REG - Inland Homes PLC - Update on related party matters

Inland HomesAnnouncement

24/07/2023 14:00

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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 £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: 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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