A party seeking to restrict another's commercial activities must consider whether such terms are normal in similar, factual and contractual circumstances.
A sizeable North Lincolnshire social housing provider has learnt the hard way that, whilst honesty is the best policy, it does not mean you’ll evade the consequences of your actions.
Part of a group structure under an unregistered parent company, Ongo Partnership Limited, Ongo Homes has around 10,000 homes and participates in the Local Government Pension Scheme (LGPS). Ongo Homes self-referred to the Regulator for Social Housing (the Regulator) in 2018 after a departing executive was granted early access to their pension, resulting in a significant cost to Ongo Homes.
The Regulator investigated the matter and found evidence of weaknesses in Ongo Homes’ governance, and particularly in the oversight and risk management of their Board. Whilst the decision to grant early access to the pension did not sit with Ongo Homes, the cost incurred did – Ongo Homes is the participating body in the pension scheme, not Ongo Partnership who made the decision. The Regulator found that there were sufficient links with the parent company’s board for Ongo Homes to be aware of what was going on and to trigger the controls and mechanisms in place to manage these types of risks. Their failure to do so has resulted in the downgrading of Ongo Homes to a non-compliant G3 grade. In the words of the Regulator, this means “the provider does not meet our governance requirements. There are some issues of serious regulatory concern and in agreement with us the provider is working to improve its position”.
These are damning words indeed, and we wait to see how this downgrading will affect Ongo Homes’ fortunes in the coming months. Regulatory downgrades can have an impact on financial covenants, making borrowing more expensive.
The following learnings can be taken from Ongo Homes’ misfortune:
- Do not assume that decisions made by a parent company or other member of a group structure will not affect your business;
- Take particular care where both a parent and a subsidiary employ staff and consider the implications for both entities;
- Substantial pension costs are likely to attract the eye of the regulator and take care when making decisions involving granting extra pension benefits, and after taking relevant advice;
- Stay interested and involved in a group structure and be prepared to speak up and trigger necessary mechanisms if concerned; and
- Despite Ongo Homes carrying the can for this, always be prepared to self-refer to the regulator; pro-active notification is always preferable to reactive response.
For more information, please contact Doug Mullen.
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