Insolvency of Registered Providers of Social Housing Regulations 2018

Lord Bourne of Aberystwyth Excerpts

Tuesday 20th March 2018 Grand Committee

Moved by

[Lord Bourne of Aberystwyth]

That the Grand Committee do consider the Insolvency of Registered Providers of Social Housing Regulations 2018

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, these regulations were laid before this House on 7 February 2018. In the Housing and Planning Act 2016, we introduced a special administration regime for the social housing sector. In introducing these changes, we were responding to concerns that the existing moratorium provisions are not suitable for modern, large, developing and complex housing associations that might get into financial difficulty.

The provisions in the Act applied only to housing associations that were companies. We were unable to include registered societies and charitable incorporated organisations in the Act, due to the timing and the complexity of drafting required. Therefore, the Act included provision to make regulations to extend the housing administration regime to these forms of housing associations, thus covering all the different forms of housing association. These are the draft regulations that we are considering today. I also draw your Lordships’ attention to the fact that there will need to be another piece of legislation enacted before the housing administration regime can be commenced. This will be a statutory instrument setting out the rules that apply to the administrator’s conduct of a housing association. They will follow the negative procedure and cannot be introduced until we have passed this legislation.

Turning to the purpose of this legislation, the regulations before your Lordships are quite technical, but, as I said, they extend the housing administration regime set out in the Act to housing associations that are registered societies or charitable incorporated organisations. Under the law at the moment, where a housing association gets into financial difficulty and steps are taken towards it entering a formal insolvency procedure, a 28-day moratorium begins, which restricts creditors’ ability to enforce their security during this timeframe. If the regulator cannot reach a solution with creditors within the 28-day period or any agreed extension, creditors are able to call in loans and seek to recover debts through a sale of assets including social housing stock. This could potentially lead to a fire sale of social housing, meaning that the stock would no longer be regulated and tenants would lose the protections of the social sector, including rent regulation.

This process was considered to be inadequate when dealing with modern, large, developing and complex housing associations with tens of thousands of properties in their ownership. There are almost 1,500 private registered providers of social housing in England, providing some 2.6 million homes to those in housing need. Although financial failure within any housing association is extremely rare, the housing association sector has changed significantly in recent years. The level of private finance has grown from £48 billion in 2012 to £70 billion in 2017, for example. Therefore, in the event of a private registered provider becoming at risk of entering insolvency proceedings, the Act gives the Secretary of State—or the Regulator of Social Housing, with the Secretary of State’s consent—power to apply to the court to appoint a housing administrator. The administrator would manage the affairs, business and property of the registered provider of social housing for the duration of the housing administration.

As with any administration regime, the main objective would be to rescue the organisation or return money to creditors—or, indeed, both. The crucial difference is that a housing administrator would also have a secondary objective: to retain as much of the social housing as possible within the regulated sector. In addition, a housing administrator would not be constrained by a 28-day timeframe and would have the time to investigate the business and find the best solution possible to meet these objectives.

These regulations extend the housing administration framework in the Act to registered societies and charitable incorporated organisations. As I have mentioned, there are some 1,500 housing associations. About 400 of those are companies; the remainder, some 1,100, are registered societies or charitable incorporated organisations. The regulations apply certain provisions of the Insolvency Act 1986, with necessary modifications, to registered societies and charitable incorporated organisations.

We carried out informal consultation with representatives from insolvency practitioners, valuers, UK finance, and private registered providers and main lenders prior to the introduction of the Housing and Planning Act 2016, and again before laying these regulations. This group represented the organisations that have the main interest in housing administration, and they are keen to have this regime in place. A fuller public consultation was not carried out due to the extremely technical nature of the regulations and because the process of housing administration will be required only in the event of a housing association facing insolvency, which experience has shown to be extremely rare.

These regulations apply to the whole of the United Kingdom. We want the regime to cover social housing stock in England, including any such stock held by housing associations registered with the social housing regulator for England but which are, as legal entities, registered in devolved Administrations. I commend these regulations to the Committee.

[Lord Shipley (LD)]

My Lords, I remind the Committee that I am a vice-president of the Local Government Association. It is important to support the regulations because it is in the interests of tenants that we should. It is also in the public interest that we should protect the Government’s investment in social housing within the regulated sector. As the Regulator of Social Housing has pointed out, its powers may not be strong enough if one of the bigger private registered providers gets into trouble financially. There has to be a robust mechanism for the handling of financial failure. I accept that the sale of houses that is not done to an agreed, coherent plan could impact negatively on the rights of social tenants, not least on the level of their rents. We need to protect them.

However, now that housing associations are in the private sector and there is, as the Minister reminded us, a higher level of debt finance than there used to be, I return to an issue arising from four Written Questions on the governance of housing associations, which the Minister answered on 20 February. They were about, first, whether the Government would be prepared to take steps to require Homes England to maintain a formal, publicly available register of directors of regulated housing associations; secondly, whether Homes England could be required to publish clear governance standards for housing associations to enforce strong independent director representation and responsibilities, in line with those applying to public companies; thirdly, whether the Government would take steps to require all housing associations to publish details of director attendance at meetings in their annual reports; and fourthly, whether the Government will require annual returns to be made available to the public free of charge, showing the levels of board remuneration of housing associations.

Various statements were made in the rewritten reply. I understand why they were, but two lines struck me as particularly important:

“The Secretary of State is not able to direct the Regulator on the governance arrangements of housing associations, and the Regulator has no plans to change the current approach”.


I ask the Minister a very specific question in the context of these regulations. If a housing association becomes insolvent and there are found to be problems in its governance that led to the insolvency, does that mean that the regulator may be found partly responsible for the insolvency of that housing association, because, as the Minister’s reply said, it has no plans to change the current approach? We need to be clear about the governance responsibilities of housing associations and of the regulator. Problems almost certainly will not arise but if they do, we need to be clear that a housing association—a regulated provider—has done everything it ought to have done about the openness of its governance structure.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, I thank noble Lords who have participated in discussion on these provisions relating to insolvency and housing associations. I thank them for the general support given to the regulations. I confirm that they are based on the provisions that applied to insolvency for companies introduced after the Cork committee in the mid-1980s, sensibly ensuring that there was a broader-based approach to companies in financial difficulties so that, if they were unable to pay debts, they were not automatically put into insolvent liquidation. It provided an administration procedure, which is something we have sought to replicate for housing associations. We did it first for companies and are now extending it by the regulations to friendly societies and charitable organisations. They provide an additional means of intensive care for these housing associations, rather than in the very rare event when insolvency was considered for a housing association—there has been only one circumstance in the past 22 years and even then it did not happen. If there should be an insolvency it provides an alternative rather than the 28-day moratorium, which is very short and specific. This would provide a period of, say, a year, which could be extended, for the debts to be paid off and the tenants to be protected. I appreciate noble Lords’ support for ensuring that we can protect tenants as well as creditors at the same time.

I turn to points made by the noble Lord, Lord Shipley, who sought reassurance on the position of governance, and so on, in relation to the social housing regulator. I can confirm that the social housing regulator proactively regulates providers of social housing where there is a minimum of 1,000 units, which is more than 90% of the sector, on governance, financial viability, value for money and rent standards. I hope that that provides some reassurance. For the 10% under that threshold of 1,000 units, if a matter is referred to the regulator it will look at it, but it would not do so proactively.

The noble Lord asked if it was conceivable that the social housing regulator would be directly liable. Obviously, there are statutory obligations that it could be in breach of. I think it would be unlikely that it would be caught by the fair dealing provisions in relation to liquidation, except in the most unlikely circumstances, but there is that issue of statutory responsibility in relation to the standards that apply to the social housing regulator.

Turning to the noble Baroness, Lady Golding, we were left on tenterhooks as we went round voting in the Division wondering where her story was going to go. I am very grateful to her. I can confirm that her housing association would be subject to the regulations. If she wants me to have a closer look at the situation I am very happy to do so, but I think what the chair of the housing association is referring to is the fact that housing associations are now off the public balance sheet, as they are in the private sector rather than the public sector. I do not think that what would happen on a daily basis would change for that housing association, but it would certainly be subject to the regulations as I understand it.

The noble Lord, Lord Beecham, asked—I think I understood this correctly, but I am sure that the noble Lord will correct me if I am wrong—about the possibility of housing authorities stepping into the breach where there was an insolvency position. Of course that would be open to the administrator to consider if there is a circumstance where it is trying to settle the debts and move the association forward so that it could be solvent once again. I am sure that such an approach would be considered by the administrator, appropriately in the circumstances, to see whether that would be feasible. That is a constructive point, and I think that is the position at the moment.

--- Later in debate ---

[Lord Kennedy of Southwark]

I must say that this is much easier to read than those forms you get, so maybe at some point they should look at how impact assessments are presented to Members.

[Lord Bourne of Aberystwyth]

I agree with the noble Lord; that is a fair point. I certainly found it easier to follow than some. I thank the noble Lord for his help on that point and others, and I thank noble Lords for their general support.

Motion agreed.