Why we are engaging with Thistle
We are engaging with Thistle about its removal from the Register of Social Landlords (the Register).
We began engaging with Thistle in 2016 about its failure to manage a major investment contract and to remedy failings from this.
In August 2018, we used our statutory powers under sections 57, 58 and 65 of the Housing (Scotland) Act 2010 (the 2010 Act) to appoint a statutory manager and five officers to Thistle’s governing body. We did this because Thistle was unable to assure us that it had the governance and leadership capacity necessary to address serious and widespread failures to comply with the Regulatory Standards of Governance and Financial Management (the Regulatory Standards) and to meet outcome two of the Scottish Social Housing Charter (the Charter).
In November 2018, Thistle appealed our decision to use our statutory intervention powers. The Appeal Panel upheld the decision in December 2018 allowing the statutory appointments to continue supporting Thistle to comply with the Regulatory Standards and the Charter.
In August 2019, we appointed an additional four officers to Thistle’s governing body, increasing the total number of statutory appointees to the governing body to nine. The appointments ensured that Thistle had the strong governance and leadership necessary to achieve compliance with Regulatory Standards and the Charter.
Following our intervention, we identified further serious instances of Thistle’s failure to comply with Regulatory Standards and regulatory requirements. Our inquiries identified long-standing governance and management weaknesses which have caused critical failures in the following areas:
- governance and leadership;
- tenant, resident and staff health and safety;
- financial health; and
- the provision of accurate information to stakeholders including tenants, residents and the regulator.
All of this was exacerbated by Thistle’s historic reluctance to accept what went wrong and to take action sooner to put things right.
Thistle incurred significant avoidable expenditure as a direct result of its own failings. The mismanagement of the major investment contract alone resulted in substantial additional costs being incurred over and above those reported to the management committee when approving the contract. Significant remedial works are still required to ensure that the contract finally delivers what was originally intended and the full cost of the works is currently being established by Sanctuary Scotland.
The poor management of both the contract and the aftermath by Thistle has been damaging to local relationships with affected tenants and residents and has attracted negative media attention. All of this has further damaged the reputation of Thistle.
In addition to the support from the statutory manager and appointees, and reflecting the lack of internal leadership and capability, Thistle also had to engage external expertise to investigate and report on its failings, how to resolve them and also to address immediate and serious health and safety and compliance matters.
In October 2019, Thistle's Management Committee completed an independent Strategic Review of the best future for its tenants and residents. The review considered the views of Thistle’s tenants, residents and key stakeholders. Thistle decided that the best way to deliver its tenants’ and residents’ priorities would be to transfer to another Registered Social Landlord (RSL).
Thistle identified Sanctuary Scotland as a transfer partner in February 2020. They entered a transfer partnership arrangement in March 2020 and agreed a joint transfer business case in August 2020. Thistle also entered into a Service Level Agreement (SLA) with Sanctuary Scotland in March 2020. This was for the provision of immediate interim management and asset support to ensure that the failures identified above could be addressed alongside the development of the transfer proposals.
By this point Thistle was critically dependent on the support of external advisers and Sanctuary Scotland to maintain effective governance and ensure it could function and deliver services to tenants and residents. Thistle’s management committee was reduced to eight members in July 2020 all of whom were statutory appointees. Thistle was, therefore, entirely dependent on support from the statutory manager and statutory appointees to maintain effective strategic leadership and governance.
We considered the business case for the voluntary transfer in August 2020 and this provided us with assurance that Thistle and Sanctuary Scotland had complied with Regulatory Standards and Guidance when developing and agreeing the transfer proposals, that Thistle's tenants and residents supported the proposal and that the transfer would result in the improved management of Thistle's assets. Thistle then held an independent ballot of tenants from 5 October – 2 November 2020. Seventy percent of Thistle’s tenants voted in the ballot and 92% voted in favour of the transfer.
Despite the positive ballot result, Thistle's management committee was concerned that it may not have been able to progress the voluntary transfer in the near future and that may have led to a significant delay to the transfer. As a result, Thistle requested that we consider using our statutory powers under section 67 of the 2010 Act to direct the transfer of all of Thistle's assets to Sanctuary Scotland.
Under section 67 the Scottish Housing Regulator (SHR) can direct a transfer if, having made inquiries, we consider that certain conditions are met. After making inquiries we considered that:
- there had been mismanagement in Thistle’s affairs;
- Thistle’s viability was in jeopardy for governance reasons;
- Thistle could not provide housing services to an acceptable standard; and
- the transfer of all of Thistle’s assets to Sanctuary Scotland will improve their management.
Section 67 also requires that we consult with and have regard to the views of Thistle’s tenants, its secured creditor and the Office of the Scottish Charity Regulator (OSCR). Our consultation ran from 20 November to 14 December and also included Thistle's factored owners. We appointed Tenants Information Service (TIS) to assist with the tenant and factored owner element. The majority of tenants and residents who responded to the consultation (92%) were supportive of the directed transfer proposal. Thistle’s secured creditor also confirmed its support and OSCR confirmed that it was content that the charitable purposes of Thistle and Sanctuary Scotland are the same, as required by section 67.
Having considered the positive outcome of the consultation, we concluded that the requirements of section 67 were met in Thistle’s case. In January 2021 we used our statutory powers under section 67 to direct Thistle to transfer all of its assets to Sanctuary Scotland by 1 March 2021. The transfer completed on this date and Thistle ceased to carry out activities. We have, therefore, ended the appointment of the statutory manager under sections 57 and 58 of the 2010 Act.
Under section 27 of the 2010 Act SHR may remove an RSL from the SHR’s Register of Social Landlords (the Register) if it considers that certain conditions are met. We consider that following the transfer of all of Thistle’s assets to Sanctuary Scotland, Thistle has ceased to carry out activities and no longer meets the statutory or regulatory registration criteria. We have therefore given notice to Thistle that we intend to remove Thistle from the the Register under section 27.
We will continue with the appointment of eight officers to Thistle’s governing body under section 65 of the 2010 Act to 30 April 2021. The appointments will ensure the proper management of Thistle’s affairs and will enable Thistle to consider final financial statements and complete all remaining required activity. This includes removal from the SHR’s Register and removal from all other statutory registers including those held by the Office of the Scottish Charity Regulator (OSCR) and the Financial Conduct Authority (FCA). Sanctuary Scotland will continue to provide support to Thistle during this period.
What Thistle must do
We require Thistle to:
- engage with us as required about its removal from the Register; and
- progress and provide updates on the completion of its final financial statements and submit these to us when approved by the governing body in April 2021.
What we will do
- engage with Thistle about its removal from the Register;
- remove Thistle from the Register on receipt of approved final financial statements; and
- update our published engagement plan in light of any material change to our planned engagement with Thistle.
Thistle must provide us with the following annual regulatory returns and alert us to notifiable events as appropriate:
- Annual Assurance Statement;
- audited financial statements and external auditor’s management letter;
- loan portfolio return;
- five year financial projections; and
- Annual Return on the Charter.