Welcome to the new financial year and to another edition of the monthly snapshot. This month we’re looking at powers of attorney and the latest developments in the sector.
Consumer Standards Tracker
Earlier this month we reported on the recently published draft clauses for the Social Housing Regulation Bill which you can read here.
We’ve seen some further updates since we published our own coverage of the clauses, including:
- Fiona MacGregor, Chief Executive of the Regulator of Social Housing (RSH), has written to the CEOs of registered providers of social housing (RPs) to set out the regulatory context around these changes. The letter confirmed that landlords must engage with tenants and respond to issues with compliance now. The message from the RSH is clear - the time to act is now, not when these clauses are enshrined in legislation.
- Separately Jonathan Walters, the deputy CEO of the RSH, recently told the Levelling Up, Housing and Communities committee that fining for-profit RPs “might be a useful tool” as it would “concentrate the minds” of shareholders. He did not extend these views to fining not-for-profits and councils. Going on to explain his rationale, Mr Walters said that fines that the RSH levies ultimately end up going back to the Treasury, so fining not-for-profits or local authority bodies, ultimately takes money out of the system.
It is hoped that the recent publications indicate a faster pace of change - watch this space for more updates.
Powers of Attorney – the new normal?
At the start of the pandemic many RPs entered into Powers of Attorney (PoAs) to ensure that as wide a pool of signatories as possible was available for executing documents, particularly deeds. Most RPs appointed members of their executive team and/or independent advisers (e.g. accountants or law firms). While social distancing measures have since been removed, PoAs do not appear to be going anywhere. So are PoAs the new normal?
One of the main advantages of using a PoA for an RP which is also a registered society (e.g. a community benefit society) is that an individual or company that has been appointed as attorney may sign a deed in the presence of a witness, without the seal. This option is already available to companies.
PoAs are not without their drawbacks – it is important to remember that there is still a need for board oversight and approval (where necessary) of such documents, even if the actual signing has been delegated to the executive team or others. It is therefore important to ensure that the process to use the PoA is clear, particularly if you are granting a PoA to advisers.
Regular review is also important – you may be reviewing your PoAs at the moment (remember that charities must renew their PoAs on an annual basis). Consider:
- Legal capacity – does the board have the power to grant the power in the first place? It probably does – but we do see constitutions where the consent of a parent entity is required. These consents should be recorded for each power granted (and renewed);
- The scope of the power granted – too wide and the power is left open to misuse, too narrow and it may not be fit for purpose – this should also be reviewed on an annual basis rather than simply ‘rolling it over’;
- Choice of attorney – RPs have appointed a wide variety attorney, from one or two designated individuals on the executive, to teams of officers and agents both internal and external. Consider of the attorneys named in your PoAs are still appropriate.
Boards should also consider what alternative there are to execute documents. These include:
- Electronic signatures – It is generally accepted that electronic signatures are valid under English Law. These have become much more common place since the pandemic.
- E-signing platforms – these platforms have also become very popular over the past two years. The best ones are generally considered to be more convenient and often more secure than the alternative methods for executing documents.
- The Mercury Method – The Mercury Method of completing contracts is another alternative to traditional signing methods. It does involve “wet ink” signatures however and requires access to a printer!
- Additional Measures – these include extending the list of existing authorised signatories, reviewing standing orders and financial regulations and obtaining additional seals.
We advise clients to have an appropriate signing policy in place which covers off the above. If you would like advice on any of these points, we are always happy to assist.
Charity Commission Removes Flexible Approach to Meetings
On 21 April 2022, the Charity Commission removed its more flexible approach to charities holding meetings outside of the terms of their governing documents. All charities (whether registered or exempt) should therefore check if their governing document allows them to hold meetings online or on a hybrid basis and if not (and assuming they wish to continue to hold such meetings) amend their governing documents to allow these types of meetings as soon as possible.
In certain circumstances boards may consider they have no choice but to cancel or postpone their meetings to take appropriate advice first - note that cancelling or postponing a meeting must also be allowed under the governing document so these decisions may also require constitutional changes.
FCA policy statement and final rules on diversity on boards and executive committees
The FCA has published a policy statement on its proposals to amend the Listing Rules (which govern how a company can list its shares for sale to the public) and the Disclosure Guidance and Transparency Rules (which sets a standard for how certain companies must disclose and report on their financial information). The proposed amends relate to diversity on boards and executive committees.
The key amendments proposed are to:
- Provide that companies may report either on the basis of sex or gender identity. The draft guidance on self-identification has been removed, and new guidance has been added to provide that a company may add to the categories of sex and gender included in the table to reflect the basis on which it has collected data;
- Provide that where issuers who have members of their board or executive management situated overseas, and local law prevents the collection or publication of relevant data, a company may instead explain the extent to which it is unable to make the numerical disclosures and complete the tables;
- Amend the language used in relation to ethnic minority backgrounds, and provide that "Other ethnic group" includes Arab;
- Provide that companies must also include an explanation of their approach to collecting the data. The explanation should include the method of collection or source of the data and, where data collection is done on the basis of self-reporting by the individuals concerned, a description of the questions asked; and
- Change the commencement date to financial years starting on or after 1 April 2022 (rather than 1 January 2022), although companies whose financial years began before then (from 1 January 2022) are encouraged to consider reporting on a voluntary basis.
Interestingly, the FCA has added that it has decided not to extend the duty of reporting to representation on sexual orientation or other categories, such as lower socio-economic background, or to set requirements for the level below executive management. However, this should not discourage the reporting on wider aspects of diversity.
Model Articles and Sole Directors
In a recent High Court case, Hashmi v Lorimer-Wing  EWHC 191 (Ch), the Court considered the proper interpretation of Model Articles 7 and 11.
Model Article 7(1) states the general rule that decisions of the directors must be made by a majority decision at a meeting or by a unanimous decision in the form of a written resolution. An exception is provided in Model Article 7(2), which provides that where the company has only one director and no provision of the articles requires it to have more than one director, the general rule does not apply, and the director may take decisions without regard to the rules on decision-making.
Model Article 11(2) provides that the quorum for directors' meetings may be fixed from time to time but must never be less than two, and unless otherwise fixed, it is two.
The judge found that Model Article 11(2) requires a company to have two directors. The judge explained that this conclusion does not clash with the right of a company to have a single director (granted by section 154 of the Companies Act) as the same legislation also grants a right to amend the Model Articles (section 20). Whilst the Model Articles will apply if no other articles are registered, there is no obligation on a company to adopt the Model Articles.
Prior to this case, the industry consensus was that Model Article 11 did not require a minimum number of directors, rather it simply set the quorum for where there are multiple directors. The consensus was also that, where there is only one director, Model Article 7(2) applies to mean that the director can take decisions without regard to any of the provisions of the articles relating to directors’ decision-making, including Model Article 11(2).
The practical impact of this case is that if it is intended that a single director runs a company, the Model Articles will need to be amended so as to delete Model Article 11(2). Private companies which are currently constituted with the Model Articles may wish to amend them, for example to clarify that Model Article 11(2) is not a provision requiring the company to have more than one director. Companies which have, or have had, a single director may also wish to consider whether they should ratify some or all of the decisions of those directors.
The RSH has upgraded the governance grades for a number of RPs recently. The reasons provided for doing so are that the relevant RP has:
- Strengthened its governance arrangements through a refresh of its board and executive. This has enabled improved scrutiny and oversight of key risks and a closer alignment of leadership with the RP’s strategy;
- Identified further opportunities to clarify the relationship between the board and committees to facilitate the board to operate at a more strategic level;
- Reviewed and strengthened its approach to risk management, including its internal controls. As part of this, the RP obtained independent assurance about the effectiveness of its approach to managing key risks and, in a different case, implemented recommendations from an independent review;
- Strengthened its internal controls and improved board reporting and oversight of its key risks, including those relating to landlord and statutory health and safety;
- Introduced new processes to ensure data integrity and accuracy on board reporting, particularly around health and safety compliance reporting;
- Simplified its group structure which has resulted in an improved clarity on covenant compliance and related exposures and has facilitated improved board oversight over the activities undertaken across the organisation;
- Further developed its stress testing, and put in place early warning indicators and mitigation strategies;
- Strengthened its board skills and the quality of reporting which has facilitated improvements to the RP’s business planning, risk and control framework.
Will you be attending the virtual NHF Climate Change & Sustainability Conference on 24 -25 May? Join our colleagues Louise Leaver and Deborah Rowntree as they present on sustainability linked loans and financing decarbonisation projects through ESG bonds, during both days of the Conference.
Our next Senior Independent Director Network event will be taking place in-person in London on 11 May. If your SID would like to participate, please contact us.