The collapse of a leading development trust signals the importance of having an asset base, says Herpreet Kaur Grewal.

Last week one of the UK’s leading development trusts was forced to cease trading. That the economic crisis is taking its toll on the third sector is no surprise, but it will certainly evoke more public sympathy than the plight of banks.

The Environment Trust (ET), based in London’s East End, was one of the UK’s oldest development trusts, dating back 29 years. It was one of the first members of umbrella body the Development Trusts Association (DTA). Indeed, the trust’s chief executive, Jon Aldenton, played a key role in founding the association. “Jon put 20-odd years of his life into this,” says DTA head of assets and investments Hugh Rolo, who describes the closure as “terribly sad”.

Last week the ET had to call in accountant and insolvency practitioner Harris Lipman to convene a creditors’ meeting, which will take place on 9 December.

Aldenton says he is “devastated”. But he adds: “We take some comfort from the fact that we leave a proud legacy in projects like Mile End Park and Fair Finance, which provides affordable loans and money advice.”

Since it was set up in 1979, the trust has run renewable energy projects, given consultancy advice, undertaken environmental improvement works, and developed environmentally-friendly homes.

It led the £25 million redevelopment of Mile End Park in Tower Hamlets. Records from voluntary sector regulator the Charity Commission show that the trust had an income of £595,000 in 2006/07, a total expenditure of £731,000 in the same financial year, and employed 14 staff.

According to Aldenton, the reason for its collapse was “very straightforward”. The Environment Trust had been especially vulnerable because it was the only development trust engaged in housing development and so was particularly affected by the collapse in the market, he says.

The housing slump stalled sales at the trust’s development of 47 eco-friendly affordable homes in Sheffield, says Aldenton. “We built homes on cheap land in order to sell them more cheaply to low-income people, but as the year has gone, people are more frightened about buying a house.”

Adding to the trust’s misfortunes, its recently acquired, wholly owned subsidiary company, Welsh Biofuels, was hit by the contamination of wood supplies it uses to produce wood pellets. “If one thing goes wrong, you can deal with it, you can perhaps survive, but if two things go wrong, you’re screwed,” says Aldenton.

Nevertheless, his organisation’s fate underlines the importance of trusts owning assets and having a strong financial base during an economic downturn. “We should have had a bigger cash reserve,” Aldenton concedes – although this is not easy to achieve for a group that relies on borrowing from banks.

Iain Tuckett, executive director of Coin Street Community Builders, believes more upfront public investment in the third sector could prevent other groups suffering the trust’s fate. He points out that the London Borough of Greenwich invested early in Greenwich Le3isure – now one of the UK’s biggest social enterprises – to get it off the ground.

As Regeneration & Renewal went to press, Tuckett was due to submit proposals for the National Economic Council (set up by the Prime Minister to help people and businesses “deal with current economic uncertainties”) to do more to strengthen the third sector. “It’s ironic if the Government spends trillions on banks and lets parts of the third sector go to the wall,” he says.