One of the Midlands’ best-known businessman has accused a former partner in a regeneration project of “embezzling” funds designed to help the people of one of the poorest wards in the country.

Pertemps chairman Tim Watts was giving evidence at a four-week trial in the High Court in Birmingham over a £1.9 million shortfall in the funding of an ambitious project that saw the regeneration of Nechells Baths.

The £5 million plus project was completed in 2007 but Midlands Regen, a company set up by Birmingham Community Foundation, the charity behind the project, is suing former city clergyman and treasurer of Birmingham Cathedral David Collyer.

Mr Collyer was the chief fundraiser behind the project and has claimed money paid to him and his company Linton Marketing was owed in fundraising fees and the repayment of loans.

Although the charity said it sought answers over the shortfall as the trial progressed it did concede some of the 19 payments paid out to Mr Collyer or the companies he was involved that totalled £1.9 million were justified.

It agreed that evidence had now come to light which indicated credit could be given for £615,000.

Explaining the history of the foundation and the Nechells Baths project, Mr Watts, who was a trustee of it and is now its president said: “I was approached by an organisation called the Lunar Society. They had the idea of a community foundation - copying it from America.

“David Collyer and another person, Christine Kendall had had a go at setting up a Birmingham community foundation and had been unsuccessful. They believed a businessman of my standing could involve other businesspeople in the region. I willingly helped.”

Mr Watts said the organisation, which raises funds to support disadvantaged communities in the region, initially had a chequered start before taking off and establishing itself but needed to grow.

“It was acknowledged the organisation needed to create an income and David Collyer first raised the prospect of developing Nechells Baths, which could be bought from Birmingham City Council and developed, delivering an income of between £200,000 and £300,000 in rent.

“It would be free flow money to go into the greater Birmingham community.

“It was a way to increase our endowment fund and Birmingham City Council would sell us the baths for £5.”

Mr Watts explained how Mr Collyer seemed the ideal candidate to raise the funds for the project as he had already done some preliminary work on it and because he was seen by the trustees as an expert in obtaining grants.

“New lines of funding were new to all the trustees, apart from David Collyer, who said he had a working knowledge,” he added.

The project transformed the dilapidated Edwardian baths into a new community facility providing training, crèche and offices for social enterprises. It was initially expected to cost £4.135 million but ended up costing £5.3 million.

A company, Midlands Regeneration, was set up to handle grants for the project from the European Regional Development Fund, the Heritage Lottery Fund, Advantage West Midlands and other sources.

However when it also took on other projects Mr Collyer was involved in the charity was advised to set up another company Midlands Regen to handle the funding.

An obligation by the charity to cover some of the project’s costs through a parental guarantee signed as part of the funding process was highlighted by Mohammed Zaman QC for Mr Collyer.

He said this meant it could be liable for a voluntary contribution of 25 per cent of the costs – a sum in excess of £1 million.

But Mr Watts supported evidence given by fellow trustee David Bucknall that Mr Collyer pledged the project could be delivered “debt free” at no cost to the charity.

“He said he had found the funds and it was a prepackaged, turn-key, debt-free project,” said Mr Watts.

“We trusted him and his team. It was the Reverend David Collyer who brought it to us, pursued it over several meetings with us and we voted on it unanimously.”

Mr Watts said he was aware that Mr Collyer and Linton Marketing would be entitled to a fee of ten per cent of the total funds raised, which it was thought would be around £470,000 by the time costs had increased and accepted Mr Collyer had made a £150,000 loan from his “life savings” which Mr Watts said he himself personally reimbursed.