Group Structures
Introduction
1. The purpose of this guidance is to set out the Department's policy in relation to registered housing associations (Associations) and group structures. It describes the principles which the Department will apply in this area but it does not encourage, or discourage, any specific activity by registered housing associations.
Key Objectives
2. In determining the principles for group structures the Department has the following key objectives:
- The interests of the taxpayer must be protected;
- The assets and tenants of Associations must be protected; and
- The reputation of the voluntary housing movement must be protected.
Clearly any group structure is expected to behave in an orderly and responsible manner when problems arise.
The principles applying to Non-Registered Subsidiaries within a group
3. The Department allows Associations to maintain non registered subsidiaries within their group where their powers and objects allow (the definition of "subsidiary" is contained in Article 23(9)-(12) of the Housing (Northern Ireland) Order 1992) (PDF 296KB). The Department recognises that this can be a useful way of undertaking activities for constitutional or business reasons.
However, it is important to note that the Department will not permit assets or reserves that have arisen in Associations as a result of public funding to "leak" or be transferred into non-registered subsidiaries in a group.
In devising a group structure that includes a non-registered subsidiary, Associations must ensure, therefore, that publicly-funded assets and their tenants are not put at risk by their non-registered subsidiaries. Associations must also ensure that they avoid actions or statements which imply that they will take general financial responsibility for a non-registered subsidiary. In effect, registered housing associations should not stand behind non-registered subsidiaries that run into financial difficulty unless they can satisfy the Department that in so doing there is no leakage of assets or reserves that have arisen as a result of public funding. Associations must satisfy the Department that to do so is in their best interests.
4. The following key principles must apply to the relationship between an Association and a non-registered subsidiary:
- They must be separate legal entities and the relationship between them must be such as to ensure that the Association shall not become liable for the debt of the non-registered subsidiary.
- All financial and contractual arrangements must demonstrably be on arms-length and commercial terms.
- The initial costs of setting up a non-registered subsidiary and any donations to that subsidiary should only be made after legal and financial advice has been sought. The Department will need a clear demonstration that these costs are not met from assets or reserves which have been publicly funded.
- Any investments and loans must be on a commercial, secured basis and minimise the risk to the registered housing association.
5. Any relationships with joint venture consortia and associated organisations which are not deemed to be subsidiaries of an Association should be treated as if they were a subsidiary of an Association.
6. All groups with non-registered subsidiaries should comply with the principles set out in this section. Where existing arrangements and commitments, whether financial, legal or otherwise, between the Association and the non-registered subsidiary cause problems in complying, Associations should seek guidance from the Department.
The principles applying to registered subidiaries within a group
7. The principles set out below apply to any group structure in which the registered parent association is able to control the activities of its registered subsidiaries (as defined in the Annex).
8. In light of the key principles outlined above, the Department will require that, in any newly created group structure, the parent association must be legally capable of supporting or obtaining support for the financial obligations of any registered subsidiary in the event of any risk of default. Similarly, in any modification to a group structure which might be formed, the parent association must be legally capable of supporting or obtaining support for any newly registered subsidiary or any existing registered subsidiary for which any change is sought. Thus if, for example, a parent in such a group is unable to support a subsidiary because of the restrictions of general charity law, the Department would not allow such a structure to be established.
9. The Department recognises that the nature and extent of any support by a parent for a registered subsidiary will depend on the particular financial, legal or other circumstances of any case arising and on the view of the various stake-holders entitled to participate in any final decision.
The reputation of Registered Housing Associations
10. Associations should make clear to lenders and other interested parties dealing with any member of a group which they control (whether or not they are registered), the status of the entity with which they are dealing and its relationship with the parent and the rest of the group.
Compliance
11. Associations will need to seek their own legal advice in respect of their powers and objects and ensure that their structures achieve the principles set out in this guidance.
12. Proposals for new group structures or changes to existing group structures will require approval by the Department if they involve the registration of new housings associations or a change in the rules of existing associations. Existing lenders should also be consulted.
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