Statutory intervention at Thistle Housing Association

About this report

1.

This report sets out the reasons for our statutory intervention in Thistle Housing Association (‘Thistle’) and the outcome of that intervention.

2.

We began engaging with Thistle in November 2016. Our intervention began in August 2018 and ended in April 2021 after we directed Thistle to transfer its homes to Sanctuary Scotland Housing Association (‘Sanctuary Scotland’).

3.

Thistle’s homes and other assets and liabilities transferred to Sanctuary Scotland on 1 March 2021. We then removed Thistle from the Register of Social Landlords (‘the Register’) on 27 April 2021.

About Thistle

4.

Thistle was registered as a social landlord in 2001. It owned and managed 946 homes and provided factoring services to 786 owners in the Toryglen area of Glasgow.  It was a registered charity and employed around 21 people. 

5.

Thistle’s turnover for the eleven month period to 28 February 2021 was £4.6m. Its debt per unit was £10,500.  The last full year turnover to 31 March 2020 was £4.5m.

Our regulatory requirements

6.

Our current regulatory requirements are set out in our Regulatory Framework. Prior to February 2019 our then Regulatory Framework contained six Regulatory Standards of Governance and Financial Management (‘the Regulatory Standards’) RSLs were required to comply with:

1. the governing body leads and directs the RSL to achieve good outcomes for its tenants and other service users.
2. the RSL is open about and accountable for what it does. It understands and takes account of the needs and priorities of its tenants, service users and stakeholders. And its primary focus is the sustainable achievement of these priorities.
3. the RSL manages its resources to ensure its financial well-being and economic effectiveness.
4. the governing body bases its decisions on good quality information and advice and identifies and mitigates risks to the organisation’s purpose.
5. the RSL conducts its affairs with honesty and integrity.
6. the governing body and senior officers have the skills and knowledge they need to be effective.

7.

The Regulatory Framework also set out the levels of engagement we may have with individual RSLs; low, medium or high. In November 2016 we had low engagement with Thistle. This means that the information it had submitted to us did not highlight risks to tenants’ interests. On that basis, we did not need additional assurance from Thistle unless other events arose. We required Thistle to submit the standard annual regulatory returns and alert us to notifiable events.

8.

We have published statutory guidance on notifiable events. These are events that RSLs must tell us about. Prior to February 2019 our then notifiable events guidance explained that these are events that may seriously put at risk:

• tenants’ and service users’ interests or safety;
• the RSL’s financial health, public investment, or lenders’ confidence; or
• the good governance and reputation of an individual RSL or the RSL sector.

9.

Governing bodies must regularly assess whether there is any action they require to take to ensure ongoing compliance with current Regulatory Standards and requirements. We expect RSLs’ Annual Assurance Statement (‘AAS’) processes to incorporate this assessment and we may seek assurance about this during our engagement. Governing bodies should have regard to the matters highlighted in this report when assessing compliance.

Our intervention in Thistle

Our initial engagement with Thistle

10.

In November 2016 we contacted Thistle after a tenant representative raised concerns with us about two gas leaks. Thistle explained that it had commissioned a major works programme to ensure compliance with the Scottish Housing Quality Standard (‘SHQS’). Thistle told us that there had been five gas leaks caused during the works in October 2016. There had also been a tenant and resident demonstration and negative media attention because the works programme had been significantly delayed: only 6% of around 700 properties had been finished by the intended November 2016 completion date.

11.

Thistle had not reported the gas leaks or the negative media attention to us and its governing body in accordance with the statutory notifiable events guidance.

12.

We engaged with Thistle to gain assurance about its approach to gas safety, notifiable events and the potentially serious financial and reputational implications of the delay to the major works programme. We identified that the works programme was large-scale and complex, but Thistle’s management of the programme did not recognise the scale or complexities involved.

13.

In February 2017 Thistle told us that it accepted that it had failed to comply with regulatory requirements on notifiable events and confirmed it would commission an independent investigation into its handling of the notifiable events (the ‘Notifiable Events Investigation’). We continued to engage with Thistle and met the governing body in April 2017 to discuss our concerns about its compliance with regulatory requirements, the Regulatory Standards and the Scottish Social Housing Charter (‘SSHC’). Appendix 1 summarises the compliance weaknesses we identified. Taken together, they raised serious concerns about Thistle’s capacity to manage all of the issues and risks it faced.

14.

In May 2017 Thistle provided us with the findings of the Notifiable Events Investigation. The Investigation concluded that there were weaknesses in Thistle’s governance and in its procedures and included a number of recommendations for improvement.

15.

Thistle told us that it acknowledged our concerns and confirmed that it was committed to addressing its weaknesses. Thistle confirmed that it would implement all of the recommendations made in the Notifiable Event Investigation. In view of the seriousness of the matters raised, Thistle planned to commission an independent, comprehensive review of its governance arrangements (the ‘Governance Review’).

16.

During this time we were aware of growing concern from residents and this was reflected in ongoing negative media coverage of Thistle’s management of the major works programme. We met the governing body in June 2017 to discuss how Thistle was managing all of the risks it faced and we set out the assurance we required from the Governance Review.

17.

We suggested Thistle may find it helpful to co-opt additional expertise to its governing body to help oversee the Governance Review and take forward the necessary improvements. Thistle co-opted two people with extensive housing experience to the governing body in August 2017: Stephen Black (Chief Executive, Atrium Homes) and Charlie Millar (Chief Executive, Cassiltoun Housing Association).

18.

It was not until October 2017 that Thistle commissioned the Governance Review. We met the Chair and Senior Officer in November 2017 and sought assurance about progress with the Governance Review and Thistle’s strategy to resolve its weaknesses which now also included addressing a range of quality control issues with the major works programme. The programme was now scheduled to complete in February 2018, 15 months late.

19.

Thistle provided us with the Governance Review in March 2018. This was much later than we had expected given the seriousness of the issues Thistle faced. The Governance Review identified compliance failures across all six Regulatory Standards and that a number of the failures were significant in their own right. It made 61 recommendations for improvement, around half of which were identified as ‘serious and urgent’. Thistle told us at the time that it accepted the recommendations and would take forward the necessary improvements via a Governance Improvement Programme.

20.

We engaged with Thistle throughout the spring and summer of 2018 about its proposals to implement the recommendations in the Governance Review and develop its Governance Improvement Programme. We met the Chair and the two co-optees in June 2018 and discussed the governing body’s response to the review, including whether Thistle had the capacity to deliver the necessary improvements within the timescales it had set (by March 2019).

21.

RSLs need to assure us that they comply with all regulatory requirements. Given our serious concerns about Thistle’s capacity to address the issues it faced and achieve compliance with regulatory requirements, we carried out our own assessment of its compliance. We based this on evidence from our engagement from November 2016 and the findings of the Notifiable Events Investigation, the Governance Review and Thistle’s response to both.

22.

We met with the governing body in July 2018 to set out our assessment and explain our conclusions. We judged that Thistle’s failures to comply with the Regulatory Standards and outcome two of the SSHC (which covers landlords’ communication with tenants and customers) were serious and widespread, demonstrated systemic weaknesses in its governance and leadership and that its governing body and leadership did not understand their respective roles or regulatory requirements and the actions necessary to comply with the requirements. Appendix 1 sets out more information about our assessment.

23.

We advised Thistle that we were considering use of statutory powers of intervention under the Housing (Scotland) Act 2010 (‘the 2010 Act’) and provided Thistle with an opportunity to make representations about our proposals. Thistle confirmed that it accepted the findings and recommendations set out in the Governance Review and that it was committed to improvement. Thistle did however express concerns about the cost of a potential intervention and the risk that its lender would see statutory intervention as a breach of its loan agreement and seek to reserve its rights under the agreement and re-price the loan. Thistle told us that it considered it had the necessary skills, knowledge and experience to address its weaknesses but would welcome some additional support on the governing body.

24.

Throughout our engagement, local residents continued to raise concerns with Thistle and with us about Thistle’s poor communications and management of the major works programme. Thistle’s approach had severely damaged its relationship with local residents and attracted continuing negative media attention. Dealing with the media coverage and resident concerns used a significant amount of Thistle’s resources which would otherwise have been focused on addressing its issues.  The damage to Thistle’s reputation also had the potential to damage the reputation of the sector.  

Why we intervened

25.

The 2010 Act requires us to make regulatory interventions in relation to an RSL’s financial health, governance or performance of housing activities if we judge that it is appropriate to do so in order to protect the interests of tenants and service users and provided the relevant statutory tests are met.

26.

In August 2018, following the lengthy period of engagement described above and Thistle having failed to address the issues it faced, also set out above and in Appendix 1, we judged that it was appropriate to use our powers of intervention to:

• appoint a statutory manager under section 58 of the 2010 Act; and
• appoint five members (including one of the co-optees previously appointed by Thistle) to Thistle’s governing body under section 65 of the 2010 Act for an initial period of six months.

27.

We did this because:

• Thistle’s failures and non-compliance were serious, widespread and they related to all six of the Regulatory Standards as well as outcome two of the SSHC. A number of failures were significant in their own right;
• the extent of Thistle’s weaknesses and non-compliance demonstrated that there were serious weaknesses in its governance. This represented a serious threat to the interests of Thistle’s tenants and service users;
• the scale of improvement work required was significant. Delivery of the Governance Improvement Programme would require extensive and intensive commitment and effort from the governing body and staff, particularly senior staff. It would also require strong leadership and relationship management, open and transparent communication with stakeholders, robust decision-making based on good quality information and expertise in change management including driving cultural change;
• Thistle had itself failed to recognise the extent of its non-compliance and its weaknesses. This gave rise to serious doubts that Thistle had the necessary skills, knowledge and experience to be effective in its oversight of its Governance Improvement Programme;
• the scale of the improvements required urgent action. From our engagement Thistle had not always delivered, or had been very slow to deliver agreed actions;
• we therefore concluded that Thistle did not have the governance and leadership capacity to deliver sustainable change and ensure that improvements were embedded in its organisational culture.

28.

The statutory manager was Mike Hanrahan. He was appointed for six months and his remit was to:

• address the failings in Thistle’s governance identified in the Governance Review (March 2018) and any other governance issues identified;
• oversee the implementation of the Governance Improvement Programme and embed sustainable change in the organisation;
• support the governing body to ensure that Thistle could comply with the Regulatory Standards and outcome two of the SSHC;
• carry out a review to identify the best strategic solutions for Thistle’s tenants and service users; and
• ensure that Thistle’s stakeholders, including its tenants and funders, were kept up to date with progress on addressing the issues that led to intervention.

29.

The governing body appointees were:

• Stephen Black (Chief Executive, Atrium Homes), appointed August 2018 to January 2019
• Michael Clarke (former Chief Executive, Rosehill Housing Co-operative), appointed August 2018 to April 2021
• Bob Hartness (Deputy CEO (Finance) nghomes), appointed August 2018 to April 2021
• Sharon Keenan (Chief Executive, Clydebank housing Association), appointed August 2018 to April 2021
• Kenny Stocks (former Chief Executive, Ardenglen Housing Association), appointed August 2018 to November 2019

30.

The governing body appointees’ remit was to:

• address the failings in Thistle’s governance identified in the Governance Review (March 2018) and any other governance issues identified;
• support the governing body to implement the governance improvement programme and embed sustainable change in the organisation;
• support the governing body to ensure that Thistle complied with the Regulatory Standards and outcome two of the SSHC; and
• support the manager and the governing body to carry out a review to identity the best strategic solutions for Thistle’s tenants and service users.

31.

In November 2018, Thistle lodged a non-statutory appeal against our decision to use our statutory powers of intervention. The Appeal Panel upheld our original decision in November 2018. Thistle decided not to challenge the outcome of the appeal.

32.

We continued to engage with Thistle about its implementation of the Governance Improvement Programme, the serious delays and difficulties in managing the major works programme, its communications with service users and stakeholders and its weaknesses in its approach to complaints handling. We became aware of a number of ongoing serious quality and safety issues in relation to the major works programme, including two reported health and safety incidents involving materials falling off roofs and chimney copes. We also found a level of resistance within the organisation to working effectively with the statutory appointees to address Thistle’s weaknesses, and this was hampering progress with implementing the Governance Improvement Programme.

33.

One of the statutory appointees resigned in January 2019 and we appointed Lawrie West (former Integration Director, Caledonia Housing Association, Senior Interim Manager Consultant) to the governing body (January 2019 to April 2021). We appointed John Mulholland as statutory manager in May 2019.

34.

In August 2019, five of Thistle’s elected governing body members resigned, leaving the governing body at its constitutional minimum of seven members, five of whom were appointees. This was a serious risk to the governing body’s capacity, so we decided to increase the number of appointees on the governing body to nine. The four additional appointees were: 

• John Duncan (former Director of Property Assets, Eildon Housing Association, Development and Property Director, Clyde Valley Housing Association), appointed August 2019 – April 2021
• Fanchea Kelly (Chief Executive, Blackwood Homes and Care), appointed August 2019 – April 2021
• Julie Smillie (Chief Executive, Molendinar Park Housing Association), appointed August 2019 – April 2021
• Bryony Willett (Chief Executive, Maryhill Housing Association), appointed August 2019 – April 2021

35.

The statutory manager and the governing body appointees had begun to uncover further potentially serious compliance failures and historic governance and management weaknesses which had not been recognised or understood by Thistle’s governing body or leadership. Appendix 1 sets out these failures in detail. As a result, we amended the statutory appointees’ remits in August 2019 to include addressing the weaknesses and failures in Thistle’s management of matters relating to the health and safety of its tenants and other service users. The statutory manager and governing body appointees supported Thistle to ensure it achieved compliance with urgent health and safety requirements. Thistle commissioned urgent asbestos and legionella surveys in August 2019, approved a comprehensive compliance strategy and action plan in October 2019 and appointed interim compliance expertise to oversee implementation of the strategy. 

36.

In recognition of the scale and complexity of its problems, the statutory manager and governing body appointees supported Thistle to appoint an Interim Director and expert strategic asset and compliance support in August 2019. Thistle’s Director left the organisation in September 2019. Two new elected members joined the governing body in September 2019 and a statutory appointee was elected Chair.

37.

Thistle completed the independent review to establish the best strategic solutions for its tenants and service users in October 2019 (the ‘Strategic Review’). The Strategic Review concluded that Thistle’s business plan was not viable or sustainable in the short, medium or long term and offered no contingency against risk. Thistle decided that the interests of its tenants and residents would best be served by a transfer of its homes to another RSL. We amended the statutory manager and governing body appointees’ remits to include supporting Thistle to develop a strategy to transfer its homes to another RSL.

38.

One of the statutory appointees resigned in November 2019.

39.

By this time Thistle was almost wholly reliant on the statutory appointees and other external support to maintain effective governance, without which it did not have the leadership and management capacity, skills or resources to achieve compliance with Regulatory Standards and requirements.

Transfer of Thistle’s homes to Sanctuary Scotland

40.

With this support, Thistle progressed its transfer strategy and in January 2020 sought expressions of interest from a transfer partner. Thistle’s transfer partner criteria included the provision of urgent leadership, asset and compliance support. Following an open selection process Thistle decided to progress plans for a transfer of its engagements to Sanctuary Scotland in February 2020.

41.

From March 2020 Sanctuary Scotland supported Thistle through a Service Level Agreement to ensure that Thistle could continue to address its weaknesses, develop a joint transfer proposal, and respond effectively to the implementation of Covid-19 restrictions (the latter from late March 2020). Sanctuary Scotland supported Thistle to commission a robust quality assurance survey of all of the works completed during the major works programme in order to establish the nature and cost of all required remedial works. From this point, Thistle was entirely dependent upon the support of Sanctuary Scotland to continue to operate and provide services to tenants and residents throughout the Covid-19 pandemic.

42.

The remaining four elected governing body members resigned during summer 2020. Thistle’s governing body then comprised eight members who were all statutory appointees. Thistle was now entirely reliant on the support of the statutory manager and governing body appointees to continue to function.

43.

The governing bodies of Thistle and Sanctuary Scotland approved a joint transfer business case in August 2020.

44.

In September 2020 Thistle held a Special General Meeting (‘SGM’) to consider updating its rules to the new ‘Model Rules for RSLs’ which permit business to be conducted virtually. Some members used the SGM as an opportunity to voice their concerns about the major works programme, and as a consequence Thistle was unable to secure the required level of approval for the rule change at the SGM.

45.

Following a comprehensive consultation programme and an independent ballot of tenants in October 2020, 92% of tenants on a 70% turnout voted in favour of the transfer to Sanctuary Scotland.

46.

In October 2020 we reviewed and extended the appointment of the statutory manager and eight statutory appointees until April 2021 to enable delivery of the transfer to Sanctuary Scotland.

47.

Despite the positive ballot result, Thistle's governing body was concerned that following the unsuccessful SGM, it may not be possible to secure the required member approval for the transfer and as a result there may be a significant delay to the transfer. This would be against the wishes of Thistle’s tenants. Thistle therefore requested that we consider using our statutory powers under section 67 of the 2010 Act to direct the transfer of all of Thistle's assets to Sanctuary Scotland.

48.

Our statutory objective is to safeguard the interests of tenants and service users. We considered that any further delay to the proposed transfer would not be in the interests of Thistle’s tenants and service users. We decided that it was appropriate to use our powers under section 67 to direct a transfer of Thistle’s assets to Sanctuary Scotland, having made inquiries and determining that the statutory conditions had been met as:

• there had been mismanagement in Thistle’s affairs;
• Thistle’s viability was in jeopardy for governance reasons;
• Thistle could not provide housing services to an acceptable standard; and
• the transfer of all of Thistle’s assets to Sanctuary Scotland would improve their management.

49.

In accordance with Section 67 we consulted with, and took account of the views of, Thistle’s tenants, residents, its secured creditor and the Office of the Scottish Charity Regulator (‘OSCR’). The overwhelming majority of tenants and residents who responded to our consultation supported the directed transfer proposal. Thistle’s lender (its only secured creditor) also confirmed its support and OSCR confirmed that it was content that the charitable purposes of Thistle and Sanctuary Scotland were the same. We were therefore satisfied that Sanctuary Scotland would secure the proper application of Thistle's assets for the purposes that were set out in Thistle's entry in the Scottish Charity Register.

50.

Having considered the positive outcome of the consultation, the views expressed by the consultees and all other material considerations, we concluded that the requirements of section 67 of the 2010 Act were met and used our statutory powers to direct Thistle to transfer all of its assets to Sanctuary Scotland by 1 March 2021.

51.

The transfer to Sanctuary Scotland was completed on 1 March 2021 and we removed Thistle from the Register of Social Landlords on 26 April 2021.

52.

The serious, wide-ranging and complex issues Thistle faced, alongside the governing body and leadership’s failure to recognise the extent of its weaknesses and work co-operatively with the statutory appointees and ourselves to put things right, resulted in one of our longest and most complex statutory interventions. Appendix 2 summarises our engagement from November 2016 and our 33-month statutory intervention from August 2018 to April 2021.

53.

Thistle met the costs of the statutory managers’ services and expenses during the intervention period (£354,773). The two co-optees and nine statutory appointees to the governing body gave their time voluntarily over the 12-month co-option and 33-month intervention periods. Their collective skills, knowledge and expertise ensured that Thistle was able to address its serious and urgent weaknesses, continue to deliver services to tenants and residents and deliver a successful transfer to Sanctuary Scotland and this was at no additional cost to tenants and residents.

The positive outcomes from intervention

54.

The transfer secured the following positive outcomes for Thistle’s tenants and residents:

- improved management by a landlord and factor that complies with Regulatory Standards and requirements.

- a range of transfer commitments including:

• ensuring full compliance with health and safety requirements;
• development of a comprehensive asset management strategy, including bringing forward a range of improvement works to homes, with £11 million investment in years 1-3 compared to the £3.6 million planned by Thistle;
• fully resolving the outstanding issues relating to the major works programme and related asbestos removal work;
• ensuring compliance with the Scottish Housing Quality Standard;
• improving rent affordability with a 3-year rent cap;
• delivering a range of environmental improvements and other new local services; and
• retaining a local presence.

55.

Sanctuary Scotland commenced delivery of its commitments in relation to urgent health and safety compliance and resolving the major works programme issues prior to the transfer taking place in order to protect the health and safety of tenants and residents.

56.

Following transfer, we continued to engage with Sanctuary Scotland about progress with the integration of Thistle into Sanctuary Scotland and with the delivery of the transfer commitments. 

Appendix 1 - Thistle’s non-compliance with Regulatory Standards and requirements identified: April 2017, August 2018 and post-August 2018

Appendix 2 - Engagement and intervention timeline