Guidance Note 19: Insolvency and Moratorium Powers
This note applies from 1 April 2024
Applies to England
Guidance Note 19: Sections 144-159 the Act and Chapter 5 of Part 4 of the Housing and Planning Act 2016- Insolvency and Moratorium Powers
These provisions are outside of Chapters 6 and 7 of the Act. As such, the regulator is not obliged to consult in relation to them in accordance with sections 215- 216 of the Act
| Applicable | |
|---|---|
| PRP (For Profit) | yes |
| PRP (Not For Profit) | yes |
| PRP (Registered Charity) | yes |
| Local Authority | no |
Scope
These provisions will be of relevance to cases where a private registered provider identifies a potential problem with, or threat to, its viability. Where this is the case, PRPs are expected to give the regulator early warning of such issues.
The moratorium provisions are set out at sections 145 to 159 of the Act. A moratorium is automatically triggered by an insolvency event (as detailed in 7 below). During a moratorium, the disposal of a PRP’s land (save certain exempted disposals) requires the regulator’s prior consent.
The purpose of the moratorium is to create a period of time to seek a solution to a PRP’s viability problem in order to protect the social housing assets and the interests of the PRP’s tenants. This may involve the regulator making proposals or taking steps to apply for a housing administration order. Decisions will always be made by the regulator on a case-by-case basis and the regulator does not guarantee to underwrite a registered provider’s financial position in any way.
Where it appears to the regulator that a PRP’s viability problems may mean it is unable to pay its debts and that housing administration offers an appropriate route to achieving the regulator’s objectives, it may (with the Secretary of State’s consent) apply for a housing administration order.
The housing administration order provisions and the power of the regulator to apply to court for a housing administration order are set out in Chapter 5 of Part 4 of the Housing and Planning Act 2016 (including schedules) (‘HPA 2016’).
Housing administration permits arrangements to be put in place to allow a PRP to continue operating until it is either rescued as a going concern, sold, or its assets transferred to other PRPs or third parties.
Moratorium
Triggers
A moratorium will be automatically triggered on the occurrence of one of the following events as defined at section 145(2) of the Act (each an ‘insolvency event’). These events are:
- a petition is presented under section 124 of the Insolvency Act 1986, by a person other than the Secretary of State, for the winding up of the PRP;
- an application is made by the PRP under section 105(3) of the HPA 2016 for permission to pass a resolution for voluntary winding up;
- an application is made in accordance with paragraph 12 of Schedule B1 to the Insolvency Act 1986, by a person other than the Secretary of State, for an administration order in respect of the PRP;
- a notice of the appointment of an administrator of the PRP under paragraph 14 or 22 of Schedule B1 to the Insolvency Act 1986 is filed with the court under paragraph 18 or 29 of that Schedule;
- notice of intention to enforce a security over property of the PRP is given under section 108(2)(a) of the HPA 2016 or the requirement to give such notice is waived under section 108(2)(b) of the HPA 2016.
Effect
The effects of a moratorium are:
-
GLA and Homes England may not:
give the PRP a direction under section 32(4) of the Act – under these provisions a PRP may be required to apply or appropriate grant for specified purposes, or pay to GLA or Homes England an amount specified by the GLA or Homes England (as applicable); or
take steps to enforce such a direction against the registered provider. -
The PRP cannot dispose of land without the prior consent of the regulator. However, the regulator’s consent is not required for the disposals as set out under section 149 of the Act. This includes specific types of lettings, right to buy and right to acquire.
-
A disposal by a PRP during a moratorium without the regulator’s consent will be void unless it is permitted under section 149 of the Act or it is disposal of a single dwelling by a not for profit PRP and they reasonably believe that the buyer intends to use the property as their principal residence under section 150(2) of the Act.
Ending of moratorium
Under section 146 of the Act, a moratorium ends when 28 days has passed beginning with the day on which the regulator is given notice pursuant to sections 104-108 of the HPA 2016 of one of the events under section 145(2) unless:
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the moratorium is extended – the regulator may extend a moratorium if it has made reasonable enquiries to locate secured creditors of the registered provider, and each of the secured creditors it has located consents; or
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a housing administration order is made; or
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the moratorium is cancelled – the regulator may cancel a moratorium for any reason, but as a public body, it will be guided by public law principles, when it comes to making such a decision. One example, and there would be many other circumstances, so this is just one illustrative example, is where a PRP arranges a partnership deal with another financially strong PRP. In such scenario, the regulator would assess such a proposal including the capability and capacity of the PRP for continued ownership and management of the land, and, if it is satisfied that this is the most appropriate course, cancel the moratorium.
Notice to the regulator must comply with requirements as detailed in sections 104-108 of the HPA 2016, and the regulator must provide the Secretary of State with a copy.
Under section 146(7) where a moratorium ends, the regulator will notify the PRP, any secured creditors it is able to locate after making reasonable enquiries, the GLA (where relevant) and Homes England.
The regulator’s powers during a moratorium
Interim manager
Pursuant to section 151(1), during a moratorium the regulator may appoint an interim manager to assist with the management of a PRP’s affairs and maintenance of services to tenants. The regulator will decide:
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the scope of the interim manager’s role i.e. whether they are required to manage the entirety of the PRP’s social housing affairs, or specific aspects of them;
-
specific powers that the interim manager will be given – the interim manager will have any power specified in the terms of appointment and those required for the purposes of the appointment (including entering into agreements and taking other action on behalf of the PRP);
-
the terms and conditions under which the interim manager will be appointed including remuneration There is no provision in the Act as to who will meet the costs of an interim manager. The regulator anticipates that those costs will be met by the PRP, but in cases where this is clearly not possible the regulator may consider underwriting the costs of an interim manager in whole or in part; and
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who is to be appointed as the interim manager – factors including professional expertise, experience and availability will be considered.
In accordance with section 151(6) of the Act, an interim manager may not:
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dispose of land; or
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grant security over land.
An interim manager’s appointment will come to an end at the earliest of the following:
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the end of the moratorium;
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when the regulator notifies the interim manager that there are proposals under section 152 of the Act which are agreed proposals – further details regarding proposals are set out below; or
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a date specified in the appointment.
The power to make proposals
Making and agreeing proposals
Section 152 of the Act permits the regulator to make proposals about the future ownership and management of the PRP’s land with a view to ensuring that the property will be properly managed by a registered provider.
In most cases, the regulator’s objective in drawing up proposals is likely to be to seek to avoid the formal insolvency of the PRP, while recognising that it may be difficult to satisfy the competing interests of all stakeholders and that the regulator has a wide range of obligations pursuant to its statutory objectives. The regulator will seek to ensure that any proposals do not cause a conflict of duties for any appointed insolvency holder. In many cases where a moratorium is in place, other registered providers may be able to assist with a solution. The regulator may hold discussions with other registered providers it believes may have the capacity and capability to provide the necessary assistance.
In making proposals, the regulator shall:
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have regard to the interests of the PRP’s creditors as a whole under section 152(2)(a) of the Act;
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so far as is reasonably practicable, avoid worsening the position of unsecured creditors under section 152(2)(b) of the Act;
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ensure proposals comply with section 152(4) of the Act which contains provisions for protecting the status quo in relation to preferential creditors;
-
comply with specific requirements where the PRP is a charity under section 152(5) of the Act. These provisions state that proposals:
-may not require the charity to act outside its trusts; and
-may provide for the disposal of accommodation only to another charity whose objects the regulator thinks are similar to the PRP.
When considering the interests and position of creditors, the regulator’s primary concern will be to ensure that property will be properly managed by a registered provider.
The procedure for making proposals is set out under section 153 of the Act. Before making any proposals the regulator will consult:
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the PRP
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tenants (so far as is reasonably practicable);
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any secured creditors of the PRP that the regulator has located after making reasonable enquiries;
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the Financial Conduct Authority or Charity Commission (where relevant).
If no secured creditors are located, the proposals made by the regulator following the consultation are agreed proposals. This means that if a PRP has no secured creditors, such proposals made by the regulator after consulting with those required will be agreed proposals.
Where the regulator locates one or more secured creditors, the regulator must send a copy of the draft proposals to:
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the PRP;
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each of the secured creditors located after the regulator’s reasonable enquiries;
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any liquidator, administrator, administrative receiver, or receiver appointed in respect of the PRP or its land.
The regulator must also bring those draft proposals to the attention of the PRP’s
-
members;
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tenants; and
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any unsecured creditors.
Where the regulator locates secured creditors, draft proposals will only become agreed proposals if each secured creditor whom the regulator was able to locate agrees to them.
Draft proposals may be agreed with modifications if each secured creditor to whom the draft proposals were required to be sent consents by notice to the regulator, and the regulator consents.
The regulator shall send a copy of the agreed proposals to:
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the PRP;
-
any secured creditors to whom the draft proposals were sent;
-
any liquidator, administrator, administrative receiver, or receiver appointed in respect of the PRP or its land; and
-
the Financial Conduct Authority or Charity Commission (where relevant).
The regulator must also bring the agreed proposals to the attention of:
-
the PRP’s members;
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its tenants; and
-
its unsecured creditors, if any.
Amending proposals
The regulator may make proposals amending agreed proposals. In such circumstances, the same process for the original proposals must be followed.
Implementing proposals
Under section 154(1) of the Act, the regulator, the PRP, its creditors and any appointed insolvency office holder must implement agreed proposals.
In accordance with sections 154(2) to (3) of the Act, the directors, committee members, members, charity trustees or trustees of the PRP are required to co-operate with the implementation of agreed proposals, with the proviso that they are not required or permitted to commit a breach of a fiduciary or other duty to the PRP.
The regulator may take enforcement action through the courts against any persons who do not comply with their obligations in respect of agreed proposals.
Under section 159(4) of the Act, a person bound by agreed proposals may apply to the High Court if they think that action taken by another person breaches section 154 of the Act. The High Court may:
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confirm, annul or modify the action; or
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grant relief by way of injunction, damages or otherwise.
Appointment of a manager
Section 155 of the Act enables the regulator to appoint a manager where agreed proposals make provision for such appointment, and for the payment of the manager’s reasonable remuneration and expenses.
Under section 155(4) of the Act, the regulator may give the manager general or specific directions. Where the provider is a charity, the regulator must notify the Charity Commission that a manager has been appointed under section 155(6) of the Act.
Section 156 of the Act sets out a non-exhaustive list of powers conferred on the manager. Additional powers for managers appointed in respect of a PRP which is a registered charity are set out under section 157 of the Act.
In accordance with section 156(3) of the Act, a manager shall so far as is reasonably practicable, consult and inform the PRP’s tenants about an exercise of powers likely to affect them.
Sections 159(1)-(2) of the Act enable a PRP or a creditor of a PRP to apply to the High Court where they think action taken by a manager is not in accordance with agreed proposals. The High Court may:
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confirm, annul or modify an act of the manager;
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give the manager directions; or
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make any other order.
Financial assistance
Under section 158 of the Act, the regulator may give financial or other assistance to:
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the PRP for the purpose of preserving its position pending the regulator deciding whether to exercise the power under section 152 of the Act to make proposals and (if proposals are made), such proposals becoming agreed proposals; or
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the PRP, or a manager appointed under section 155 of the Act to facilitate implementation of agreed proposals.
In particular, the regulator may lend staff and may arrange for payment of the manager’s remuneration and expenses under section 158(3) of the Act.
Under section 158(4) of the Act the regulator’s power to provide financial assistance is restricted by the need to obtain the consent of the Secretary of State to make grants or loans, to indemnify a manager, to make payments in connection with secured loans, or to guarantee payments in connection with secured loans. Whilst the regulator will consider each case on its own individual circumstances, the regulator anticipates that it would be very rare to seek the consent of the Secretary of State to such forms of financial assistance as, generally speaking, to do so could mean public funds being deployed to protect the commercial risks of existing creditors.
Directions to Homes England and GLA
Where an insolvency event has occurred in relation to a PRP, the regulator will consider giving directions to Homes England and the GLA (where relevant) not to give financial assistance under section 100G of the Act and section 333ZG of the Greater London Authority Act 1999 respectively.
The circumstances of each case will be different, and the regulator will be mindful of its objective of protecting public funds. However, the general rule is that the regulator will not generally make such directions where to do so might worsen the financial position of the PRP thus hastening the onset of insolvency.
Further moratorium
Under section 147(1) of the Act, where a moratorium ends otherwise than by cancellation and an insolvency event under section 145(2) occurs within 3 years beginning with the end of that moratorium, it does not automatically trigger a further moratorium.
The regulator may impose a further moratorium for a specified period if it has made reasonable enquiries to locate secured creditors and where the regulator has located secured creditors, each one of them has consented to a further moratorium.
Where a further moratorium is imposed the regulator will inform:
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the PRP;
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any liquidator, administrator, administrative receiver, or receiver appointed in respect of the PRP or its land;
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Homes England; and
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GLA (where relevant).
Housing administration order
Section 99 of the HPA 2016 sets out that an application to the court for a housing administration order may be made either by the Secretary of State or the regulator with the Secretary of State’s consent.
The HPA 2016 does not prescribe the circumstances under which a housing administration order may be applied for, but section 100(2) of the HPA 2016 sets out that the court may only make a housing administration order if it is satisfied that one of the two grounds exist:
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the PRP is unable, or is likely to be unable, to pay its debts; or
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on a petition by the Secretary of State under section 124A of the Insolvency Act 1986, it would be just and equitable (disregarding the objectives of the housing administration) to wind up the PRP in the public interest.
In accordance with section 100(4) of the HPA 2016, the Court has no power to make a housing administration order in relation to a PRP which:
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is in administration under Schedule B1 to the Insolvency Act 1986 (an ‘ordinary administration’); or
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has gone into liquidation (within the meaning of section 247(2) of the Insolvency Act 1986).
This guidance note is intended to provide very general guidance; we will always make the best decision in our judgement in line with our statutory objectives and will consider each case on its precise facts. However, it is envisaged that some of the instances where the regulator may make an application for a housing administration order are in circumstances where it appears to the regulator that it is likely the PRP will be unable to pay its debts, and that housing administration offers an appropriate route to achieving the regulator’s objectives. This may be where the regulator has been notified of an insolvency event under section 145(2) of the Act and the regulator:
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considers that there is a significant risk that it will not be possible to agree acceptable proposals via the moratorium process;
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considers a better outcome is unlikely to be achieved via an ordinary administration (if available); or
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has been unable to make proposals or get agreement to proposals made during moratorium.
If a moratorium is triggered pursuant to section 145(2)(c) of the Act by a person making an application for an ordinary administration order in respect of a PRP, the regulator will consider whether to make proposals in accordance with section 152 of the Act, apply for a housing administration order, or allow an ordinary administration to proceed. The regulator will normally seek to resolve the situation through making proposals within a moratorium, unless it considers that housing administration offers a better chance of satisfactory resolution in line with the regulator’s objectives.
In making the application to court for a housing administration order, the regulator will identify the person they propose to appoint as the housing administrator, who must be qualified to act as an insolvency practitioner in accordance with section 101(3) of the HPA 2016. Factors including professional expertise, experience, availability and cost will all be considered in the selection process.
In circumstances where the PRP has already engaged an insolvency practitioner to support it in resolving its problems, the regulator will consider whether it would be appropriate in all the circumstances to put forward that person for appointment as the housing administrator.
A housing administration order can made by the court in relation to a PRP that is either:
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a company,
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a registered society; or
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a charitable incorporated organisation.
Once appointed, the housing administrator has two statutory objectives as set out under sections 97 to 98 of the HPA 2016:
- Objective 1:
-rescue the PRP as a going concern;
-achieve a better result for the PRP’s creditors as a whole than would be likely if the PRP were wound up (without first being in housing administration); or
-realise property in order to make a distribution to one or more secured or preferential creditors.
Section 97 of the Act sets out further details about objective 1.
- Objective 2:
-ensure that the PRP’s social housing remains in the regulated housing sector (i.e. owned by a PRP)
While the housing administrator must work towards achieving both objectives, Objective 1 takes priority over Objective 2. The housing administrator must also aim to achieve these objectives as quickly and efficiently as possible.
Where a housing administration order has been made, the Secretary of State has powers available under sections 109 to 113 of the HPA 2016 to provide financial support which include the ability:
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to make grants or loans to the PRP;
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to provide indemnities in respect of liabilities incurred or loss or damage sustained in connection with the housing administrator carrying out their functions; and
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to provide guarantees in respect of financial obligations of the PRP.
The Secretary of State may require the PRP to make repayments in connection with any financial support provided.
The Secretary of State, the regulator (with the consent of the Secretary of State) or the housing administrator can make an application to court to end the housing administration.