Ipswich council is facing a loss of hundreds of thousands of pounds after the collapse of the company that owned the former BHS store in the Butter Market before it was sold to Sports Direct.

The former BHS had been owned by Danish-registered property company Habro-Ipswich City for many years – and had proposed a redevelopment with cafes, pubs and shops – but that scheme never attracted enough commercial interest.

Since the closure of BHS, it had not paid any business rates to Ipswich Council – and between June 2017 and its sale to Frasers Group, the owners of Sports Direct, in January 2020, it had built up arrears of £598,409.

Habro-Ipswich City's only asset was the Butter Market store and it had debts of £5.7m when it was sold to Frasers Group for £2.7m. The sale was handled by receivers running the Danish company's affairs.

There was no money left to pay the rates bill, but an offer was made to the borough to pay off £100,000. This sum was later raised to £125,000 but the council was told there was no prospect of any further money. That would force the council to write off £473,409.

Not all this money would come from the borough – the government would face the biggest loss, 50%, and the county council would lose 10%. However, the total loss for the borough would be 40% – £189,364.

The council's audit committee is due to vote on whether to accept the £125,000 offer at its meeting next Wednesday.

Officers warn there is little chance of getting any more, saying: "The council’s position in respect of recovery is very weak. Agreeing a settlement will ensure some money is recovered."

These issues cover the period before the Fraser Group bought the store. Late last year changes were made to ensure it is ready for a fit-out, which is expected to happen with the next few weeks.

No one from Fraser Group was able to respond to questions about the store, but it has told landlords of the existing Sports Direct store, in Carr Street, that they will not be renewing the lease which expires early next year because they will be moving to the Butter Market.

That is expected to be joined in the store by other Fraser Group units including Flannels and USC – and possibly also by Jack Wills and Game.