Agenda item

Cabinet Member: Leader of the Council, Councillor Hamida Ali

Officer: Interim Chief Executive, Katherine Kerswell

Key decision: yes

The Leader of the Council delegated authority to the Cabinet to make the following decisions:

RESOLVED: To

1. Note the recommendations set out in the report by PwC, and refer the report to the December meeting of the Scrutiny and Overview Committee for their challenge and assessment. A report from that meeting to be presented at the January Cabinet meeting alongside an action plan.

2. Authorise the initial further work required on the options identified by PWC regarding the Council’s interest in BBB in order to best inform further consideration of those options at the January Cabinet meeting.

3. Agree that funding of BBB shall continue in line with current loan arrangements and conditions, provided that all funding for construction, and completed unit purchases shall be reviewed on a site by site basis.

4. Agree that all site transfers to BBB, be halted until the Council has completed the options appraisal.

RESOLVED: That the Cabinet, on behalf of the Council, exercising its functions as sole shareholder of BBB to:

5. Approve the special resolutions contained in Appendix [2] of the report to amend the articles of association of BBB to

I. allow quorate meetings to take place with any two Directors present, removing the requirement for an Executive Director to be present and

II. provide for the provision of all unanimous or majority decisions taken by the Directors and minutes of all Directors meetings to the Council as sole shareholder.

6. Approve the ordinary resolutions contained in Appendix [2] of the report to appoint two Non-Executive Directors to the Board of BBB (both with a finance background), also noting and agreeing that BBB shall indemnify those new Directors in accordance with the company’s articles of association and by utilising the company’s own insurance policy.

7. Approve the ordinary resolutions contained in Appendix [2] of the report to remove the two current Directors of BBB, in their capacity as Directors (also noting Executive Directors are employees of the company).

8. Approve the ordinary resolution contained in Appendix [2] of the report to provide for the right of the Council as sole shareholder to inspect any of the Company’s accounting or other records or documents at any time.

RESOLVED: To recommend to Council that it note the recommendations set out above, which are to be considered by Cabinet on 25th November 2020 and that Council shall receive a verbal update in respect of the outcome, in accordance with recommendation xii of the “Croydon Renewal Plan and amendments to the 2020/21 General Fund Budget” report to Council of 21st September 2020.

The Leader of the Council introduced the report that presented the strategic review, which was commissioned by Cabinet in September 2020 and conducted by PwC; she thanked PwC for their hard work in completing the review in time for consideration at Cabinet. She explained that the strategic review was commissioned to look at the council's company structures following the external auditors report in the public interest which raised a number of questions and concerns about the nature of relationships between the company structures. The report primarily focused on Brick by Brick Croydon Ltd. (“BBB”); however, the review also included other company structures such as Croydon Affordable Homes, Growth Zone, the Revolving Investment Fund (RIF), and the Asset Investment Fund (AIF).

The Leader informed Cabinet that the review found a number of concerns regarding the financial governance within the organisation of BBB, which had led to a strong recommendation to appoint a Finance Director to oversee the relationship between the council as a sole shareholder. This had also been an area of concern highlighted in the report in the public interest. The Leader also highlighted that the report identified a number of options that could be available to the council, based on the findings of the strategic review. The recommendations included a request to commission further work to advise the council of the best options in regards to BBB. The report raised concerns for the governance and the need to strengthen this; however, it did not recommend any structural changes at this time. The report recognised the impact of the financial situation on the capacity to continue investment, however, it recommended that the Growth Zone should remain in place with increased reviewing.

The Leader of the Council explained that she was recommending that all recommendations outlined in the strategic review were accepted, and that an action plan was drawn up, which would inform the Croydon Renewal Improvement Plan. The report also suggested a number of other actions in regards to the council being the sole shareholder of BBB, this included the appointment of two non-executive Directors to the Board, who were known to have strong backgrounds in finance, as a way to ensure there was capacity to inspect the BBB accounts, Board minutes and reports.

The Cabinet Member for Croydon Renewal, Councillor Stuart King, highlighted recommendation 1.3 in the report and explained that, until the review was completed, the council were minimising any further funding to BBB. It had been recognised that a little more would need to be spent to protect a far greater sum, and it had been stated in the report that there were approximately 20 schemes currently on site with existing funding agreements. He explained that if funding was to be stopped to BBB, the risk could be that cash flow problems would be created, ultimately increasing the risk to both the council and the taxpayers.

The Cabinet Member for Croydon Renewal continued by reassuring Cabinet that the £30m identified as a risk within the budget report would continue to be secured from BBB; however, it had been outlined as a risk to ensure openness and transparency. He also noted that he welcomed the appointment of the two non-executive Directors; stating he had met them both on a number of occasions and explained he felt confident that they were good appointees. He queried if the two non-executive Directors appointed were not council employees, and whether there were advantages to this.

The Executive Director of Resources and Monitoring Officer, Jaqueline Harris-Baker, clarified that there was no requirement for the non-executive Directors to be council employees, and the selection had been made on the suitability of the candidates in terms of their capacity and the relevant skills required.

The Executive Director of Resources and Monitoring Officer continued by referencing an item contained within the PwC report, and drew attention to page 121 of the pack. One of the key observations and recommendations was the need to improve the capability and the capacity in respect of financial governance and it was confirmed that there was no requirement for non-executive directors to be council employees. The selection had been made on the suitability of the candidates, taking into account their capacity and the relevant skills required to do the task and, at present, that was seen as an advantage in terms of the skills that are required in respect of the Brick by Brick Directors, who, by law, were required to act in the interest of the company and was deemed a separate legal entity from the local authority.

The Cabinet Member for Resources & Financial Governance, Councillor Callton Young, noted that many residents would have found it difficult to believe that the council were considering investing more money in BBB; however, he seconded the comments made by the Cabinet Member for Croydon Renewal and explained that this was to protect the public money already invested.

The Chief Executive further agreed that there were significant issues that would need to be resolved in regards to the council’s determination of its future relationship with BBB, and there was ongoing dialogue with MHCLG regarding this. She further thanked the Chair of Scrutiny & Overview, Councillor Sean Fitzsimons, for his willingness and support in regards to the reports.

The Cabinet Member for Homes & Gateway Services, Councillor Jane Avis, stated that the position the council was in with BBB was regretful, and despite being reluctant to accept BBB in 2014, she recognised that it was believed to be the only option at the time to resolve the housing crisis in Croydon. It had been relatively successful in the delivery of homes, street properties and emergency accommodation, and she had been assured that the current schemes would deliver additional homes. She thanked the officers who had worked extremely hard to ensure affordable homes were being delivered.

The Leader of the Opposition felt that the report highlighted the Labour council’s incompetence, and that there had been a lack of diligence. He noted that the Cabinet should have been focused on protecting public money and should not have allowed the finances to get in to this position; he noted that the council had loaned BBB up to £250m of borrowed money, which was a disgrace. As a matter of urgency, he requested the schemes that had already commenced be completed as soon as possible and followed by requesting that any sites that had not yet began, be stopped immediately.

In response, the Leader of the Council noted that the strategic review highlighted that the original business case, and the intention behind the company, was to deliver affordable housing and to bring in additional revenue. The RIPI highlighted some of the fundamental problems and challenges in the execution of that policy and the focus had to be to protect the public investment, as stated by the Cabinet Member for Resources & Financial Governance and the Cabinet Member for Croydon Renewal. She also highlighted recommendation 1.4 in the report, and explained that all site transfers would be paused until the council had considered all options; a further report on this would be presented to Cabinet in January 2021.

The Shadow Cabinet Member for Homes and Gateway Services, Councillor Lynne Hale, noted that she was pleased the Cabinet Member for Croydon Renewal was hopeful the £30m would be received, and requested that the Shadow Cabinet be updated accordingly. She queried how much overspend there was in regards to Fairfield Halls, as there appeared to be conflicting figures.

In response, PwC Consultant, Chris Buss, explained that the current arrangement with Fairfield Halls was that the loan was supposed to be recovered from the development at the rear of the site, which had not yet been transferred to the council. There was a risk that some of the money spent would not be recovered, and it was dependent on the sales. He agreed to feedback to Councillor Hale regarding the exact figures.

The Chair of the Scrutiny Streets, Environment & Homes Sub-Committee, Councillor Leila Ben-Hassel, explained that the report regarding BBB was discussed at the Sub-Committee, and projected capital receipts and an overview of the governance structure and operational arrangements were requested. She asked whether transfers of loans to BBB had been made without loan agreements in place. She further asked about the capacity of the Planning department, and if there was any way to increase capacity to ensure it was possible to clear the backlog of developments.

In response, PwC Consultant, Chris Buss explained that there was no evidence that money had been transferred without loan agreements in place, however, some of the loan agreements had since expired and he noted that the council were holding BBB to them as if they had not expired.