Last month, Altair published a report entitled 'Cosmopolitan Housing Group – Lessons Learned' (the Report) which was commissioned by the Homes and Communities Agency (the HCA) following the rescue last year of the Cosmopolitan Housing Group (Cosmopolitan). Whilst the Report makes a range of recommendations, this briefing focuses on two areas featured in the Report, voluntary undertakings and the moratorium period. In addition, this briefing also contains a legislative up-date in respect of community benefit societies and the Co-operative and Community Benefit Societies Act 2014.
The use of voluntary undertakings is covered in section 125 of the Housing and Regeneration Act 2008 (HRA 2008) which provides that a Registered Provider may give to the HCA an undertaking in respect of any matter concerning social housing and the HCA may prescribe a procedure to be followed in respect of that undertaking.
In this case, the Report notes that Cosmopolitan was required to provide voluntary undertakings to the HCA:
- not to dispose of any material assets without the prior approval of the HCA; and
- not to enter into any new material financial commitments without the HCA's approval.
The Report highlights that the HCA obtained these voluntary undertakings as opposed to using its intervention powers under the HRA 2008 (eg. appointment of a manager, appointment of officers, issuing an enforcement notice etc), and the Report states that this was primarily to avoid causing a breach of Cosmopolitan's covenants with its funders.
Impact on documentation
In light of the approach that the HCA adopted in the Cosmopolitan case, funders and investors in this sector may wish to consider including provisions in their financing documentation to specifically deal with voluntary undertakings.
In particular, new provisions could:
- include a requirement on the borrower/issuer to provide copies of voluntary undertakings which it has given instead of the Social Housing Regulator issuing a warning notice of proposed intervention actions (eg. notice to tender management functions; notice to transfer some or all of the management functions, etc);
- include a requirement on the borrower/issuer to provide copies of voluntary undertakings which it has given instead of the Social Housing Regulator taking regulatory action or enforcement action; and
- enable a breach by the borrower/issuer of a voluntary undertaking to be a specific event of default.
These new provisions could also be applied for consistency to Registered Social Landlords in Wales, as Registered Social Landlords are able to provide similar voluntary undertakings to the Welsh Government pursuant to section 6A of the Housing Act 1996.
The Report also recommends an extension of the moratorium period to 56 days, which would increase the existing moratorium period under the HRA 2008 of 28 working days. This 28 working day period can also be extended (or cancelled) with the agreement of all of the secured creditors which the Social Housing Regulator is able to locate having made reasonable enquiries.
Any change in law to extend this period would clearly impact the ability of funders and investors to exercise their rights under their respective financing and security documentation (existing or new), and this proposal is likely to be subject to the same considerable debate as when the original 28 day moratorium period was proposed as part of the draft legislation which became the Housing Act 1996.
Community benefit societies
The Co-operative and Community Benefit Societies Act 2014 (the 2014 Act) comes into force on 1 August 2014 to consolidate several key pieces of legislation for industrial and provident societies and to replace various Acts known collectively as the Industrial and Provident Societies Acts 1965 – 2003.
With effect from and after 1 August 2014, a new society will be registered under the 2014 Act as either (a) a co-operative or (b) a community benefit society (a CBS), and this will be set out in its constitutional rules.
As a consequence of this up-date in terminology, it is envisaged that the widely used short-hand term of 'IPS' will be replaced with the term 'CBS'.
An existing Registered Provider or Registered Social Landlord which is an industrial and provident society with the relevant form of 'model' rules is typically registered as a society formed for the benefit of the community and would therefore be treated as a CBS and not as a co-operative.