10/07/2019

The Regulator of Social Housing is consulting on proposed updates to its guidance note: “Guidance on the Regulator’s approach to intervention, enforcement and use of powers”.

The guidance note updates reflect various legislative changes over many years. Whilst the updated guidance does not indicate any real change in the Regulator’s approach, it serves as a useful reminder, within an increasingly volatile housing market, of the new powers introduced by the Housing and Planning Act 2016 (HPA) exercisable if a housing association finds itself in financial difficulty.

The key updates are summarised below.

Introducing the housing administration regime
Our August 2018 briefing considers the new regime in detail but, essentially, it was introduced to address shortcomings in the Regulator’s enforcement powers identified during various housing association ‘rescues’. It is likely to be the default procedure for insolvent housing associations in the future and aims to ensure that an association continues to operate until it is rescued, sold or its activities are transferred to another association.

The updated guidance states that the overall aim of the regime is to ensure that social housing assets are retained within the sector so far as possible. However, it is important to remember that the housing administrator’s objective of keeping social housing in the sector is second in priority to its objective of achieving a better outcome for creditors.

The guidance states the Regulator expects creditors (and associations) to engage with it early if they are considering formal insolvency/enforcement actions and certainly to warn of any intention to give formal notice of formal actions under sections 104-108 of the HPA. This gives the Regulator the best possible chance of devising an alternative acceptable rescue plan.

A formal notice from creditors or the association under the HPA automatically triggers a 28 day moratorium over the association’s assets. During this time, the Regulator will work with the affected parties to attempt to agree a rescue plan and/or decide whether it will apply for a housing administration order. The guidance indicates that the Regulator may seek to apply for an order where:

  • It appears that insolvency is likely and the regime offers a route to achieve the Regulator’s objectives; and/or

  • The Regulator has been notified of a ‘step’ towards insolvency, and it considers that:
    • there is a significant risk that it will not be possible to agree proposals under the moratorium process; and/or
    • a better outcome is unlikely to be achieved via normal administration.

The Regulator will identify the proposed administrator in its application to the court. The guidance states that the administrator will be appointed through a transparent process based on experience and expertise, although there is no detail as to the process to be followed.

If the Regulator does not decide to apply for an order or a rescue plan is not agreed during the moratorium, the original steps proposed in the notice can proceed.

Linked to devising a timely ‘rescue plan’, the guidance now incorporates the Regulator’s expectation (as set out in the Governance and Financial Viability Standard) that associations will create and maintain a comprehensive assets and liabilities register to assist the Regulator to devise proposals for future ownership and management.

Recognition that the Regulator is now independent of the Homes & Communities Agency
The guidance now recognises that the Regulator can direct the HCA (now trading as Homes England) not to give an association any financial assistance in connection with social housing. This could be where, for example, the Regulator has decided to hold an inquiry into the affairs of the association. This power reflects the existing guidance in relation to directions given to the Greater London Authority.

Such a direction will trigger a fundamental default in the latest grant agreements issued by Homes England, which will have significant consequences for associations with large grant programmes. The guidance also confirms that the Regulator will meet with Homes England in the event a moratorium period is triggered, so that it can understand the grant liabilities and commitments of the association.

 

What is not clear from the updated guidance is what the Regulator’s role will be in working with or supporting a housing administrator, particularly if it has control over the appointment process. There will be a significant challenge in balancing the competing interests of tenants and communities, secured and unsecured creditors and wider sector stakeholders (significantly, the government) if (or when) the time comes.

The consultation closes at 6pm on 16 August 2019.