The Law Commission published its report on Technical Issues in Charity Law in September 2017 following a public consultation.
As many have now been in place for a few years, we would advise that consideration is given to a review of the structures which are in place. Such a review need not be very expensive, and experience shows that, if done with the right experience and knowledge it may very well result in increased delivery and effectiveness which quickly repays the expense of the review.
Councils have had great success in pioneering new structures to achieve improved service provision and generate income. Many changes also reflected the move to a more commissioning based structure, as opposed to direct delivery.
These new structures may include one or more (or indeed a group structure may have been created):
- Teckal compliant vehicles delivering services back to the Council (and maybe doing a small about of trading);
- Wholly owned commercial vehicles generating income for the Council;
- Joint venture companies or limited liability partnerships (whether commercial or otherwise) with other public or private bodies; and
- Charitable entities managing certain assets or service delivery to the public (although with these vehicles the Council may not necessarily be the “owner”).
For certain councils with multiple vehicles the change may have happened all at once or (more likely) has been incremental as responses from different service and corporate areas to particular needs and initiatives, with little linkage into the other vehicles in existence or subsequently developed by the Council.
It is, of course, important to consider how each vehicle is operating to deliver its objectives on an individual basis. However, our view is that Councils should also review how their vehicles are interacting both with the Council and each other. This should include governance issues, for example, whether the structures in existence provide appropriately for accountability and transparency both independently and as a group; and also look at what developments are likely in the future and how these can best be incorporated.
Other matters to look at include whether there is sufficient cross working and peer support with experience and learning shared; how the Council as a corporate body relates and communicates on a strategic level to the various entities, and how risk management and performance are managed, both at the individual level and in relation to the Council as owner. Does the way in which the entities are managed take proper account of the Council’s strategic objectives?
Our top tips for any review:
- Does the structure fit with how things work in practice?
- If you have more than one vehicle can they be consolidated to provide a more integrated delivery? This may be relevant where you have a number of vehicles undertaking very similar work.
- In contrast to the above, could delivery be better handled if you split any of the vehicles or set up subsidiaries – this might be of particular importance where there is a large-scale project.
- Is each vehicle doing what it should be doing or are they straying into territory covered better by another vehicle?
- If you have a Teckal vehicle that is also trading, is the trading less than 20% of the vehicle’s activities? If it is not then, you do not have a compliant Teckal. Consideration could be given to:
- Setting up a separate trading vehicle as a twin to the Teckal – would the Council need to significantly increase trading to make that viable when compared to the costs of running another vehicle?
- Change the Teckal into a trading company that bids for Council contracts and trades with others – would this be sustainable where the vehicle has previously been reliant upon the Council for the majority of its income?
- The relationship with the Council:
- Is the Council (as owner) represented by the same people/body so that there is a single voice directing each of the vehicles? This could be achieved with separate vehicles by having the same body (e.g. the Executive) act as the shareholder on behalf of the Council. Alternatively, the Council could establish a single wholly owned parent company with the Executive acting as a shareholder. That parent company could then represent the Council’s interest in all other vehicles.
- Are decisions being taken in the right place? Are you balancing Council control of strategy with giving sufficient freedom to the vehicles to ensure flexibility?
- Do you have standard information sharing arrangements with each vehicle so that Members (and officers) can access information and deal with Freedom of Information requests?
- If you have Members or officers on the board of any entity are conflicts of interest arising regularly? If they are, then consider whether alternative directors might reduce the number of issues. It is usually easier to have officers as directors because Members will always have a duty to their authority and officer duties can be managed as part of their terms and conditions.
- Do you have any independent non-executive directors on vehicle boards? Could any such directors provide a valuable input into the operation and management of the vehicles?
- If the vehicle is a Council-controlled company or a company under the influence of the Council, do you have arrangements in place to ensure the Council and the vehicle comply with the obligations under The Local Authorities (Companies) Order 1995?
- Are you structured to be the most tax efficient? Care does need to be taken to avoid aggressive tax efficiencies that might result in political/PR fall out.
A final note relevant to alternative delivery models, if you have a company or a limited liability partnership (even if the Council’s interest is indirect) – have you considered whether the Council needs to be referred to in the Register of Persons with Significant Control in place?
For more information, please contact Alex Lawrence.
Changing charitable purposes and amending governing documents.
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