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Our spotlight piece considers the role of a Senior Independent Director (SID) and sector best practice. We also explore recent developments in case law that consider whether a parent organisation can be liable to third parties through actions by its subsidiaries, and consider the recent judgement handed down to Agudas Israel Housing Association in relation to its prioritisation of social housing for a specific group of individuals. That’s not all – we also provide a brief overview of regulatory and data protection updates, outline the main consultation proposals by the Government for the reform of the building safety regulatory system, and discuss the increase in the Regulator’s fees.
Is the appointment of a SID right for your organisation?
First things first – what are SIDs and what do they do? A SID is a director that sits on the board of management of an organisation without being employed by it (also known as an independent “non-executive director”). A SID will have the same legal duties and responsibilities as the other directors on the board but will often have some additional functions due to their unofficial role as an intermediary between the chair and the other directors and/or shareholders.
Opinion is divided as to whether having a SID is in the best interests of an organisation. For some, the appointment of a SID is required to ensure compliance with their adopted code of governance. These include organisations that have adopted the UK Corporate Governance Code (CGC), the Voluntary Sector Governance Code, and the NHS Foundation Trust Code of Governance. For others, namely those that have adopted the National Housing Federation’s Code of Governance (NHF Code), there is no requirement to appoint a SID to the board; with some housing associations viewing the role as too similar to that of the chair, resulting in duplication of roles and responsibilities. That is not to say that subscribers to the NHF Code should not have a SID, but rather that it is up to the board of each housing association to consider whether having a SID is in the best interests of the organisation and the specifics of the intended role.
In general, SIDs are intended to bring independence and objectivity to boards, especially where directors have become complacent in how they conduct business and are unable to recognise their own inefficiencies or impartiality. They are also recognised as being a conduit between the chair, the other directors and other key stakeholders, acting as a sounding board for the chair and offering an opportunity for the other directors or shareholders to raise any concerns that they have about the chair.
Any benefits should be weighed against the necessity of a SID and whether it is likely to result in duplication or tension between the roles of the SID and the chair. The adoption of the NHF Code is widely recognised as being best practice within the housing sector, and its silence on SID appointments allows boards to make a judgement call based on the governance needs of an individual organisation, rather than applying a “one-size-fits-all” approach. With a new NHF Code promised by March 2020, it will be interesting to see if a different stance is taken regarding SIDs – watch this space.
The liability of parent companies for their subsidiaries (Vedanta Resources Plc and Konkola Copper Mines Plc v Lungowe and Others  UKSC 20)
The Supreme Court recently gave judgement in a high-profile appeal that concluded that a parent company headquartered in the UK could be sued and held responsible by overseas claimants in relation to the conduct of its subsidiary company. In brief, the facts of the case were as follows:
Konkola Copper Mines (KCM) was a company incorporated in Zambia, and its parent company, Vedanta Resources Plc (VR) was incorporated and domiciled in the UK. Zambian citizens brought a claim alleging that they had suffered damage as a result of KCM discharging toxins from a copper mine into watercourses in Zambia. The claimants alleged that both KCM and VR were responsible, as VR had failed to exercise reasonable care in monitoring and controlling its subsidiary, KCM.
The case is of interest to parent organisations that operate in a group structure because it confirms that a duty of care can exist between a parent company and those affected by the operations of its subsidiaries. The existence of that duty is a question of fact in each case.
KCM and VR attempted to rely on a general principle that a parent would not incur a duty of care in respect of the activities of a subsidiary where group-wide policies had been put in place with an expectation that the subsidiary will comply with them. The Supreme Court dismissed this and stated such policies and guidelines would have to be looked at in all circumstances. This case highlights an emerging trend in parent company liability and should prompt parent organisations that operate in a wider group to consider the activities of their subsidiaries, and the control, processes and policies that are currently in place across its group and their implementation.
Agudas Israel Housing Association – restrictive objects “lawful” and “proportionate”
Agudas Israel Housing Association (AIHA) was found not to have unlawfully discriminated against non-Orthodox Jewish applications or breached the Equality Act 2010 by allocating social housing only to members of the Orthodox Jewish Community (OJC).
The claimants challenged the lawfulness of arrangements made by AIHA in its processes for allocating social housing solely to individuals from the OJC. They alleged that the allocations processes were discriminatory and unlawful. The court found that AIHA’s arrangements were lawful and proportionate in addressing the “many and compelling” needs and disadvantages of the OJC. The court also found that by allocating the housing to members outside of the OJC, it would reduce the properties available to Orthodox Jews and would fundamentally undermine AIHA’s charitable objectives to provide housing to Orthodox Jewish people. The court determined that AIHA served a specific need and that the disadvantages faced by the OJC were being legitimately addressed by a charitable housing association set up for that specific purpose.
This ruling should allay concerns for other housing associations whose charitable objects are limited to addressing the needs of a specific group of people, where the limitation is proportionate, legitimate and lawful.
Revised 'Regulating the Standards'
The Regulator published a revised ‘Regulating the Standards’ on 28 March 2019, updating the previous document produced in April last year.
The main changes to the new version are in relation to the Regulator’s approach to planned engagement by way of In-Depth Assessments (IDAs) for registered providers (RPs) with more than 1000 social housing units. The Regulator has indicated that it now intends to carry out IDAs for the largest and/or most complex RPs on a biennial basis, rather than every three to four years. The Regulator will determine which organisations qualify as “complex” using the Sector Risk Profile and other “relevant information”, and will focus on those they deem to have an increased level of risk exposure.
The Regulator also plans to hold face-to-face meetings (between August and December) with the executive teams of these RPs in the years where an IDA is not held.
IDAs will continue to focus on risk management by RPs, including the quality of stress testing and board oversight. The Regulator has endeavoured to clarify its expectations of RPs in relation to the current IDA model (which identifies five key components and key issues) and has provided further information on the use of interim judgements and circumstances in which they are issued.
Charity Commission guidance
Following a consultation held last year, the Charity Commission has published guidance for charities with a “connection” to a non-charity. The guidance is in response to concerns that charities were exposing themselves to risks through inappropriate connections with non-charitable organisations, including trading subsidiaries, corporate foundations and public bodies. The guidance is designed to help charity trustees understand the risks involved in setting up arrangements with non-charitable organisations and what measures should be put in place to deal with these.
The guidance sets out six key principles, several of which will already be extremely familiar to charitable housing association board members and echo the requirements of the Governance and Financial Viability Standard:
- Recognise the risks;
- Do not further non-charitable purposes;
- Operate independently;
- Avoid unauthorised personal benefit and address conflicts of interest;
- Maintain your charity’s separate identity; and
- Protect your charity.
While the guidance will only apply directly to registered charities (including housing associations), exempt charitable housing associations (usually community benefit societies) should still have regard to the general principles of the guidance as best practice.
Increase in regulator fees
The Regulator has confirmed that it is set to increase its fees by 15% per unit next year.
Fees are set to go up from the current level of £4.72 per unit to £5.47 per unit in April 2020/21 for all providers with more than 1,000 units. Fees for RPs with less than 1,000 units will stay at £300 a year, and the initial registration fee will also stay at the current rate of £2,500.
In a letter from Fiona MacGregor, chief executive of the Regulator, to all housing associations, reasons for the fee hike were cited as being: the need for increased resources to cope with RPs’ greater market focus, the emergence of for-profit providers and also investigations into lease-based providers.
Among the teams to be expanded is regulatory operations, as the Regulator seeks to carry out more in-depth assessments and ongoing engagement with large, complex housing associations that are potential rescue partners for RPs in financial difficulty. It should be noted that these fee increases do not include potential extra costs arising due to policy changes coming out of the Social Housing Green Paper, and call for the Regulator to take on a more proactive role in relation to policing the Consumer Standards.
RPs have previously received refunds reflecting an underspend in the Regulator’s budget for 2017/18, and the Regulator’s letter said they “can expect to do so again for 2018/19”.
Feedback on the proposed increases must be submitted by email to email@example.com by Wednesday 14 August, with the Regulator set to issue a fees statement for 2020/21 in November.
Data protection update
Earlier this year, the Information Rights First Tier Tribunal dismissed an appeal by a company, Doorstep Dispensaree Ltd (DD), against an information notice issued by the Information Commissioner’s Office (ICO). This was the first time that the Tribunal had considered the ICO’s information notice powers under the new regime introduced by the Data Protection Act 2018 (DPA) and the General Data Protection Regulations (GDPR). The role of the Tribunal was to consider whether the information notice issued by the ICO was in accordance with the law and whether the discretion to serve the notice could have been exercised differently.
There had been reports raising specific concerns about DD’s processes for handling personal data and its compliance with the GDPR, and the ICO made a request for further information to investigate the issue. DD did not comply with the ICO’s information request, resulting in the ICO serving an information notice. DD’s main argument related to the ongoing criminal investigation against it and that its right not to self-incriminate meant that it should not have to provide the ICO with the information requested.
The Tribunal found that the information notice was valid and that DD could not show a reason for requiring the ICO to exercise its powers in a different way. The Tribunal did determine that the notice could have stated more clearly that the information notice need not be complied with if the information sought would reveal evidence of an offence that would expose the company to proceedings for that offence.
This case will be of interest to housing associations operating in a regulated sector. Activities attracting the attention of one regulator (the Regulator of Social Housing, for example) may be of interest to another, including the ICO.
Government consultation – building a safer future
The Government is currently consulting on its suggestions for reform of the new building and fire safety regime, which builds on the recommendations from Dame Judith Hackitts’ Independent Review of Building Regulations and Fire Safety. The consultation proposals cover five broad areas, which include:
- the scope of the new regime, including the types of building that should be included in it;
- the concept of “duty holders” who have clear responsibilities throughout a building’s design, construction and occupation;
- giving residents a stronger voice in the system and ensuring their concerns are never ignored and that they are at the head of the new regulatory system;
- plans for a new building safety regulator to provide oversight of the new building safety regulatory regime and to provide a more effective accountability framework; and
- strengthened enforcement and sanctions to deter non-compliance with the new regime.
The Home Office has issued a call for evidence on the Regulatory Reform (Fire Safety Order) 2005 that is intended to complement the consultation. The consultation ends on 31 July 2019.
If you would like more information on any of the topics covered in this update, please contact Catherine Simpson.
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The monthly round-up from the Anthony Collins Solicitors charities team.
The CQC will conduct reviews on a monthly basis of all of the information they hold about services and will use these reviews to prioritise its activity.
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