Consultation where the Regulator is directing a transfer of assets - Effective from 1 April 2024

How and when we consult tenants and secured creditors when we are directing a transfer of homes to another registered social landlord.

Published

13 February 2024

Updated

13 February 2024

Introduction

This guidance is effective from 1 April 2024. Guidance prior to this is available here. 

1.1

Section 67 of the Housing (Scotland) Act 2010 (“the 2010 Act”) gives us the power to direct a transfer of the assets of a Registered Social Landlord (RSL) to another RSL if, after making inquiries, we consider that:

  • there has been misconduct or mismanagement in a RSL's financial or other affairs; or
  • an RSL's viability is in jeopardy for financial or governance reasons or because it cannot provide housing services to an acceptable standard.

1.2

Before making such a direction we must be satisfied that a transfer of some or all of the RSL's assets would improve the management of the assets and we must consult with:

  • the tenants of the houses we propose to transfer (section 67(4ai));
  • any secured creditor whom we know holds security over those houses (section 67(4a(ii); and
  • where the RSL is a charity, with the Office of the Scottish Charity Regulator (OSCR) (section 67 (7 and 8)).

1.3

We must then take account of the views of these statutory consultees when considering whether to direct a transfer of an RSL’s assets to another RSL.

1.4

Our objective when considering a directed transfer is to safeguard and promote tenant and service user interests, by ensuring they benefit from being served by an RSL that complies with regulatory requirements and there is improved management of their homes.

1.5

Section 67(4A) of the 2010 Act gives us powers, in certain circumstances, to set aside the requirements to consult tenants and secured creditors under section 67 of the 2010 Act. This does not include the requirement to consult OSCR.Section 67 (4B) requires us to issue guidance on how we will exercise our powers when deciding whether or not to set aside the requirement to consult where we are considering directing a transfer of assets.

1.6

This guidance sets out:

  • our overall approach to consultation about a transfer of assets;
  • how we will consult tenants, secured creditors, OSCR and other stakeholders about a proposed transfer of assets;
  • the circumstances in which we will set aside the requirement to consult the actions we would take in those circumstances including how we intend to communicate with the statutory consultees; and
  • our communication with other stakeholders.

Our approach

2.1

The 2010 Act sets out our intervention powers, including the power to direct a transfer of assets from one RSL to another in certain circumstances. Having made inquiries, we can direct a transfer of assets if we consider that:

  • there has been misconduct or mismanagement in a RSL's financial or other affairs; or
  • if the RSL’s viability is in jeopardy for financial or governance reasons, or because it cannot provide housing services to an acceptable standard.

2.2

We will inform the RSL of this decision in line with our Regulatory Framework which sets out how we will use our intervention powers. When intervening, we will set out our reasons in writing to the RSL.

2.3

Where we intend to intervene under section 67 of the 2010 Act we will ordinarily seek the views of the RSL before doing so. We will provide the RSL with an opportunity to respond to our proposals. The timing and length of any consultation with the RSL will depend on the outcome of our inquiries. An RSL may request that we direct a transfer of its assets to another RSL. 

2.4

Section 67 of the 2010 Act requires that before directing a transfer of assets, we must consult

(a) the tenants of the houses we propose to transfer (section 67(4ai));

(b) any secured creditor whom we know holds security over those houses (section 67(4)(a)(ii); and

where the RSL is a charity, with the Office of the Scottish Charity Regulator (OSCR) (section 67 (7) and (8).

2.5

Parts 3-5 of this guidance provides more information on how we will consult tenants, secured creditors and OSCR.

2.6

Section67 4(A) of the 2010 Act, however, gives us the power to set aside the requirement to consult with tenants and secured creditors on the direction of a transfer of assets where all four of the following requirements are met:

  • the RSL’s viability is in jeopardy for financial reasons;
  • a person could take a step in relation to the RSL which we would require to be notified of under Section 73 of the 2010 Act (a notification of a step towards insolvency);
  • the direction to transfer assets would substantially reduce the likelihood of a person taking such a step under Section 73; and
  • there is insufficient time to comply with the duty to consult and make a direction which would substantially reduce that likelihood.

Each of these tests must be met before we can decide not to consult with tenants and secured creditors in advance of the asset transfer.

2.7

Financial jeopardy is not defined in legislation but we would need to be satisfied that there is either a potential or real, significant and imminent risk that the RSL will be unable to meet its liabilities as they fall due and face insolvency.

2.8

Within Section 73 of the 2010 Act there are certain actions, referred to as steps, which parties can take and which would lead to a formal insolvency situation. These actions vary depending on an RSL’s constitution. They include but are not limited to a winding up order or enforcement of a security for a Registered Society, or an administration order, appointment of a receiver or enforcement of a security for a limited company.

2.9

The actions listed in Section 73 are actions that are likely to lead to the dissolution or winding up of the RSL. Once these actions have been taken it may be difficult to halt or reverse the winding up process even if an alternative to winding up is available. It may be necessary in some cases to act quickly in order to prevent the winding up process from getting in the way of an asset transfer that might be in the best interests of affected tenants.

Consultation with secured creditors

3.1

We will consult secured creditors when we are considering directing a transfer of an RSL’s assets. When considering the decision to direct a transfer of assets, we will ordinarily discuss with the secured creditors the proposed recovery strategy. Where appropriate and where practicable these discussions will normally involve the RSL. We will take account of the views of secured creditors when considering whether to direct a transfer of an RSL’s assets.

3.2

We may also include other creditors, for example unsecured lenders or investors, in the consultation process where appropriate. Where we do this we will consider their views, but recognise that they do not have the same interest in the transfer as secured creditors who are statutory consultees.

3.3

When we are considering whether to direct a transfer without such consultations in accordance with section 67(4A) of the 2010 Act, we must consider separately whether there is time for us to consult the tenants and time for us to consult the secured creditors. If we conclude that there would be time to consult one group but not the other, we must consult that group. We cannot foresee any circumstances in which we would seek to set aside the duty to consult secured creditors. This is because of the implications for existing loan agreements and covenant compliance, and because there is likely to be a small number of secured creditors involved so it should ordinarily be possible to conclude the consultation process within a reasonable timescale. It is also likely that we will have been engaging with secured creditors in the course of our inquiries.

 

Consultation with tenants

4.1

In every case we will seek to engage as fully as possible with tenants where we are considering directing a transfer of an RSL’s Where possible the consultation process will as a minimum take the form of a written notice, advising of the proposed transfer of assets to another RSL and seeking feedback on the proposal. We will provide clear information about:

  • the reasons for the proposed transfer;
  • the potential transferee landlord;
  • what the proposed transfer will mean for tenants particularly in relation to the services they will receive; and
  • the consultation process and how tenants can give us their views.

4.2

We will determine what form the consultation will take based on the circumstances of each case, taking into account the number of consultees, the time available for consultation and what is reasonable.

4.3

We will provide tenants with an opportunity to consider the proposals and to give us their response. Ordinarily we will aim to ensure the consultation period is for at least 28 days.

4.4

We will carry out an equalities impact assessment on the consultation process to ensure that it is as accessible as possible. We will also consider whether it might be helpful to include additional methods of consultation. This may include for example meeting with tenants, the use of email, text and other social media.

4.5

We will provide free, independent advice to maximise opportunities for tenants to fully engage in the consultation process. However, we will retain responsibility for ensuring the consultation is conducted appropriately and in accordance with this guidance.

We will consider tenants’ views before making a decision about a proposed directed transfer. We may also include other stakeholders, for example factored owners or other service users, in the consultation process where appropriate. Where we do this we will consider their views, but recognise that they do not have the same interest in the transfer as tenants who are statutory consultees.   

4.6

There may be a limited number of cases where it is clear that that there is an imminent threat to the landlord’s financial viability, the statutory tests set out in section 2.6 above are all met, and where we judge that we need to use our statutory powers to direct a transfer of assets to another RSL.

4.7

In these situations there may not be sufficient time to consult tenants and we may need to set aside the requirement to consult tenants. We anticipate that in most cases, we will have both the time and the capacity to carry out statutory consultation with tenants. However, where there is insufficient time to consult with tenants and to protect their interests it is vital that that we are able to act swiftly to protect the interests of tenants and prevent insolvency.  

4.8

In cases where we have not consulted with tenants in advance of taking the decision to direct a transfer of assets to another RSL, we will set out our reasons for having decided that it was not appropriate to consult.

4.9

Whether or not we consult with tenants, we will always ensure that tenants are made aware that we have taken the decision to direct a transfer of assets to another RSL, the reasons for this decision and the implications of this for tenants. We may communicate directly with tenants, or we may work with the landlord to ensure that tenants are made aware of the decision to transfer assets and are given information about the implications of this decision for them.

Consultation with OSCR

5.1

We will consult OSCR when we are considering directing a transfer of a charitable  RSL’s assets. It is likely that we will have been engaging with OSCR in the course of our inquiries about the RSL. When considering the decision to direct a transfer, we will ordinarily discuss the proposed regulatory strategy with OSCR. We will set out the reasons for considering whether a direction may be the appropriate strategy.

5.2

Section 67 (7) and (8) of the 2010 sets out that we may direct a transfer of assets from a charitable RSL only if:

  • the recipient RSL is a charity which we, after consulting OSCR, consider has the same of similar charitable purposes (within the meaning of section 7(2) of the Charities and Trustee Investment (Scotland) Act 2005; or
  • following consultation with OSCR, we consider the recipient RSL will secure the proper application of the assets for the purposes which were set out in the transferor RSL’s entry in the Scottish Charity Register,

5.3

For charitable RSLs, we will consult with OSCR prior to making a decision about directing a transfer of assets. We will only direct the transfer of a charitable RSL’s assets where OSCR confirms that either of the above statutory tests are met.

Communication with other stakeholders

6.1

We may also engage with other stakeholders when considering proposals to direct a transfer. This may include the Scottish Government and relevant local authorities, in their capacity as strategic planning and funding authorities. Where a direction involves the transfer of employees we will engage with the RSL as employer to ensure that it informs all relevant stakeholders, including pension providers.