Update on related party matters

Inland Homes PLC

24 July 2023

 

24 July 2023

Inland Homes plc

("Inland Homes", the "Company" or the "Group")

Update on related party matters

On 1 March 2023 Inland Homes announced that its then Chairman and the Group's other non-executive directors had resigned from their respective roles at the Company.  At the same time the Company announced that it had become aware of certain related party issues (which may or may not fall to be treated as related party transactions under the AIM Rules).

On 14 March 2023 the Company announced that it had appointed a new independent non-executive Chairman, Matthew Robinson, and on 17 March 2023 the Company announced that it had appointed a new non-executive director, Trevor Sawyer.

Following these board changes, the Company and PricewaterhouseCoopers LLP ("PwC") concluded that they would require further time to review the related party issues and any other relevant matters and required the Company to commission an independent report.  This process has been led by Matthew Robinson, Chairman. 

On 11 April 2023 the Company announced that it had entered into an engagement with FRP Advisory Trading Limited ("FRP") to undertake the independent review of the related party issues and any other relevant matters. 

FRP were instructed to identify, to the extent possible, whether:

·    all related party relationships and transactions covering an initial review period from 1 October 2020 to 30 September 2022 had been identified and approved by Inland Homes' Board;

·    the Group's assets had not been used by any related parties in a way that had not been approved by the Board; and

·    there were any material external guarantees which had not been appropriately approved by the Groups' board or disclosed in the relevant financial statements.

These were the three areas which prompted the board resignations referred to above.

The Group's related parties were as defined in each of International Accounting Standard 24 ("IAS 24") and the AIM Rules for Companies ("AIM Rules").

FRP were given access to the Group's personnel, legal and financial data, and other books and records.  Additionally FRP sought to speak to former senior employees and directors.

This review is now complete and the key findings of the report are set out below.  The Board is actively considering the report's implications for completion of the audit for year ended 30 September 2022 and is working as quickly as possible to conclude this and publication of the interim results for the six months ended 31 March 2023.

Transactions with First Place Nurseries Limited ("FPN") - Beaconsfield Nursery Lease

FPN is a primary education business founded in 2005 which currently has operations in Radlett, Bushey and Beaconsfield.  Stephen Wicks, the Company's former CEO, and Nish Malde each own approximately 40 per cent. of the shares of FPN and, whilst not listed as directors of FPN, they appear to have been involved in a number of key decisions made by FPN.  Nish Malde is also Company Secretary of FPN.  FPN is a related party of Inland Homes plc for the purposes of the AIM Rules as an associate of a director of Inland Homes plc.

On 26 November 2018 a lease was granted by a subsidiary of Inland Homes to FPN for a term of 20 years to operate at a property and temporary buildings on the Wilton Park development site which is owned by the Inland Group (the "Beaconsfield Nursery Lease").  This transaction involves a related party for the purpose of the AIM Rules and IAS 24, and required notification under the AIM Rules. The lease was not disclosed to the Board of Inland Homes plc which, accordingly, did not consider whether the terms of the transaction were fair and reasonable insofar as its shareholders are concerned or consult its nominated adviser in relation thereto. The lease was not disclosed in the financial statements for the financial periods ended 30 September 2019, 2020 or 2021.

Management has explained that the development brief for the Wilton Park site in March 2015 required office space and other acceptable employment generating uses within the site, including a care home, a creche or small children's nursery.  Management also explained that the pre-existing nursery was considered to be in a remote location until a relief road was constructed and that operating a nursery from that location would be beneficial to the Group as it would benefit from a reduced education contribution under a S.106 agreement.  There does not appear to be evidence that consideration was given to operating another amenity, nor to putting the operation of a nursery out to tender.  Had the Group progressed the Wilton Park development site without a nursery it would have led to a different s.106 agreement.

No rent had been charged by Inland to FPN and no rent had been paid prior to the related party concerns being raised in 2023.  Invoices were subsequently raised and paid by FPN in March 2023.  The rent calculation of £16,787 (excluding VAT) for the period from 26 November 2018 to 31 August 2022 is not supported by independent certification as required by the rental agreement.  Inland is seeking to obtain independent certification of the rent, as required by the rental agreement, and payment, if certified as due.

In the six year period between March 2017 and March 2023 the Group has cumulatively paid £178,801 in relation to hire costs for modular temporary buildings used by FPN in the period March 2017 to March 2023. These costs have not been recharged to FPN.

Transactions with First Place Nurseries Limited ("FPN") - FPN Option

Inland Homes is constructing a new nursery on the Wilton Park site which was discussed at Board level in July 2022.  On 1 September 2022, a Director of FPN entered into an option agreement with a subsidiary of Inland Homes to purchase the new Wilton Park nursery, café and community hub properties within three years for £3,000,000.

This transaction involves a related party for the purpose of the AIM Rules and IAS 24, and required notification under the AIM Rules. The option agreement was not disclosed to, or approved by, the Board of Inland Homes plc which, accordingly, did not consider whether the terms of the transaction were fair and reasonable insofar as its shareholders are concerned or consult its nominated adviser in relation thereto.

In April 2023 Inland received a draft valuation for the nursery of £1,150,000 based on the property being complete and in May 2023 received a third party offer for an adjacent building covered by the option agreement for £475,000.  There is no valuation for the community hub or evidence of an independent valuation of the option agreement at the time.

Transactions with First Place Nurseries Limited ("FPN") - Loans to the Group

In June 2022 and July 2022, FPN made two interest free loans to Inland Homes. There were no loan agreements, provisions for interest or security. The first loan, of £750,000, was received by Inland Homes on 16 June 2022 and repaid to FPN on 15 July 2022.  The second loan, of £500,000, was received by Inland Homes on 25 July 2022 and repaid to FPN on 27 July 2022.

These transactions involve a related party and required notification under the AIM Rules.  The loan arrangements were not disclosed to, or approved by, the Board of Inland Homes plc which, accordingly, did not consider whether the terms of the transaction were fair and reasonable insofar as its shareholders are concerned or consult its nominated adviser in relation thereto.

Transactions with First Place Nurseries Limited ("FPN") - Other matters

Various Inland employees spent time on FPN projects at its Radlett and Bushey nurseries in 2021 and 2022 and these costs should have been, but were not, charged to FPN.  The Group will be seeking to recover amounts properly due to Inland Homes.  Third party costs of approximately £66,000 incurred by Inland Homes in this connection were invoiced to, and paid by, FPN.

Whilst these arrangements involve a related party for the purpose of the AIM Rules, they fall below the threshold for consideration under the AIM Rules.  There is no evidence that these matters were notified to the Group board.

Company guarantees

Prior to the updating of the formal schedule of Matters Reserved for the Board by the current Board, the issue of guarantees by Inland was delegated to the judgement of executive management.  FRP were instructed to identify, to the extent possible, whether there were any material external guarantees which had not been appropriately approved by the Groups' board or disclosed in the relevant financial statements.  The results of FRP's work have been used to counter-check the completeness of the Register of Guarantees and Contingent Liabilities which is now centrally maintained under the supervision of the Group Company Secretary.

The identification of a company guarantee provided by Inland Homes plc in respect of a site which is owned by a company outside the Group was one of the issues cited in connection with the resignations of the Group's former directors.  The guarantee was provided by Inland Homes plc to a third party vendor and entered into in August 2021 and relates to £19.6 million of deferred consideration in respect of the purchase of a site which forms part of Inland's Asset Management Contracts business for which the Group received management fee remuneration.  The guarantee was not disclosed in the Group's 2021 financial statements.  Management have explained that the guarantee was not disclosed on account of their assessment of the remoteness of it being called at the date of the signing of the accounts. 

Contemporaneous minutes of a Board meeting prepared by external lawyers record the approval of the entering into of the guarantee by the executive directors of Inland Homes at the time.  There is no evidence that the Non-executive Directors were aware of the entering into of the guarantee. No related party issues arise in connection with this. 

Rental of a property in Beaconsfield, Buckinghamshire

The Group owns a property in Beaconsfield adjacent to its Wilton Park site.  Since its purchase in 2017, the property has been let out, with some vacant periods.  On 1 October 2022 a subsidiary of the Company entered into a lease with Desmond Wicks and his wife as tenants.  Des Wicks is a director on a number of Group subsidiary boards and so is a related party under the AIM Rules.  The lease was for two years at a monthly rent of £1,000.  Payments of rent for the property are fully up-to-date.  The rent of £1,000 per month is the same as that contracted to be paid by the previous tenant (which was an arm's length transaction) but the previous tenant had been moved by Inland Homes within the Wilton Park site from a smaller home and it appears that the market rent of the property during that tenancy was £3,000 per month.

Whilst this transaction involves a related party for the purpose of the AIM Rules, it falls below the threshold for notification under the AIM Rules.  There is no evidence that this transaction was notified to the Group board.

Other matters

The FRP report identified that in May 2022 a subsidiary of the Group entered into two separate contracts with each of two family members connected to Stephen Wicks, in both cases for the sale of a house at Wilton Park.  These transactions fall under IAS 24 and therefore details of which will be included in the Group's Annual Report and Accounts for the year ended 30 September 2022, when published.  During the period there were also sales of properties to Group employees but which do not constitute related party transactions.  In terms of considering whether these arrangements constitute related party transactions, the Board notes that the definition under IAS 24 and the AIM Rules is slightly different. None of these transactions involves a related party for the purpose of the AIM Rules.  There is no evidence that these transactions were notified to the Group board.

Finally, the FRP report noted that Nish Malde has an International Pension Plan managed by offshore trustees, Cavendish Corporate Investments PCC Limited, which on 30 September 2016 invested £130,000 in a fund managed by Custodian Capital Limited that advanced up to £17.3 million to a subsidiary of the Group.  The investment has generated cumulative interest of £52,930 in the period to 31 March 2023.  £79,631 has been withdrawn from the underlying investment, leaving remaining capital of £50,368.  Based on the substance of the indirect loan from the pension fund to the Group, this is considered to be a related party transaction under IAS 24, but not the AIM Rules.  The investment and the resulting potential conflicts of interest was not disclosed to the Board at the time.

Board considerations and Corporate Governance

The matters covered in the FRP report have revealed significant and repeated failures in Board level corporate governance and failings of internal control in some areas of the Group.  The investigation also identified that certain information was not disclosed to the Company's board, Nominated Adviser and the current and previous auditors, as detailed below.  Since the events covered by the report, three new independent non-executive directors, Matthew Robinson as Chairman, and Trevor Sawyer and Richard Padley, have or are in the process of being appointed in response to these historical failures in corporate governance, together with a new Chief Executive Officer, Jolyon Harrison.  A new Chief Financial Officer will also be appointed in due course.  Nish Malde, CFO and Acting CEO has advised the Board of his intention to retire from Inland Homes following appropriate handover on Jolyon's appointment.  Nish will remain available to the business on a consultancy basis.

Specifically addressing the failures which were the subject of the FRP report, and in addition to the pre-existing policies on Anti-Bribery, Share Dealing, Whistleblowing, and others, and the Board Committees on Audit and Remuneration, the Board has:

·    Updated the formal schedule of Matters Reserved for the Board to address the shortcomings highlighted by the FRP report, such as the issue of guarantees.  Previously, matters covered by the FRP report were wholly delegated by the Board to the judgement of executive management.

·    Created a Register of Related Parties (under both the AIM Rules  and IAS 24) and Potential Conflicts of Interest which is centrally maintained under the supervision of the Group Company Secretary.  The completeness of the Register has been counter-checked through FRP's work.

·    Strengthened an existing Register of Guarantees and Contingent Liabilities in relation to any external guarantees, commitments and undertakings entered into by any Group entity with an external party, which is centrally maintained under the supervision of the Group Company Secretary.  The completeness of the Register has been counter-checked through FRP's work.

·    Introduced a formal written policy on Related Party matters and procedures dealing with AIM Related Parties, IAS 24 and more general considerations of potential conflicts. 

·    Introduced a formal written policy on the issuing of Guarantees and entering into of Contingent Liabilities which is to be included in the Staff Handbook, reserving these matters to the Board.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

The person responsible for this announcement is Matthew Robinson, Chair.

Enquiries:

Inland Homes plc Tel: [phone]

Matthew Robinson, Chair

Jolyon Harrison, CEO

Panmure Gordon (UK) Limited Tel: [phone]

Dominic Morley / James Sinclair-Ford (Corporate Advisory)

Tom Scrivens (Corporate Broking)

 

END