Welcome to another edition of our monthly snapshot. Winter is around the corner and the sector is busy getting ready for “the season”!
This month we’re looking at proxy voting, trading names, the recent regrades by the Regulator of Social Housing (RSH) and more developments around the sector.
Corporate Governance: Proxy Voting Policy Guidelines
On 17 November 2022, Glass Lewis published its 2023 proxy voting policy guidelines for the UK. These guidelines set out Glass Lewis’ approach to assessing all topics on the annual general meeting agenda, covering everything from director elections, executive compensation, boards and balance sheet management to ESG issues. They are reviewed at least annually and tailored to reflect the governance and regulatory environments of the market to which they apply. These can be helpful in identifying what investors consider to be important topical issues that all businesses should be addressing.
The trending topics for this year’s guidelines have been stated as including cyber risk, oversight of climate, and board diversity and composition.
Amendments to the 2022 guidelines which may be of interest include:
- Director accountability for climate-related issues. Where companies with increased climate risk exposure have not provided thorough climate-related disclosure or have not explicitly and clearly defined board oversight responsibilities for climate-related issues, Glass Lewis may recommend voting against the chair of the committee (or board) charged with oversight of climate-related issues, or if no committee has been charged with such oversight, the chair of the governance committee.
- Employee representatives. Employee representatives should not be included in calculations of whether half the board is independent.
- Cyber risk oversight. Glass Lewis may recommend voting against certain directors in instances where cyber-attacks have caused material risk to shareholders and the company’s disclosure or oversight is insufficient.
- Pensions. In the absence of a rationale to do otherwise, by the end of 2022, pension provisions for executive directors should generally be in line with those available to the majority of the wider workforce.
Interpretation of Model Articles
In a previous month’s snapshot, we provided a summary of a High Court case (Hashmi v Lorimer-Wing also known as Re Fore Fitness Investments Holdings Ltd)  EWHC 191) in which the Court held that the Model Articles adopted by private companies in the absence of bespoke articles required the company to have two directors and that the model articles would need to be amended in order for a single director to be permitted to run the company. This came as an unwelcome surprise to corporate lawyers who had come to an industry consensus (prior to this case) that the Model Articles permitted a single director to run a company without regard to the other restrictions on decision-making contained elsewhere.
The High Court has now reconsidered this position (in Re Active Wear Ltd  EWHC 2340 (Ch)). The Court held that under the terms of the Model Articles, a sole director of a private company may take any decision relating to the conduct of the affairs of the company on his or her own. That is the unambiguous effect of Model Article 7. Where a company has only one director, as section 154(1) of the Companies Act 2006 permits, and no provision of the articles requires it to have more than one director, as was the case under the Model Articles, paragraph 2 of Model Article 7 provides that "the general rule about decision-making by directors", does not apply and the sole director can take decisions "without regard to any of the provisions of the articles relating to directors' decision-making".
However, it is important to note that the Court also stated (in passing, rather than as part of the judgement) that paragraph 2 of Model Article 7 applies only where there has never been a greater number of directors than one. This means that whilst the decision provides some comfort for the view that, in companies with unamended Model Articles, sole directors may take decisions on their own, this only strictly applies where the company has only ever had only a sole director. Furthermore, the High Court, when hearing actions at first instance, is not bound by other first instance decisions, so it would be open to a future court to decline to follow this case.
If you have any companies that have adopted the Model Articles in your group (whether or not they are affected by this decision) then it may be worth considering the adoption of your own ‘template’ articles across the group. This enables you to tailor them to reflect your preferred board size, composition, approach to meetings and conflicts.
Levelling Up, Housing and Communities Committee Publishes Report on Exempt Accommodation
The LUHC Committee has recently published its Report on Exempt Accommodation. LUHC’s inquiry sought to obtain more data about exempt accommodation, since there is little publicly available information, as well as to explore the quality, regulation, value for money and geographical differences of exempt accommodation.
Exempt accommodation is a category of supported housing that is exempt from locally set caps on housing benefit. Supported housing encompasses a wide range of housing that combines housing with support for people with different needs, such as older people, people with disabilities, and people with complex needs. Residents include refugees, care leavers, people with disabilities and those who have formerly been homeless. Figures suggest that in 2021 there were 156,868 households living in exempt accommodation.
In recent years, there have been growing concerns from regulators, providers and councils about the quality of provision, including bad quality accommodation and a lack of support; the growth in exempt accommodation in certain areas and its impact on local communities; a lack of regulation and the governance of providers.
The Committee has made a number of recommendations including changes to planning rules to tighten up conversion of homes into ‘HMOs’ and tightening up the regulation of providers of exempt accommodation so that they are required to be registered with the Regulator of Social Housing. However, the cost of both the registration process and the associated reporting requirements are prohibitive for small providers. The report found that “registering should not be unnecessarily onerous or expensive, and if it is that should change”. LUHC has therefore called upon the Regulator of Social Housing to take action to make it easier for smaller providers of exempt accommodation to register with them.
In our experience, it is not just the cost of registration that prohibits some organisations from registering – it is also the requirement that they meet the regulatory standards in terms of how they are governed and their financial viability. It will be interesting to see how the Government (and the Regulator in due course) responds to the recommendations.
FAQs – What’s in a name?
Welcome to our monthly FAQ section where we spotlight some of the more common topics that you have been asking us to advise on. This month we’re answering the question:
“What is a trading name?”
A business, trade or trading name is a name used by a corporation for carrying on business, which is not the same as the name of the corporation’s legal (registered) name.
We most commonly see RPs adopt trading names for different business divisions/activities, particularly when wanting to differentiate between their social housing activity and PRS or development activity.
Key issues to consider when thinking about adopting a trading name are:
- Trading names can become confusing – we often see confusion arising over what the legal name is and whether the trading name relates to a different entity. This can become exasperated if e.g. legal documentation is entered into in the wrong name.
- There are legal requirements around use of a trading name vs the legal, registered name which do not apply to your trading name – this includes ensuring that your legal name is displayed on:
- Legal notices and correspondence. This includes business letters, order forms, invoices and receipts.
- At the registered office. The sign should be positioned where it can be easily seen by a visitor to your premises and can be read by the naked eye.
- Websites. The registered name does not have to be displayed on every page but should appear where it can be easily seen.
- Protecting your brand and reputation – it is important to check whether the name / logo is similar to other businesses operating in the same activity or locality. Internet searches, as well as checking at Companies House and the trade marks register are helpful starting points. We strongly recommend that you seek to protect your own intellectual property rights by registering a dormant company in the same name and (more importantly) registering the trade mark with the Intellectual Property Office.
A trade mark is something that identifies the products or services of a specific business. It is, therefore, a valuable business asset that needs to be protected to prevent others trying to use it to sell their products and services. The trade mark can just be the name of the association and can be words (e.g. trading name or product name), letters, numerals, designs or colours
The major advantage of having a registered trade mark is that it will entitle you to restrain other businesses from using that name within any specified classes of businesses (e.g. providing housing accommodation) in which you have registered the trade mark.
If you need any advice with trade marking your brand or adopting a trading name, then we can advise your teams on what steps they need to take.
As we mentioned in last month’s snapshot, we were expecting some movement in sector gradings this month following the deputy chief executive of the RSH, Jonathan Walters announcement that dozens of landlords are expected to be regraded. November saw 19 RPs regraded from V1 to V2. The RSH has found that the current economic uncertainty in relation to inflation and interest rates means that many RPs have now less financial headroom and reduced capacity to respond to adverse events.
The RSH said the “results of our first round of stability checks reflect the significant economic challenges facing the sector” and that it is “crucial” that all RPs maintain a strategic approach to risk management and focus on their key objectives, such as investing in new and existing homes and providing quality services for their tenants.
Our monthly review of regulatory upgrades/downgrades/regrades in the sector has also highlighted the following themes:
- Breaches of the Governance and Financial Viability Standard resulting from:
- not managing resources effectively to ensure viability can be maintained
- not ensuring governance arrangements are effective
- not being able to demonstrate that it affairs are managed with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight, and
- failing to ensure that an appropriate business planning, risk and control framework is in place that ensures sufficient liquidity at all times.
Join our colleague Sarah Greenhalgh together with KPMG, Nottingham Community Housing Association and Broadacres Housing Association on 15 December at 2pm as they discuss Fit for Purpose - Diversified Structures. In this one hour online webinar they will:
- Look at trends in the sector and hear from our panel on their experiences and observations
- Consider the commercial, financial and legal/regulatory implications
- Provide ‘top tips’ to equip leadership teams and boards
Recent housing articles
Our team produce a range of articles and insights. If you or your colleagues would like to receive any of our other newsletters, including Housing Finance Snapshot, Governance Snapshot, Property Focus and Employment Eye, you can sign up to receive these via our subscriptions page.
We will be taking a break from the Snapshot during December but we will be back with another edition in the New Year. See you all then!