The new special administration regime for private registered providers introduced by the Housing and Planning Act 2016 was brought into force in England and Wales in July 2018. Should we be seeking to introduce an equivalent regime for Scotland?
The new English regime was developed as a reaction to the events surrounding Cosmopolitan Housing Group which suffered financial difficulties in 2012. It introduces the concept of a housing administrator and critically provides for such an administrator to have two objectives.
The first objective of a housing administrator is normal administration. This includes (a) to rescue the registered provider as a going concern (b) to achieve a better result for the registered provider's creditors as a whole than would be likely if the registered provider were wound up and (c) to realise property in order to make a distribution to one or more secured or preferential creditors. So far, so good.
The second objective is keeping social housing in the regulated sector, i.e. owned by another registered provider. This is a laudable objective, but it does not sit comfortably with objective 1.
Objective 1 is said in the Act to have priority over objective 2, but a housing administrator must, so far as possible work towards both objectives. In pursuing objective 2, a housing administrator must not do anything that would result in a worse distribution to creditors that would be the case if the administrator did not need to pursue objective 2. These two sentences do not fit well together.
It is difficult to reconcile how the two objectives will work in practice, given the potential lower return achievable on a disposal to another registered provider as opposed to one on the open market. How will this rest against the pressure to maximise recoveries from disposals for creditors of the registered provider? If the latter trumps the former, then it is difficult to identify circumstances in which a disposal to another registered provider will be the preferred solution, unless such disposal matches the terms achievable on a disposal to the private sector which seems unlikely.
Providers of finance and other creditors need to be comfortable when dealing with the sector that they will not risk a greater diminution in return on an insolvency than they would generally. Changing the goal-posts for such parties needs to be done with caution to ensure the sector continues to be attractive.
It is not clear therefore if the English solution is one that would fit well in Scotland. It is a laudable objective to ensure that on an insolvency, housing stock remains in the sector, however, simply adding this as a subsidiary objective on administration does not necessarily achieves that.
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