The Academies Financial Handbook is updated annually by the Department for Education and the Education and Skills Funding Agency; it contains a number of governance requirements for academy trusts.
You can read the individual updates by clicking on the links below.
- PSC Register – Update on “significant influence”
- Introduction of HCA Fees
- Grenfell – four months on
- HCA Consumer Standards Review
- Spotlight: Estate Management Companies
UK companies and LLPs have been required to prepare and maintain a register of people with significant control (“PSC”) since 6 April 2016. If you need a quick refresher on what is required, our briefing from April 2016 sets out the key things to consider in formulating your own PSC Register.
There is a list of conditions that an individual must meet for entry into a company’s PSC Register. The fourth condition is that:
“X has the right to exercise, or actually exercises, significant influence or control over company Y.”
On 23 June, BEIS published revised draft statutory guidance on the meaning of “significant influence” or “control” over companies. “Control” is regarded as directing the activities of a company, whereas influencing the company to ensure that desired activities are adopted is indicative of “significant influence.” Neither has to be used with a view to gaining economic benefits.
You should consider all relationships that a person has with either the company or others responsible for managing the company in determining whether the person actually has the power to exercise significant influence or control.
A person is likely to be a PSC if:
(a) They are significantly involved in the management and direction of the company; or
(b) Their recommendations are always or almost always followed by shareholders who hold the majority of the voting rights in the company.
The guidance also helpfully confirmed the relationships or roles that will not automatically result in an individual being a PSC:
(a) A person providing advice in a professional capacity (i.e. lawyer, accountant, tax advisor);
(b) People dealing with the company under a third-party commercial or financial agreement (i.e. suppliers, lenders);
(c) An employee acting in the course of their employment (i.e. CEO);
(d) A director of the company;
(e) A person who makes one-off recommendations to shareholders on an issue, or set of issues;
(f) Rights held by employees, to represent their interests; and
(g) Any person or entity in relation to any association or professional standards organisation that set common rules, policies or standards to be adopted by the members.
However, if the role or relationship is materially different from the general understanding of what the role entails or it allows opportunities for the person to exercise significant influence or control, it may be found that the person is, in reality, a PSC.
You can read the full draft statutory guidance here.
The Homes and Communities Agency (the “HCA”) has produced fees guidance for registered providers regarding the introduction of fees from October 2017. The HCA has also confirmed that it started issuing invoices on 4 September in anticipation of the new fees.
In the interests of transparency, a ‘Fees and Resources Advisory Panel’ (the “Panel”) has also been established and is due to meet for the first time this month. The Panel aims to encourage stakeholder engagement on fees and providing transparency.
The new fees regime will include:
- A one-off fixed fee of £2,500 applicable to all successful applications for initial registration;
- A fixed annual fee of £300 for providers with fewer than 1,000 social-housing units; and
- An annual per-unit fee for large providers with 1,000 or more social-housing units, this will be £4.72 for 2017/2018.
Due to the decision to start charging fees from 1 October 2017, 50% of the annual fee is payable for 2017/18. The full annual fee is payable for 2018/2019 onwards.
We consider some of the broader legal issues brought to light in the aftermath of the tragedy of the Grenfell Tower Fire, specifically regarding the duties and responsibilities of the Board with a focus on health and safety and corporate manslaughter.
Fire safety for landlords
Following our briefing on Fire Safety in the immediate aftermath of Grenfell, on 6 September 2017, the Government’s Building Safety Programme (BSP) released advice on good practice for tower block safety after carrying out large-scale combustivity testing of cladding. The advice gives guidance on the appropriateness of cladding for high-rise buildings and emphasises the need for building owners to seek individual professional advice. Additionally, the advice considers several common FAQs of both building owners and residents and contact details are provided to assist RPs that may be finding it difficult to fund essential works required to make their buildings safe. You can read the full advice here.
A number of concerns have been raised by housing associations about the duties and responsibilities of the Board regarding health and safety, and corporate manslaughter.
Under the Corporate Manslaughter and Corporate Homicide Act 2007 (“CMCHA 2007”) an organisation can be held liable for unlimited fines and face a remedial order that requires it to improve its policies, systems or practices. The relevant organisation may also face significant reputational damage if ordered to publicise details of its conviction and associated fines.
An organisation will be guilty of corporate manslaughter where it manages or organises its activities in such a way that causes a person death, and it amounts to a gross breach of a relevant duty of care owed to the victim. The criteria must be proved to a criminal standard (beyond a reasonable doubt), and the harm must have occurred to the victim in the UK.
It’s important for Boards to receive regular training on the duties and responsibilities of Board Members (and mentioned by the HCA as part of its Consumer Standards Review – see below). Please do contact us if you would be interested in training on Board Members’ duties and responsibilities, which can cover specific issues about health and safety, and corporate manslaughter.
The HCA has recently published its annual review of the Consumer Standards (the “Review”) for 2016/2017. There are four consumer standards including Home, Neighbourhood & Community, Tenancy and Tenant Involvement & Empowerment. The key points to mention are the following:
- It is a key responsibility of Boards and Councillors of RPs to comply with health and safety regulations – a particular focus in light of the events of Grenfell.
- RPs are responsible for investigating and rectifying any concerns about the service they are providing. Compliance control is better for both tenants and landlords as issues can be resolved efficiently, whereas problems that are recognised as being symptomatic of a broader governance failure can take significant time, money and resources to rectify.
- RPs are responsible for ensuring that tenants know how to complain and for dealing with the complaints effectively. It is important that Boards can access the complaints and understand the reasons behind the complaint.
- Governing bodies must deliver statutory compliance including fire safety, electrical safety and asbestos etc. The HCA does not routinely monitor whether RPs are compliant with the consumer standards in the absence of complaints or referrals because its role in consumer standards is reactive rather than proactive.
Where there has been a failure by an RP to meet the consumer standards and the serious detriment test (a risk of or actual serious harm to tenants) has been met, the HCA will consider whether that failure has any implications for the RP’s governance. The HCA may view the failings as indicative of broader governance issues and a potential failure to comply with the Governance and Financial Viability Standard (the “GFV Standard”). It is important for RPs to maintain transparency with the HCA as part of the GFV Standard.
An evaluation of an RP’s compliance with the GFV Standard will likely consider:
- The effectiveness of the RP’s risk management and internal controls;
- The effectiveness of the board’s oversight, for example, whether the board was receiving adequate and timely information and challenging the executive on performance;
- The RP’s transparency and the timeliness of communication with the HCA;
- Any actions taken to mitigate the failure;
- Whether the failure raises any wider systemic concerns; and
- How the board has assured itself that the failings will be addressed.
You can read the Review here.
It’s a common scenario for housing associations: a developer has built a block of flats, but rather than retaining the common parts or the common greens on the estate, it transfers ownership of the freehold to an estate management company. This estate management company has a board and membership/shareholding that is usually made up of the leaseholder of each unit, with each unit getting a vote. The residents then usually employ a managing agent to look after the common parts.
This set up allows developers to walk away from a development once their job is done and also hands over control to residents so that they can ensure the common parts are looked after the way they want them to be.
However, we increasingly see housing associations inadvertently setting up new subsidiaries by purchasing units in such blocks. This is because they are offered appointment/voting rights in their capacity as members/shareholders on a “per unit” basis. If they purchase more than 50% of the units in a block, they obtain majority voting rights, and the management company becomes a subsidiary because it fulfils the test set out in S1159 of the Companies Act 2006.
There are, of course, advantages to a housing association having a controlling interest in the management company as it can control the affairs of the company and have a greater say in the maintenance of the common parts. This is especially important as the association has a longer-term stake in the development and so will want to ensure the common parts are well maintained.
However, it is very important for development teams to be aware of this as an issue because often they need consent under funding agreements to create or accept a new subsidiary. Organisations that do not obtain the requisite consent will be in breach of their funding agreements, which can have serious consequences regarding costs and will usually be an event of default, allowing funders to require repayments.
To prevent this, we advise that:
- You check your funding agreements for restrictions on forming subsidiaries;
- If you need consent from funders, your development teams are made aware of this risk, and they liaise with your governance team/company secretary when a management company is involved and so that they can check the company’s Articles; and
- Appropriate advice is taken to ensure the estate management company does not become a subsidiary.
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