Public & private

A recent case has thrown the law relating to the insolvency of registered social landlords into a state of uncertainty once again (HT 19 September, page 15).

The reasoning applied in the case, involving a pension provider called the Salvage Association, suggests that the law concerning the appointment of administrators in the event of insolvency may now apply to industrial and provident societies. Previously this had not been the case but it is now likely that amending legislation will be passed.

Logic and reasoning would suggest that a wider view should be taken here, particularly given that the current law relating to RSL insolvency is hardly a model of clarity – even without additional complications arising as a result of this case.

Currently, the position is that if a secured creditor of an RSL wishes to take any action leading to insolvency, the Housing Corporation's moratorium comes into effect. The intention is that, during the moratorium (when creditors can take no action), the difficulties can be sorted out to the satisfaction of all parties. Where that proves impossible, the law allows for the appointment of a receiver, administrative receiver or administrator. Which of these is appointed depends on the status of the RSL in question – whether it is a company or an industrial and provident society.

The effect of the reasoning used in this new case is that an industrial and provident society may be also be classed as a company for the purposes of some parts of the Insolvency Act. Case law, however, suggests that it cannot be classed as a company for other parts of the Insolvency Act – and for yet more parts of the act, the Enterprise Act (which was meant to sort all this out) also says that an industrial and provident society cannot be a company.

A further effect of the Salvage Association case is that some RSLs that take other forms of legal entity, such as those incorporated by Royal Charter or Act of Parliament, may also now be caught by parts of the Insolvency Act not previously thought to apply to them.

There was an enormous amount of discussion of these issues before the enactment of the 1996 Housing Act. Indeed, its moratorium provisions were the result of a compromise reached, after intense lobbying, between the various factions involved in the housing finance market; many regard them as the most appropriate alternative to the receiver.

More recently there were various proposals put forward in the bills leading to the Enterprise Act which had various effects on the law in this area. After intense lobbying, the position was left roughly as it was before.

However, in the light of this latest development, I would contend that the Enterprise Act was a missed opportunity for RSLs. The chance should have been seized to rationalise the law relating to RSL insolvency, setting out a reasonable and generally agreed set of procedures that apply to all RSLs, whether companies, industrial and provident societies or other legal entities. This would also have eliminated the risk of accidental, unintended changes to the law.

It would seem the issue is now to demand parliamentary to rectify the damage done by the Salvage Association case. Above all, the market as a whole should take this opportunity to rationalise this muddled situation.