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SW HAMMAR Conference

Assets and Liabilities Register

Mushtaq Khan

Partner, Freeths LLP

3 November 2015

Introduction

• HCA Regulatory framework

requirement -from 1st April 2015 RPs to have assets and liabilities Register

• Although the Standard and the accompanying Code of Practice does not set out what the Register must contain The Code states that the register:

• “should contain sufficient information to enable a potential buyer to accurately price the value of the business and/or the value of social housing assets in the event of distress”.

• The Register should cover the whole breadth of RPs' activities including activities carried out in subsidiaries, joint ventures and partnerships.

Background

• More diverse sector - protecting social

housing assets

• Cosmopolitan failure influence – lack

of accurate up-to-date information of

assets and liability

• Living wills – how affairs would be

wound up in the event of financial

crisis

• Maintain the sectors enviable credit

record

• Co-regulation – greater obligations on

boards

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Asset and Liabilities Register Compilation

• Agree policy as to what is to be

included in your Register;

• Identify and secure the documentation

in the most cost efficient way to inform

the content of the Register;

• Analyse documentation to identify

liabilities for inclusion in the Register;

• Review and maintain the Register to

ensure it is up to date;

• Don’t forget:

“Associations will need to ensure that

registers are constructed in such a way

that their administration is

proportionate.”

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What

Would/Do

You

Include

In Your

Asset & Liabilities Registers?

Suggested Asset and Liabilities Registers

• A Register of all freehold and leasehold land and property assets

• A Register of all corporate liabilities and material obligations

• A Register of all financial liabilities and material obligations

• A Register of all property investment liabilities and material obligations

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Land and Property Assets: Key elements

• Land Registry title number

• Address details

• Local authority

• Property type, age and size

• Scheme details

• Tenure (AST, assured, secure, shared

ownership, licence etc).

• Information on title including any

significant restrictions, for example:

– planning permission restrictions.

– section 106 agreements

– other restrictions on disposal, use

or value.

– easements, wayleaves.

– rights of way

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Land and Property Assets: Key elements (continued)

• Rent actual and potential: passing,

target, affordable and market

• Age of components and expected

future maintenance spend linked to a

recent stock condition survey

• Void history

• Management arrangements

• Shared ownership details including

staircasing history and rent

• Whether charged as security, to which

funder (including date of charge) or

uncharged

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Land and Property Assets: Key elements (continued)

• Suitability for charging (type, scale,

construction, floor etc)

• Whether Right to Buy, Right to Acquire

etc apply

• Externally validated valuations

• Internal valuations: either survey-

based; or desktop ie. Calculated by

adjusting previous values using

published data or known changes

• Other assets:

– Land

– Offices

– Commercial properties

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Corporate liabilities: Key elements

• Contracts:

– Type of agreement

– Details incl. payment & performance obligations, early termination & end of contract term provisions

• Subsidiary and JV agreements:

– Type of venture/agreement

– Shareholding interest/control

– Contractual obligations eg. performance / delivery / return thresholds,

– Future working capital / investment commitments, review options

– Exit options

• Employment obligations (notice periods, severance terms, TUPE, redundancy policy)

• Pension risk and deficits

• Tax liability/disputes

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Financial liabilities: Key elements

• Loan agreements:

– Type of loan, purpose, restrictions

– Loan amount, term, interest rate, drawn, undrawn and secured/unsecured

– Payment profile obligations, late / non-payment penalties

– Covenants, default provisions

– Early redemption, end of term provisions

– Matters requiring consent

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Financial liabilities: Key elements (continued)

• Derivatives:

– ISDA master agreement

– Details of the hedge (nominal amount, term, payment dates)

– Counterparty name and contact details

– Nominal limit

– Amount of unsecured threshold

– Details of collateral accepted

– Valuation frequency

– Latest and history of, mark-to-market valuations

– Details of cash collateral provided

– Details of property collateral provided

• PAYE, NI, VAT, SDLT

• Pension scheme contributions

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Property investment liabilities: Key elements

• Development contracts:

– Counterparty details

– Contract specification

– Payment obligations, late / non-

payment penalties

– Completion dates

– Contractor performance

obligations, default provisions

• Grant agreements

• Options agreements

• Professional advice appointees

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“Keep It Proportionate”

Construct Registers to work most effectively with the organisational

data systems already in place & focus on liabilities which could have

a ‘material’ impact on the business.

“Don’t sweat the small stuff!”

Why It’s a Good Idea

• Business Benefits - essential to any well-

run, asset-based, capital-intensive businesses. They enable more efficiently:

– re-valuation exercises

– accurate rent calculations

– swift charging of security

– stock rationalisation - active disposal/swaps

– credit ratings

– lender/investor due diligence; and

– careful monitoring of covenants

– mergers and group restructures

– future re-modelling of and/or change of use of properties which may be difficult to let

• Assess, manage and where appropriate address risks to ensure the long term viability of the RP

• Regulatory compliance with the Governance and Financial Viability Standard

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What’s Next?

• Boards (RPs) required to certify in annual financial

statements for 2015/16 that they meet regulatory

standards – includes having asset and liability registers –

get your skates on!

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A Final Thought:

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“These new requirements are what any well-run provider should need to

be doing to manage risk and maximise its social outputs. If you are only

doing it to please the regulator, then you are starting from the wrong

place.” Julian Ashby, the chair of the HCA’s Regulation Committee

Any questions?

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Mushtaq Khan, Partner, Freeths LLP