Sea of troubles for organisation aiding fight against loan sharks

But there is no doubt that its finances remain in a critical state, thanks largely to gross mismanagement under the former chief executive, Sue Davenport.

The resignation letter of company secretary Terry Jacques acknowledges his own part in the board failings at LCCU and says he has "great regret that I, along with all other directors at the time, did not appreciate the serious consequences of failing to hold the previous chief executive to account and by default allowed her unfettered autonomy to manage LCCU affairs, with disastrous results.

"What we now know is that management and governance failures, over a relatively long period, have led to the near bankruptcy of the largest credit union in England and Wales. Without Department for Work and Pensions funding and Leeds City Council's commercial loan, the credit union would be bankrupt and liquidated."

Mr Jacques also remains concerned that lessons have not been fully learnt and doubts the proposed recovery plan will work.

Referring to the outcome of an internal investigation into LCCU's financial collapse, his letter states that "directors still do not know, in detail, what went wrong and (importantly) why line management and audit controls proved so deficient. There is still no understanding at board level as to why there has been a systematic failure of managerial controls and operational systems."

Mr Jacques also says he "lacks confidence" in the credit union's latest recovery plans, with trading losses for the financial year ending last September set to be announced at 1.37m following a loss of 2.4m the previous year.

Pointing out that auditors Grant Thornton have placed a qualification on whether LCCU is a going concern, he adds: "Given the current dire trading situation, LCCU's ability to repay the (2m council) loan could be seriously jeopardised and there must be a threat that the business will be unable to meet its obligations under the agreement with the council."

Mr Jacques says two previous recovery plans have failed and describes the latest proposal as "thin and deficient in many important areas.

"The recovery plan makes no reference to projected membership and savings growth or a strategy for getting more money out on loan and for getting on top of the bad debt problem." Mr Jacques is also "critical of the failure to reduce top management costs. Cutting back on operating costs and member benefits, without reducing senior management costs is, to my mind, a big mistake."

The letter concludes with Mr Jacques saying his concerns have been "ignored" and he is therefore effectively left with no option but to resign.

LCCU president Michael McGowan said: "I find it extremely sad as we have worked closely in tacking problems at the credit union but I do not agree with the reasons he gives for his resignation or the manner of his departure.

"The board of directors is united and determined to root out all problems, will not tolerate any wrong doing, and will not be distracted by the resignation."

DEBTS, LOANS AND BANKRUPTCY

The former chief executive of Leeds City Credit Union was declared bankrupt in June last year and fresh details of her outstanding debts have now emerged.

In all, Sue Davenport owed in excess of 90,000 when she applied to make herself bankrupt.

The biggest creditor is her former employer, with the credit union owed just under 40,000 in outstanding loans. A further 8,000 is due to HM Revenue and Customs in unpaid taxes.

In her role as chief executive, Mrs Davenport had come to national prominence and in 2006 gave expert advice to the Treasury Select Committee in Parliament on the issue of financial inclusion.

But despite heading an organisation designed to help people excluded from mainstream banking because of poor credit ratings, the remainder of Mrs Davenport's outstanding debts involve a long string of unpaid credit card bills.