution to Gala was supplying the kitchen equipment.

They blamed a delay in work on the bars, restaurant and caf, which were not finished in time for the opening, and "disastrous" ticket sales for the opening concert, featuring pop group Westlife, for the company's failure.

Mr Power said: "We were deeply shocked and Westlife's view was complete amazement after the amount of money we spent on marketing and sponsorship. I have never seen anything like it."

He denied that most of the theatre seats were allocated to councillors, and that a marquee event allowing fans to watch the concert on a giant screen, which had to be cancelled, was poorly publicised.

Creditor Joe Simpson, whose firm North-East Catering Hire, is owed £4,700, said: "To me, the whole thing is a sham. The company should never have been given the job."

Mr Shearsmith said options for who should run the theatre in future and which shows should go ahead were being looked into.