TIDMINL
RNS Number : 9906G
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 GBP16,787 (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 GBP178,801 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
GBP3,000,000.
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 GBP1,150,000 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 GBP475,000. 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 GBP750,000, was received
by Inland Homes on 16 June 2022 and repaid to FPN on 15 July 2022.
The second loan, of GBP500,000, 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 GBP66,000 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 u pdating 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 t he 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 GBP19.6 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 GBP1,000. Payments of rent for
the property are fully up-to-date. The rent of GBP1,000 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 t h at the market rent of the property
during that tenancy was GBP3,000 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 GBP130,000 in a fund managed by Custodian Capital Limited
that advanced up to GBP17.3 million to a subsidiary of the Group.
The investment has generated cumulative interest of GBP52,930 in
the period to 31 March 2023. GBP79,631 has been withdrawn from the
underlying investment, leaving remaining capital of GBP50,368.
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: 44 (0)1494 762450
Matthew Robinson, Chair
Jolyon Harrison, CEO
Panmure Gordon (UK) Limited Tel: 44 (0)20 7886 2500
Dominic Morley / James Sinclair-Ford (Corporate Advisory)
Tom Scrivens (Corporate Broking)
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END
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