Quarterly company secretary update: February 2019

2019 is now in full swing and with it comes the first company secretary update of the year! Our spotlight piece will focus on what is currently dominating both thoughts and headlines – yep, you guessed it, we’re talking about Brexit, more specifically the effect it is expected to have on housing associations.

Within this update, we will also bring you up to speed with GDPR in 2019 (yes, it IS here to stay), discuss the implications of shadow directorship and consider the impact of the independent review of the Modern Slavery Act. We’ve also got some updated information of the new FCA portal and email addresses for the Charity Commission, see more below.

Brexit

With the uncertainty surrounding Brexit and whether a deal will be struck with the rest of the EU, housing associations are being encouraged to develop contingency plans to ensure their business plans and operations can handle the worst-case scenario (a no deal Brexit). The NHF, in January, produced a briefing outlining the key challenges faced by housing associations and steps that can be taken to prepare for the changes ahead. We have produced a summary of the main things to plan for, as identified in the briefing:

• Supporting impacted tenants: plan for potential increases in voids, arrears and bad debts as tenants deal with sudden changing circumstances;
• Mitigating the risk of unavailable materials: shortage of supplies may cause issues for contractors and suppliers. This is especially important for maintenance parts, e. lifts and water systems;
• Understanding liquidity and funding: If a no-deal Brexit takes place, securing large loans, especially for long and favourable terms, will be difficult. It is therefore of utmost importance that organisations examine their liquidity and plan ahead to be able to meet their contractual obligations.
• Modelling development costs and revenue changes: Material and labour costs may see steep inflation costs, leading to pressure on certain development programmes; it is, therefore, important to recognise early warning signs and plan for ways to adapt.
• Considering care and support staff shortages: curbs to immigration could lead to a shortage of staff within the support and care sector which could have the effect of putting pressure on wages.

The Government has published a wide range of guidance, from state aid to public sector contracts and EU funding. Reviewing the applicable guidance, stress-testing future business plans and preparing for the worst-case scenario is vital for all organisations moving forward.

GDPR in 2019

The General Data Protection Regulations (GDPR) were brought into force on 25 May 2018, along with the Data Protection Act 2018 (DPA) and were designed to harmonise data protection privacy laws across Europe and provide greater protection and rights to individuals.

Many organisations process and store large amounts of personal data; for housing associations, this often includes general contact and financial information for tenants, as well as sensitive personal data such as race, religion and health information. It is, therefore, essential that organisations continue to focus on their obligations under both the GDPR and the DPA.

While all organisations should ensure they are compliant with the legislation, certain areas will need continuous improvement and advancement. These include:

• ensuring training is provided and updated when necessary for both new and current staff;
• carrying out Data Protection Impact Assessments (DPIAs) to ensure any data stored is kept secure (this is particularly important where new systems or technology are introduced within the organisation);
• ensuring breach reporting procedures are streamlined, and staff know who to approach within the organisation if they suspect a breach. Organisations also need to keep in mind that they must report a data breach to the Information Commissioner’s Office (ICO) within 72 hours.

As the UK is set to leave the EU on 29 March 2019, the processing, sending and receiving of personal data between the EU and UK will change. The EU may make an adequacy decision stating that the UK regime offers an adequate level of protection, in which case the transfer of data will remain the same. However, if no adequacy decision is made, organisations will need to ensure they implement certain safeguards. These may include, for example, including compliant clauses in any contracts entered into.

The ICO website has plenty of information for organisations concerned about the potential impact of Brexit on data protection laws and offers guidance on how to best prepare your organisation for either a deal or no-deal scenario. The following e-briefings may also be of interest:

• The Data Protection Act 2018, the what and the why
• Don’t panic! There is life after the GDPR…and it’s pretty good!
• Heathrow data breach
• Quarterly company secretary update: September 2018

The Dangers of Shadow Directorship

“Shadow directorship” arrangements can arise where there is a high level of crossover between Boards so that one organisation can effectively be said to be operating at the direction of another. The key concern in relation to this for social housing providers is where an organisation becomes insolvent (a wholly-owned commercial subsidiary, for example) because there is a risk that, in those circumstances, creditors may look to the “shadow director”, the social housing provider, in relation to wrongful or fraudulent trading claims potentially exposing social housing and/or charitable assets to risk.

Becoming a shadow director will not always be the intent of the person caught under the heading. However, the most common circumstances giving rise to shadow directorships include:

• Intra-Group Arrangements – where some of the directors or board members of a subsidiary company are employees or board members of the Parent. These situations often demonstrate a lack of independence for the subsidiary and prevent risk being ring-fenced away from the Parent where the Parent is held as being a shadow director.
• Joint Ventures (JV) – a director or representative of a JV will often refer decisions up to the company participating in the JV (who may then refer to the decision up to the ultimate parent – for housing associations this will often be a registered provider of social housing (RP)). As above, this may result in the RP being a shadow director and potentially putting social housing assets at risk.

Risks in relation to shadow directorships can be managed in the through:

• carefully monitoring the non-charitable organisations’ financial viability;
• ensuring Board Members fully understand their duties and responsibilities when acting as Board Members of any commercial subsidiaries (this can be achieved through regular Board training and updates);
• carefully documenting Board decisions of the various entities so it can be shown key financial decisions are being made by each relevant Board; and
• introducing greater independence of the Boards of any commercial subsidiary organisations.

If you are concerned that individuals or entities within your organisation may be at risk of falling into the category of shadow directors, please get in touch with a member of the Housing Corporate Services Team for advice. 

Independent review on the Modern Slavery Act

A review on the Modern Slavery Act 2015 (the Act) was announced in July 2018. Following this announcement, the Home Office released a second interim report with the intention of increasing transparency in business supply chains (addressed within section 54 of the Act). The perception is that this section lacks teeth in that it is only organisations turning over £36 million (or more) per year that are required to release an annual statement to confirm compliance with the Act and outline whether they are taking any steps to tackle modern slavery in their current supply chains.

The recommendations of the review are intended to increase the accountability of directors for failing to comply with their duties under section 54 of the Act. There is a specific recommendation for companies to assign a designated board member to take charge and be personally accountable for the production of the modern slavery statement. Another recommendation calls for the Companies Act 2006 to be amended so that there is a requirement for companies to refer to their modern slavery statement in their annual reports.

The full review is due to be published in March 2019.

New FCA Portal

The FCA has launched a new portal where certain documents can be completed online, rather than traditional submission via email or post.   

The portal can be used for the following services:

• filing annual returns and accounts (AR30 and AR41);
• filing changes to address;
• filing changes to financial year end;
• submitting change of name details;
• filing credit union accounts;
• applying for group accounts exemption;
• recording a charge (including with extension);
• registering a new society;
• filing rule amendments; and
• submitting a section 126 certificate.

The new portal allows you to receive updates via email about the status of any application you have submitted via the portal.

It is also faster for annual returns to be submitted, as these can be uploaded directly onto the Mutuals register within 48 hours, rather than the usual 6-week period.

To register for this service, you will need to register yourself as a user online at societyportal.fca.org.uk/account/registration.

You will then have to associate your account with a society. The FCA will send out a letter containing a password to the registered address of the society. If an organisation intends to use an account for a number of societies, it will need to get authorisation passwords for each society that intends to be registered for portal services.

You can find a link to the portal here.

New email address for the Charity Commission

The Charity Commission announced in its last newsletter that it is changing its email addresses.

Effective from the 31 March 2019, the Charity Commission will no longer have “.gsi” in its addresses. The Charity Commission will update the email addresses on its website in time for this change. 

Further information

For more information about any of the issues raised here, please contact Ellen Briers.