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Much-needed legal protection of associations’ assets during insolvency could be delayed

The introduction of an insolvency ‘safety net’ will benefit struggling social housing providers but could herald more difficult times ahead, says Christina Fitzgerald

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Introduction of an insolvency ‘safety net’ will benefit struggling social housing providers, says Christina Fitzgerald of law firm Shakespeare Martineau @SHMALaw #ukhousing

First proposed by the former Homes and Communities Agency in 2014 and confirmed in the Housing and Planning Act 2016, a new type of insolvency process is set to be introduced which could be hugely beneficial for private registered providers (PRPs) in the social housing sector.

By their nature, PRPs have been shielded from insolvency in recent years, as often the regulator steps in and another PRP is found to take over, usually through a merger process. However, following the collapse of Ujima Housing Association in 2007 and the near failure of Cosmopolitan Housing Group, a large provider of student housing, in 2012, it was felt there was a need to put in place a bespoke insolvency regime for PRPs to endeavour to protect social housing assets leaking out of the sector.


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Ever since then there has been a large number of conversations between the regulator and funders about how the insolvency procedure should work and what a new system would look like that provides financial security for lenders and protects housing stock owned and operated by PRPs.

Scheduled to come into force during 2018, although as with many other pieces of legislation it is likely to be delayed by Brexit, the new process for social housing administrations is a tool with several key purposes. Primarily it is intended to ensure the survival of the PRP, rescuing it as a going concern, rather than heading straight into liquidation.

“Primarily it is intended to ensure the survival of the PRP, rescuing it as a going concern, rather than heading straight into liquidation.”

PRPs will be able to file for insolvency out of court. Alternatively, where there is a lender with a qualifying floating charge the PRP can file notice of intention to appoint an administrator, using the out-of-court procedure. After this, they will be granted up to a 10-day moratorium before filing out of court for administration, allowing finances and assets to be ringfenced.

During this period, creditors and others are prohibited from taking or pursuing legal proceedings against the PRP. This additional time is intended to allow the business to find a buyer or to find additional funding and is regarded as a ‘breathing space’. Where liquidation is often the end of the road, this new type of administration offers a lifeline or a second chance.

Additionally, the new process will allow the more advantageous use of the struggling PRPs’ assets, in comparison to the way in which they would be handled in a winding up. Remaining a trading entity also drastically increases the attractiveness of the business to potential buyers, which in turn will have the added benefit of saving jobs and retaining assets at the end of the process.

While the new legislation will be beneficial in terms of the preservation of PRPs’ assets, there is also a sense of moral obligation behind its introduction. PRPs provide assistance to and support for some of the most vulnerable individuals in society, and ensuring their continued operation is essential.

The new process will certainly be beneficial for PRPs, especially considering the alternative of liquidation. The administrator that oversees the new process will have to be a regulated insolvency practitioner, which will act with integrity and fairness, keeping the interests of the organisation and the creditors at the heart of the process. It will also be advantageous to the sector as a whole with the appointed administrator having a second, albeit subservient to protect the use of market value subject to tenancy valuations, objective of ensuring the PRP’s social housing assets remain in the regulated housing sector.

PRPs that can sense turbulent times ahead should seek the advice of an independent insolvency practitioner and the regulator at the earliest stage. Checks must be made to ensure that there would be no conflict of interest between the parties and that the appointment can go forward; leaving this until the last minute could cause significant delays. In addition, an application to the court for a housing administration order can only be made by the secretary of state, or the regulator with the consent of the secretary of state.

While the new regulation will give more clarity and certainty to regulators and funders about how the insolvency process in the social housing sector will run in future, there are still some grey areas. Currently, there is a lack of insolvency practitioners with specialist social housing experience, due to the fact that struggling PRPs are normally rescued or ordered to merge before insolvency takes place.

In addition, while the new regime will apply to PRPs incorporated as companies, registered societies and charitable incorporated organisations, there are likely to be differences in the approach to each. Clearly, this will create a gap in the market and we may see specialist charity insolvency practitioners applying their skillsets to the social housing space.

“We may see specialist charity insolvency practitioners applying their skillsets to the social housing space.”

Parliament’s time has been taken up by Brexit, pushing the introduction of this legislation further back. It should have been introduced some time ago. While on the whole it is good news for PRPs and provides more certainty and security about their future, there is an underlying tone of something more downbeat. Does the introduction of this safety net herald more difficult times ahead for the social housing sector?

Christina Fitzgerald is a partner and charity insolvency specialist at law firm Shakespeare Martineau

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