WEST Somerset Railway Association has been forced to make a “serious incident report” to the Charity Commission after not being paid £100,000 it claims it is owed by the cash-strapped West Somerset Railway.

The WSR was due to hand over the money in February in return for acquiring assets owned by the association (WSRA), including the Bishops Lydeard station shop and workshops at Williton.

But in a letter to members, acting WSRA chairman Mike Sherwood said this week that the two organisations had been unable to agree on how the debt should be paid and that possible options had been “rejected by the WSR almost out of hand”.

Mr Sherwood said that, unless the matter could be resolved amicably, the Charity Commissioners could take control of the association’s activities.

“They could decide that they will put us under direction, in which case they would tell the trustees exactly what we could and could not do,” he said.

A WSR spokesman said this week that the railway board was “disappointed that the WSRA has now chosen to issue a negative public statement about certain aspects of this commercial deal which require some clarification.”

The spokesman added that the WSR had an obligation to reimburse the WSRA and only wished to defer the payment – at the moment, survival of the railway was the clear priority.

Mr Sherwood said the association had offered a number of solutions to WSR “as we fully understood the need for emergency cash created by the Covid19 lockdown”. He said the association’s trustees had offered to reverse the sale or accept assets but this was rejected.

He said that a plan to accept the money and immediately lend it back failed because the railway could not offer adequate security.

“This left the trustees in a difficult position. If they advanced the loan without security then they would not be acting in the best interests of the charity and would be in breach of Charity Commission rules.”

Mr Sherwood added: “Similarly, the trustees could not gift the sale proceeds despite the WSR requesting that we should simply make a gift to them. That is beyond the charitable objects of the WSRA, and the Charity Commission has rules that prevent a charity gifting money to a separate commercial company.”

WSRA members were told that cash from the deal would have been used to fund railway projects such as rail renewal and building repairs.

“A loan would be the best solution and one we still hope will resolve the matter,” Mr Sherwood said.

“However WSR must provide the charity with something against which the loan can be secured or the trustees are in breach of Charity Commission rules.”

He added that the commission “expects the trustees to sort the problem out.

“If it can’t then, in the worst case, everything else the WSRA is trying to support on the railway at the moment could be put on hold at the direction of the commission. This could include the distribution of all charitable funds.

Mr Sherwood added: “At this point I hope it will not come to that. We are still having some mature conversations with WSR in difficult circumstances, but we still talk regularly.”

The WSR spokesman said that “naturally challenging but businesslike negotiations” over the planned sale had been agreed some time ago but the Covid-19 pandemic could not have been foreseen and the deal “which was freely entered into by both parties, was never concluded within a normal commercial agreement although the deal has been 99 per cent completed for some time.”

Due to the present crisis, stock in the Bishops Lydeard shop could not be sold at its marked value “and so paying the cash over would take money out of the business just at a time when the railway needs it most. The WSR only wishes to defer the payment until able to pay it.”

The WSR spokesman concluded: “The board remains open to any constructive proposal going forward but this makes things more difficult after the WSRA opted to make a critical public statement during an ongoing negotiation.

“In our view this is almost a technical accounting issue that can, and will, be resolved to everyone’s satisfaction.”