A local government ABS described as one of the country's 'first social enterprise law firms' has found itself at the centre of a political row over a £1m overdraft facility provided by a cash-strapped council.

Accounts filed by LGSS Law show that the company, wholly owned by public bodies, has benefited from a £1m overdraft facility with Northamptonshire County Council. The accounts, made up to 31 March 2018 and filed in January, state that £950,000 has been drawn down.

Reporting the loan, the BBC notes that Northamptonshire has been labelled the worst-run in the country. Last year housing, communities and local government secretary James Brokenshire appointed commissioners to intervene in the running of the council and assume responsibility for stategic financial management after an independent inspection report found 'significant failures that could not be satisfactorily addressed within a reasonable timetable'.

A spokesperson for the council said the overdraft facility was provided to LGSS Law in 2015, when the company was established and before the council's 'recent financial difficulties'.

The spokesperson said: 'The purpose of the overdraft was to provide a working capital to ensure the emerging company avoided any cash flow difficulty. This facility is still required by the company at this present time. To give this a full context LGSS Law is part of a model which was established to generate income for the partner councils.'

LGSS Law's accounts state that the financial statements 'are prepared on the going concern basis. The directors have a reasonable expectation that the company will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the company's ability to continue as a going concern.

'At 31 March 2018, the company's balance sheet was in a net liability position following a period of losses. Furthermore, the company continues to be reliant on the support of its shareholders in the form of loans and overdrafts. However, the shareholders have agreed to subordinate all existing loans and overdrafts which, together with forecasts showing an improved position over the next 12 months, has allowed the directors to have a reasonable expectation that the company will continue in operational existence for the foreseeable future'.

LGSS was set up in 2010 as a shared service between Cambridgeshire and Northamptonshire county councils. LGSS Law Ltd was created five years later after the councils were granted an ABS licence. Central Bedfordshire joined 12 months on.

Cambridgeshire confirmed in June last year that LGSS Law's executive director, Quentin Baker, had left. A few weeks earlier he had been telling local government lawyers what made the ABS different to other local authority ABSs.

LGSS Law has been approached for comment. 

The Lawyers in Local Government group said: 'Local authority owned companies need initial start-up funding and this is part of the investment needed to support innovation and transformation in the way local authorities provide services.'