David Alcock

Wednesday 12th February 2014

Somerleyton Road project Stewardship options

Who’s he?

Anthony Collins Solicitors – based in Birmingham, working all over England and Wales

Leaders in working in the “space” between the public, private and third sectors and in social housing

Significant involvement in working with community enterprises, work with Locality, development trusts, TMOs, community land trusts

Also working with social enterprises and co-operatives

What kind of organisation should the stewardship body

be?

Stewardship bodies…

“Spectrum” of possibilities

Key issues: Contract mechanism / funding Ownership of assets Management

Managing agent

Community land trust

Implications

“Managing” agent type role Usually funded under one main contract Commissioning body retains assets If manager does a bad job, can easily be removed

“CLT” type role Stewardship body holds assets Usually funded by income from those assets No “commissioning” body as such – stakeholders Different mechanisms for dealing with

performance

Options under consideration

Option 1: Council retains assets Council keeps assets, gets rental stream income Council has contract with stewardship body Council pays stewardship body to carry out

specific management role under a contract

Option 2: mixed economy? Council transfers some assets, retains rental

stream income Council still has contract with stewardship body Council pays stewardship body to carry out some

functions, other work carried out direct from own income stream

Options under consideration

Option 3: independent role Council transfers assets Stewardship body gets all income from assets /

rental income transfer, makes payments to Council to service Council debt

Stewardship body carries out role independently Stewardship body either:

needs a contractual relationship with Council to rely on Council ability to borrow; or

sources borrowing independently

What is the best option?

How will decisions be made?

Governance

What do we mean by governance?

“the framework of rules and practices by which an organisation ensures accountability, fairness and transparency…”

What we do together and how we do it

All types of body

Will have a two level structure: Members and a Board

Will be regulated under either the IPSA 1965 or the Companies Act 2006 and other Acts of Parliament

Will be accountable To the members To the Financial Conduct Authority /

Companies House

Membership

Not day to day running

The “owners” Key decisions only – changing the name, changing

the rules, appointing the board

In the long term, the key stakeholders will be: The Council Tenants in the residential properties Occupiers of the non residential properties The wider local community

The Board

Responsible for strategy and policy

Accountable for the body

Not necessarily “do-ers”

Possibly appointed by: The Council Residents Non residential occupiers The wider community Small number co-optees

Issues to consider

Balance of interests

Range of stakeholders

Duties of directors – not a “representative” function

Legal structures

What are the options?Profit distributing structures:

Companies limited by sharesIncluding PLCs

Limited Liability Partnerships Co-operative Societies Community interest company ltd by shares

What are the options?

Non profit distributing structures:

Companies limited by guarantee Community Benefit Societies Community interest company limited

by guarantee CIO

Don’t worry about labels

“Social Enterprise” “Community Development Trust” “Community Enterprise” … don’t worry too much! Basic options the same

Company Limited by Guarantee

Common vehicle for non-profit making organisations

No shares; Members give £1 “guarantee”

Still gives limited liability Can be a charity or a CIC

Community Interest Companies Introduced as legal form for social enterprise

CIC registration: CIC regulator “Community benefit” Annual Community Interest Report Standard/required provisions in M&A Asset lock No tax breaks

Community Interest Company Community Interest Test

(s35(2) Companies Audit, Investigations and Community Enterprise) Act 2004

“A company satisfies the community interest test if a reasonable person might consider that its activities are being carried on for the benefit of the community or a section of the community”

Co-operative Societies

For the benefit of those who join as a member

Democratic structure – one member, one vote

Members hold a share in the Co-op

Regulated by Financial Conduct Authority (FCA)

Community Benefit Societies

Set up to benefit the wider community, not just members

Democratic structure

Members own a share

Can have asset lock, similar to CIC asset lock

Can be charitable

Generally higher set up costs than companies

NB community investment – some useful key features

Charitable Status

In order to be charitable, an organisation must be “established for charitable purposes”

“Charitable purposes” means purposes which are “exclusively charitable according to the law of England and Wales”

13 listed in the Act but a wide range in practice

Charities Act 2011

Charitable Status Some social enterprises are charities Some helpful charitable purposes:

Urban or rural regeneration Community capacity building Facilities for recreation

Health warning – Charity Commission guidance!

But what about activities?

Charitable Status

Tax treatment different to normal companies

Exempt from most forms of Corporation Tax Other tax advantages

Access to sources of funding

Restrictions on trading

Regulation by Charity Commission

“Burning the bridge”

Community Investment

Some important features of Community Benefit Societies and Co-operatives:

One member one vote (however many shares) Withdrawable share capital (Soon) £100,000 investment limit for

individual members And therefore, exemption from some FCA

regulations in relation to share issues

Tenancy issues

Key issue – keeping rented properties that way, preventing speculation / buy to let

Co-operative tenancies exempt from right to buy

Can only be issued by fully mutual housing co-operatives

Which means that: Only tenants can be members Only members can be tenants

One or many

Discussions to date

Not profit distributing to members

Probably could be charitable – but should it be? (NB some tax advantages)

How much flexibility?

What can the stakeholders live with?

What about raising funds from the community (community share issue)?

The role of the new body

Phases of the development

Phase 1: preparation – this is where we are now Design Planning permission Procurement Sorting out!

Phase 2: development Land assembly Build phase completion

Phase 3: stewardship

Phase 1

Led by the Council

Working with steering group

Role of new body No role – not needed yet? Informal input? Formal input? Significant role?

Phase 1I

Led by the Council?

Working with steering group

Role of new body What about collateral warranties? When is best time for land to transfer? Links back to question of what will stewardship

body “be”

Tax

Advantages to charitable status for new body

VAT on development shouldn’t be huge issue due to Council’s privileged VAT status…

…but take more advice when overall contract structure clearer

Thanks for listening and joining in!

David Alcock

Wednesday 12th February 2014

david.alcock@anthonycollins.com

0121 212 7431