The primary Registrar of a community housing provider assesses the provider’s suitability to be registered, and monitors the provider’s ongoing compliance with the National Law, including the performance requirements of the National Regulatory Code.
To make these assessments, the primary Registrar needs to consider the registered provider in light of its relationships with other persons or entities, where those relationships could materially affect its community housing activities. This Guidance Note refers to these persons or entities as “affiliated entities”, and to the relationships or arrangements between them and the provider as “affiliated entity arrangements”.
Affiliated entities can be entities related to the registered provider as a result of a corporate relationship (e.g. a related body corporate), as a result of a contractual relationship (e.g. a service provider), or otherwise. The key element is the potential for the relationship or arrangement to have a material effect on the provider’s ability to comply with its obligations under the National Law.
The purpose of this Guidance Note is to assist community housing providers in determining:
Specific requirements arising from affiliated entity arrangements, including corporate governance requirements and risk management requirements.
Affiliated entity arrangements are relationships or arrangements between a community housing provider and other entities or individuals.
Registrars will consider affiliated entity arrangements when exercising their functions under the National Law, and in particular when exercising a power referred to in Section 2 of this Guidance Note. When considering affiliated entity arrangements, Registrars will look at the substance of the relationship rather than its strict legal status.
Registrars are aware that affiliated entity arrangements potentially cover a very broad range of relationships and activities. The primary Registrar will have regard to affiliated entity arrangements only where the Registrar considers this necessary, and in a manner that is appropriate to the assessed level of risk of non-compliance.
Registrars have a regulatory interest in affiliated entity arrangements where, in the Registrar’s opinion, those arrangements either have a material impact on, or potentially have a material impact on, a matter which is relevant to the Registrar’s exercise of its functions and powers under the National Law. This will include a community housing provider’s affiliated entity arrangements which have a material impact, or may have a material impact on the ability of the community housing provider to comply with its obligations under the National Law.
When determining whether an affiliated entity arrangement is material, the primary Registrar will focus on whether the affiliated entity arrangement gives rise to, or may give rise to, any of the following five risks. When assessing whether these risks arise, the primary Registrar will examine the affiliated entity arrangement in the context of the affairs of the community housing provider as a whole, and may also consider circumstances which apply to the community housing sector as a whole.
The risk that the community housing provider is not adequately governed to support the aims and the intended outcomes of the provider’s obligations under the National Law.
For example, the provider’s governance controls do not appropriately address conflicts of interest, or potential conflicts of interest (e.g.the decisions of a community housing provider are unduly influenced by a director who is a nominee of a related entity, or a staff member of the provider is also a director of an entity doing business with the provider).
The risk of an adverse effect on the community housing provider’s financial position. For example, a registered community housing provider enters into a joint venture with an affiliated entity (which may, or may not be related to community housing activities) and the failure of that joint venture would have an adverse effect on the financial position, or viability, of the community housing provider.
The provider’s financial position is particularly important, given that one object of registration under the National Law is to identify appropriate entities to which government funding for community housing might be provided under state or territory legislation.
The risk that an affiliated entity arrangement, or a failure to adequately control that arrangement, may adversely affect the provision of tenant and housing services by the community housing provider.
For example, a community housing provider outsources management of some of its community housing assets to another entity. The provider does not maintain sufficient control over that function, and the other entity does not manage those assets in a way that is consistent with the community housing provider’s responsibilities under the National Law.
The risk that an affiliated entity relationship or arrangement results in damage to the community housing provider’s reputation, or to the reputation of the community housing sector. This reputational damage may result from actual impropriety or breach, or from a perception that this has occurred.
For example, the community housing provider may have a subsidiary which engages in fraudulent activities and this may result in a perception that the provider is involved in, or had knowledge of those activities.
The risk that the inter-relationships between community housing providers and other community housing providers, either directly or as a result of arrangements with affiliated entities, are such that the realisation of a risk in one area will have systemic effect on the community housing sector as a whole.
For example, a number of large community housing providers all outsource the management of their community housing assets to a single entity. If that entity fails, there will be a disproportionate effect on the sector as a whole.
The primary Registrar may request information on an affiliated entity relationship in order to assess whether the relationship is material. For example, the Registrar may wish to have information on all entities with which the provider has a particular relationship (or with which it may potentially have that relationship) so that it can determine whether that relationship is sufficiently material to impose special conditions on it.
The primary Registrar will make an assessment of whether an affiliated entity arrangement is material on a case by case basis as it considers necessary to fulfil its regulatory functions under the National Law.
Affiliated entity arrangements which are of interest to the primary Registrar commonly arise in three situations.
Entities that are part of a community housing provider’s corporate group, and entities with which a provider jointly carries out significant activities (for example, under a partnership or joint venture), are affiliated entities of the provider.
The number of community housing providers that are part of a corporate group is increasing, as is the number of providers entering into joint venture or partnership arrangements related to their community housing activities. Group structures, joint ventures and partnerships in the sector now operate across Australian jurisdictional boundaries and across international boundaries.
The reasons for community housing providers establishing or entering these arrangements are predominantly to:
Group structures include related bodies corporate such as subsidiaries and holding companies. They also include other entities associated with the community housing provider in this way, including:
A community housing provider’s affiliated entities also include any person who controls the provider, or is otherwise in a position of significant influence in relation to the provider.
A person controls the provider if they have the capacity to determine the outcome of decisions about the provider’s financial and operating policies. In determining whether a person has this capacity, the practical influence the person can exert (rather than the rights it can enforce) is the issue to be considered and any practice or pattern of behaviour affecting the provider’s financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust). The notion of ‘control’ is interpreted by the Registrars in a manner that reflects section 50AA of the Corporations Act 2001 (Cth).
A provider’s majority shareholder and its officers (and those of any entity that controls the provider) are assumed to be in positions of significant influence in relation to the provider. A person is also in a position of significant influence if the provider’s directors are accustomed to act in accordance with the person’s instructions or wishes (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the provider), if they make or participate in making decisions that affect the whole or a substantial part of the provider’s operations, or if they have the capacity to affect significantly the provider’s financial standing or its compliance with the National Law.
Entities to whom a community housing provider has outsourced a material activity are also affiliated entities of the provider. Outsourcing involves a provider entering into an arrangement with any other person to perform, on a continuing basis, a material activity that would otherwise be carried out by the provider itself, and that is relevant to its performance of its obligations under the National Law.
The outsourcing arrangement may be with a person that is already related to the provider (e.g. a group member) or it may be with a person who is otherwise independent of the provider.
Disclosure of affiliated entity arrangements must be made in writing. The disclosure must be supported by documents or materials which:
The onus is on providers to disclose affiliated entity arrangements, both at registration and on an ongoing basis. Failure to disclose material arrangements on application for registration is grounds for rejecting an application for registration. A failure to comply with ongoing disclosure obligations constitutes non-compliance with the National Law.
Providers should have regard to the Evidence Guidelines in determining their disclosure obligations in relation to affiliated entity arrangements.
Information on affiliated entity arrangements will include information on the following types of arrangements.
Details of any person (other than a related body corporate or officer of the provider, details of which have otherwise been provided) who controls the provider or is in a relationship of significant influence with the provider, and the nature of that relationship
Details of any other affiliated entity arrangements that are relevant to the exercise by the primary Registrar of its functions under the National Law, or that may impact on the provider’s compliance with the National Law.
Providers must comply with the ongoing disclosure obligations under the National Law, and with any additional standard condition made under section 15(3).
Each registered community housing provider must notify the primary Registrar:
Disclosure is not required prior to entry into the affiliated entity arrangement, unless the specific disclosure provision requires earlier disclosure (for example, the provider makes a decision to conduct a vote at a meeting on a matter that could affect the provider’s eligibility to be registered or its category of registration (section 15(2)(h)(iv)).
If a community housing provider is unsure about whether an affiliated entity arrangement is material and should be disclosed, or when the disclosure should be made, the provider is encouraged to contact its primary Registrar as soon as possible to discuss any issues arising. Where a provider does not have the opportunity to discuss the matter with the Registrar, but is in doubt about the materiality of the arrangements, the provider should disclose the arrangement to the primary Registrar.
22 Jul 2022
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