Agenda item

To consider the Governance arrangements for Knowle Green Estates Ltd.

Resolved to move the exclusion of the Press and Public for the following item in view of the likely disclosure of exempt information within the meaning of Part 1 of Schedule 12A to the Local Government Act 1972, as amended by the Local Government (Access to Information) Act 1985 and by the Local Government (Access to information)

(Variation) Order 2006.

Terry Collier, Deputy Chief Executive, conveyed the apologies of Councillor A.J. Harman, as Chairman of the Board of Knowle Green Estates, who was unable to attend the meeting.  

Howard Williams, Non-Executive Director of Knowle Green Estates Ltd (KGE), outlined the history of the company and why it was first established in 2016.  Since the company’s formation the Council’s direction in relation to provision of housing had substantially changed and it was now envisaged that the role of KGE would be to manage most of the Council’s residential assets, managing within the next few years tenancies of 500-600 properties.

The residential portfolio would include a range of types of rental properties.  It was proposed that the Council would acquire and develop suitable sites before handing these over to KGE for management.  The financial arrangements for the transfer of properties were broadly outlined.

The Committee were advised that the report to be presented to Cabinet also requested that a new company, Knowle Green Estates Group, is set up with facilities for limited liability partnerships (LLP) for risk and tax management purposes.

Members were also informed that the accounts had been independently audited and were now being reviewed by the Council’s external auditors as part of the Council’s consolidated accounts.

The Committee scrutinised the report in detail and raised a number of questions.  In response to these they were advised:

• The structure of the group was still under consideration by Cabinet in the role of shareholder representative.  No Special Purpose Vehicles (SPV) or LLPs have been set up. 
• The board structure had been broadened to include two non-executive directors which would bring a wider range of experience to the company and provide safeguards for continuity purposes. It had recently been decided that the company secretary need not be an individual but appropriate members of the legal department.
• The company would take its direction from the Council as the sole shareholder.  
• The company will not be able to purchase or dispose of assets without the permission of the Council. Furthermore they cannot source third party funding without the permission of the Council. There had been clear instructions from the shareholder that the intention was to retain the properties for ever and not sell them.  If at any stage sales were considered necessary, the company would need Cabinet’s (as the shareholder representative) agreement to do so.  It was also confirmed that the company was not authorised to raise mortgages on the properties.
• The Council will complete the residential developments and incur costs from the PWLB or equivalent funding source.  At the point of completion the property will be transferred to KGE; they will buy assets with a loan from the Council, interest from the company will be paid to the Council.  This will be reflected in the Council accounts which will show a stream of interest receivable and the capital loan will be paid down.
• The 5 year Profit and Loss projection in the plan had been produced in conjunction with KGE’s financial advisers.  The model had been based on a set of assumptions with the risk profile varying according to the nature of the scheme.  The projections will be kept under review and the company will continue to work with the financial advisers. 
• KGE doesn’t currently have any employees.  Any work carried out for KGE by Council staff will be recorded and charged to the company. A detailed breakdown will be provided of the officers, how much time they have incurred and the costs to the company. This will be visible in both the company’s and Council’s accounting and will be scrutinised by auditors from both perspectives

Mr Williams offered to report to the Overview and Scrutiny Committee on the work of the company on a regular basis, as required.

Concern was expressed that there may be insufficient or no affordable housing allocated to some developments.  The Committee were informed that the shareholder’s commitment to providing affordable housing was demonstrated by the fact that the first schemes have been 100% affordable as will the accommodation to be provided in the West Wing, Knowle Green.  This was a key part of delivering accommodation to meet the needs of residents.  It was suggested that the Council should provide an indication of the split of tenure across all developments which could then be monitored and scrutinised.

It was proposed that there should be a mission statement, issued by the Council, setting out the purpose and aims of the company as this would assist in scrutinising and measuring the success of their work. 

The Committee sought further clarification on the financial arrangements relating to asset valuation and the transfer of property at cost price and considered that the wording of the plan needing further refinement and clarity.

Resolved to recommend to Cabinet:

1.    That the Business Plan for the Knowle Green Estates Group is presented alongside a mission statement or that a mission statement is subsequently developed identifying the purpose and aims of the Group.

2.    The Committee believes that the process of asset valuation and transfer detailed in the Business Plan for the Knowle Green Estates Group requires further clarification.

It was agreed that an update would be provided to Overview and Scrutiny Committee at their next meeting in March 2020.