Company secretary update - October 2019

Welcome to our latest Company Secretary Update! This quarter our spotlight piece focuses on Brexit following the updated briefing note issued by the National Housing Federation (NHF) to help the housing sector prepare for a no-deal Brexit. We also discuss the revised Together with Tenants plan and Charter issued in July, the recent Law Commission Report on the use of e-signatures, and the findings contained in the recent study conducted by the Charity Commission on auditors' and independent examiners' compliance with their responsibilities.

Brexit Update

The chaos surrounding Brexit continues following the Supreme Court’s ruling that the Prime Minister’s advice to Her Majesty regarding the prorogation of parliament was unlawful.

Amidst the uncertainty surrounding whether the United Kingdom will be leaving the European Union, the NHF has released a further briefing for registered providers of social housing (RPs) to help them prepare for a no-deal Brexit. The briefing identifies challenges for RPs following the Government’s release of Operation Yellowhammer documents, and these include a potential impact on:

1. Tenants: RPs may need to offer additional support to tenants who face a change in their financial circumstances. It may also mean supporting them to cope with unemployment, assisting them in securing their immigration status or accessing essential goods if there is a disruption. RPs may need to plan for increased voids, arrears and bad debts, and the NHF emphasises the importance of communication with tenants should a no-deal impact the services provided by the RP.
2. Supplies: There may be temporary shortages of key materials for repairs and maintenance. RPs should speak with contractors and suppliers to develop a mitigation strategy if they cannot course materials from the EU in the short term. These conversations are particularly important for repairs and maintenance materials that are not regularly imported, i.e. materials for critical infrastructure like lifts and water systems.
3. Liquidity and funding risks: RPs should understand its liquidity needs and interest rate exposure in order to minimise risks. They should also undertake stress testing of their business plans and have an understanding of their contractual obligations regarding public spending.
4. Development programmes: Inflation in materials and labour costs could accompany a fall in house prices, which may have the effect of putting pressure on development programmes. Some RPs are modelling development risk scenarios and combining multiple risks, in addition to agreeing early warning signs of upcoming issues, such as delays in development completions, higher cost of sales and reduced sale rates. RPs that have funded programmes should ensure they have early and on-going communication with Homes England and/or the Greater London Authority.
5. Staff shortages: Rapid immigration changes, combined with the current working environment, may result in a reduction of the care and support workers available. RPs should support EU citizens in securing settled status and liaise with other partners over on-going service provision.

Please refer to the Government’s updated guidance for more detailed information on how Brexit will impact immigration and construction.

Despite concerns surrounding how Brexit will affect the housing sector, the Quarterly Survey published by the Regulator of Social Housing (RSH) for the first quarter indicates that the financial position for the social housing sector is stable.

Specifically, the regulated sector has access to £20.4 billion in undrawn facilities and agreed new finance of £1.4 billion. Investment in new housing supply was £3.1 billion in the first quarter, and this is expected to increase with a £16.1 billion investment forecast over the period to June 2020. Cash balances total £5.3 billion – this is forecasted to reduce to £3.4 billion over the next 12 months to fund planned capital expenditure.

NHF publishes the revised Together with Tenants (“TWT”) plan and Charter

Following a two-month consultation, and taking into account over 2,500 responses, the NHF has laid out its plan to be piloted by 130 ‘early-adopter’ organisations. The rethink (released July 2019) builds on the original TWT plan, introduced in the wake of the Grenfell tragedy to give a greater voice to tenants, and focusses on testing four key actions:

1. A requirement within the NHF Code of Governance (NHF Code) for boards to be accountable to tenants and residents;
2. A new TWT Charter, cementing commitments that tenants and residents can expect from their RP and creating a more consistent experience for those tenants and residents (see below);
3. The introduction of tenant oversight and public reporting against the TWT Charter, strengthening tenants’ and residents’ ability to hold their landlord to account; and
4. Giving tenants and residents a stronger collective voice in highlighting issues of interest to the Regulator.

Following consultation feedback, the NHF has carefully chosen wording that is universally understood, making the TWT Charter a resource which works for both landlords and tenants. The revised commitments are left to each RP to implement in a way that works for their tenants, and centres on themes of:

• Relationships between landlord and tenant based on openness, honesty and transparency;
• Communication to tenants about the issues that matter to them, which is clear, accessible and received at the right time;
• Actively seeking the voice and influence of tenants, and placing value on them in the decision-making process;
• Accountability of RPs for decisions that impact tenants’ homes and services;
• Quality, well maintained, safe and well-managed housing for all; and
• When things go wrong, tenants have simple and accessible routes to raise issues and make complaints.

In the current early-adopter phase, the objective is to iron out the way RPs and tenants use the TWT Charter. At this stage, the commitments are there to guide RPs as to what is expected from them by tenants, and further opening the dialogue between the two. The early-adopter phase is earmarked to finish in Spring 2020, and we will provide an update of the NHF’s findings and what they mean to your organisation once they have been released.

In the meantime, the NHF has recently released a leaflet designed to help RPs prepare for the full launch of TWT, which can be found here.

Company Secretary update – Law Commission report on electronic execution of documents

The Law Commission published a report on 4 September 2019 detailing its view regarding the electronic execution of documents.

The report concluded that electronic signatures could be validly used to execute documents. The main findings of the report were:

1. Unless the contrary is provided (either by law or document), a pragmatic approach towards signatures should be followed, in that there is not a prescribed form, type or method. The courts adopt an objective approach considering the surrounding circumstances.
2. An electronic signature can be used to execute documents, including deeds, so long as the document is authenticated and the proper formalities for execution are followed (i.e. using a digital signature).
3. The courts already accept various forms of non-electronic signatures such as tick boxes, marking initials or signing with a stamp. The Law Commission is of the mind that electronic versions of these would likely be recognised by the courts as being legally valid.
4. The Law Commission’s view is that the requirement under current law that deeds must be signed “in the presence of a witness” requires a physical presence of the witness. So, if you are witnessing a deed through electronic means, you need to be physically present at the time the deed is signed in order for valid execution.

Further information about this Law Commission’s report can be found in our e-briefing.

Charity Regulator – ‘Concerned’ by external charity accounts scrutiny

A study published on 28 August 2019 by the Charity Commission found that only around half of the randomly sampled charities met the external scrutiny benchmark for accounts. The benchmark is intended to ensure that charities meet basic requirements. This is particularly concerning given the number of recent cases of charities’ accounts falling short of expectations. The Commission has issued updated guidance in response.

The study found 77 cases where related party transactions were not properly disclosed, indicating that there may be issues where the trustees’ failure to manage conflicts may be under-reported. One recent example of this is in the Charity Commission’s recent inquiry into Bristol Sheltered Accommodation and Support (BSAS). In 2015, a trustee was also the director of a company that purchased one of the properties leased by BSAS. The inquiry found that this conflict was not properly managed. More information on the BSAS inquiry can be found here.

Good financial control is a key concern of the Charity Commission. In the BSAS inquiry, significant weaknesses were found in the charity’s historical accounts. Similarly, an on-going inquiry is examining potential misconduct at seven charities that are linked by two common trustees. Discrepancies have been found in the reported annual returns of the related charities, raising concerns over the financial controls, governance and management. More information can be found here.

Non-compliance with the benchmark may be used by the Charity Commission to raise formal complaints with professional bodies. The key message to take away, therefore, is for charities to check their financial controls, keep good governance practices and obtain advice from its advisors where there are concerns over the external scrutiny benchmark.