Agenda item

Establishment of wholly owned Housing Companies and Business Plan

Please note: Included within this report (Appendices A, B, C and D – pages 41-177), and printed on grey paper, is exempt information, which is not for disclosure to the press and public by virtue of Paragraph 3 of Part 1 of Schedule 12A of the Local Government Act 1972 (as amended).

 

If this is to be debated, the Cabinet will be asked to consider it in camera, having first resolved to exclude any members of the press or public present.

Minutes:

(Link to Council Priorities: Community Wellbeing – Help meet the need for affordable housing through a housing company owned by the Council (Ref: H2))

 

The Portfolio Holder for Housing introduced the report and reminded colleagues of the decisions made by the Council on 21 February 2018 to establish local authority owned housing companies.

 

In this regard, the Cabinet was asked to consider and recommend approval of a range of decisions that would establish two companies and adopt a business plan and budget.  An operational structure was also proposed that would provide the Council with a set of controls ensuring transparency and accountability over the activities of the companies.

 

The Portfolio Holder advised that the key points that required consideration by the Cabinet were as follows:

 

·         the structures and relationships between the Council, EBC Investments Ltd. and EBC Homes Ltd. which had been fully described in the report by Browne Jacobsen and reflected the best possible legal structure to enable delivery of the Business Plan, given the scale and context of the anticipated development programme of the companies;

 

·         the tax advice provided by PricewaterhouseCoopers (PWC);

 

·         the request for delegated authority which set out the decision-making capabilities of each company.  It had been confirmed that the Council, via the Shareholder Board, would retain ultimate overall control of the activities of EBC Investments Ltd. and EBC Homes Ltd.;

 

·         by approval of the Business Plan, Budget and related matters, the Council would be delegating the operational responsibility to deliver the targets contained within the Business Plan to EBC Investments Ltd. and by extension to EBC Homes Ltd.; and

 

·         the Council, via the Shareholder Board, would hold the Boards of EBC Investments Ltd. and EBC Homes Ltd. accountable for the operational performance of each company.

 

The Cabinet noted that the planned scale of development activity would ultimately be governed by:

 

·         the capacity of the companies to acquire land / sites / projects that would deliver the targeted number of homes;

 

·         securing planning consents; and

 

·         the viability and deliverability of identified projects.

 

The Portfolio Holder advised Members of the actions that had been taken to implement the Council’s decisions made on 21 February 2018 and the work that was still to be completed, the details of which were outlined in the report.  The work still to be completed would be planned, delivered and monitored by EBC Homes Ltd. and EBC Investments Ltd. under the scrutiny of the Council and the Shareholder Board through formal reporting and monitoring requirements.  Members acknowledged that the Business Plan had included some potential sites which would need to be reviewed and progressed as part of the Council’s decision-making process.  It was noted that approval of the Business Plan did not mean that the potential sites identified were being approved for development.

 

With regard to the legal and tax advice, having taken into account the advice provided by the Council’s external advisers, the best fit for the Council, given the context of the business plan, was to establish a company limited by shares.  A proposed structure was set out in the report which it was noted was largely the same as was considered by the Council on 21 February 2018.  The proposed structure would enable the Council to add, or remove, subsidiaries under EBC Investments Ltd. to suit the prevailing corporate requirements of the Council in the future.

 

To ensure the successful delivery of the Business Plan, a number of key challenges and actions required had been identified, the details of which were outlined in the report.  The key challenges included:

 

·         lack of development sites;

·         affordability risks;

·         planning consent risks;

·         sales risks;

·         a lack of development expertise; and

·         governance risks and management risks.

 

As the officers of the Council appointed to serve on company boards would be non-remunerated, it was right to extend lawful protections from personal liability when they were acting in their company roles.  Accordingly, it had been recommended by the external legal advisers that the Council grant appropriate indemnities to Directors when carrying out official company duties.  The Local Authorities (Indemnities for Members and Officers) Order 2004 gave a specific power to authorities to grant indemnities and / or take out insurance to cover the potential liability of Councillors and officers in a wide range of circumstances.  Members acknowledged that these indemnities did not cover any findings of criminal liability or liability arising from fraud, deliberate wrongdoing, or the cost of pursuing a defamation claim.  It was also recommended that the indemnity be extended to the role of non-executive or independent members of the company boards.

 

Whilst a Member Briefing had been held the previous week for those Members appointed to the Cabinet, Shareholder Board and the Affordable & Social Housing Working Group, the Portfolio Holder advised Members that a further briefing had been arranged for all Members of the Council on Wednesday 11 July 2018 at 6.00 p.m.

 

In respect of the financial implications, the Portfolio Holder for Resources took the opportunity to advise Members that EBC Investments Ltd. and EBC Homes Ltd. would need / incur operational costs for the initial set up but also on an ongoing basis.  In the early years and until the Housing Companies started to receive rental income, the Council would need to provide a start-up loan which could be repaid to the Council on a pre-agreed interest rate and repayment period.  In this regard, it was recommended that a loan of £250,000 be made available by the Council for this purpose.

 

On consideration of the recommendations, the Leader proposed an amendment to Recommendation (g)(iii) of the report.  In this regard, the wording of the recommendation would be amended to read ‘Board member training be provided for Board Members of each company’, which the Cabinet supported.

 

During consideration of the report, the Portfolio Holder for Planning Services commented that this was an item that had received cross-party support from its inception and he was pleased to see that it was being progressed.  Given that the Council did not have experience of residential property development or management, he hoped that those persons with development and affordable housing development experience would apply for the role of the independent chairperson, which would enable them to make a proper contribution to life in Elmbridge.  With regard to training, he also highlighted that those Members of the Council that would be shareholders would also need training on the legal rights and responsibilities of shareholders.

 

The Leader then invited Councillor A. Davis, Group Leader of the Liberal Democrat Political Group to address the meeting.  Councillor Davis supported the establishment of wholly owned Housing Companies and given the technical and legal implications, highlighted the need to look at the detail and attend the training / briefings as appropriate.

 

The Leader then invited Councillor S.J. Selleck, Group Leader of the Residents’ Associations Political Group to address the meeting.  Whilst supporting the Council granting a loan of up to £250,000 to the Housing Companies, Councillor Selleck queried the pre-agreed interest rate and repayment period.  The Strategic Director and Deputy Chief Executive commented that once the report had been approved by Council, legal tax advice would be sought from the expert advisors to work out an agreed rate.  She further advised that as EBC Homes Ltd. and EBC Investments Ltd. would be trading companies, the Council could not give them any advantages so would therefore have to charge an agreed rate that was similar to a commercial rate.

 

Recommended: that

 

(a)      the formation of EBC Investments Ltd. and EBC Homes Ltd., with governing Articles of Association and a Delegations Matrix, as attached to the report, be approved;

 

(b)      the Business Plan, budgets and initial operational plans for each of the companies be approved;

 

(c)      the professional advice of the Council’s appointed legal advisors, Browne Jacobson LLP, be considered and noted;

 

(d)      the tax advice of the Council’s appointed financial and tax advisors, PricewaterhouseCoopers [PWC] be considered and noted;

 

(e)      Council officers appointed to the Boards of EBC Investments Ltd. and EBC Homes Ltd. be granted indemnities pursuant to the Local Authorities (Indemnities for Members and Officers) Order 2004 and non-Council appointees as Directors of the said companies be indemnified on no less favourable terms;

 

(f)       an Independent Chairperson, to serve on the Board of EBC Homes Ltd., be recruited;

 

(g)      the trading and development activities for both companies be initiated as soon as the four conditions below are met:

 

i.            the Council approves this report and its recommendations;

 

ii.     appointments to the Boards of each company are made, noting that EBC Homes Ltd. may need to make interim arrangements until the recruitment of an independent Chairperson is concluded;

 

iii.    Board member training be provided for Board Members of each company;

 

iv.    the requisite governance and administrative arrangements are in place to ensure that both companies operate efficiently and lawfully;

 

(h)      authority be delegated to the Strategic Director and Deputy Chief Executive, in consultation with the Portfolio Holders for Housing and Resources, to settle the final forms of company documentation, including necessary filings with Companies House, to give effect to these recommendations and the decisions of the Council;

 

(i)       the Council grants a loan of up to £250,000 to the Housing Companies at a pre-agreed interest rate and repayment period;

 

(j)       the suite of documents requiring noting and / or approval (that were appended to the report) be identified as follows:

 

i.            the Business Plan [2018-2023];

 

ii.          the Budget [2018 to 2019] for EBC Investments Ltd.;

 

iii.         Articles of Association for EBC Investments Ltd.;

 

iv.         delegations to EBC Investments Ltd.;

 

v.          the Budget [2018 to 2019] for EBC Homes Ltd.;

 

vi.         Articles of Association for EBC Homes Ltd.;

 

vii.       delegations to EBC Homes Ltd.;

 

viii.  operational Plans for EBC Investments Ltd. and EBC Homes Ltd. for 2018 to 2019;

 

ix.    legal advice report from Browne Jacobson LLP; and

 

x.     tax advice from PricewaterhouseCoopers (PWC).

Supporting documents: