For-profit RP that houses key workers breaches economic standards

The RSH began the investigation following a review of Auxesia’s latest financial statements for the year ending on 30 September 2021. This disclosed an insolvent balance sheet and significant capital commitments.

 

The regulator found there were “several liquidity pinch points” that led the for-profit to seek additional capital in the short term.

 

It said that, to meet this requirement, Auxesia was reliant on a significant sale of rental assets to another registered provider.

 

At this stage, the provider had limited capacity within its finance function, and the systems in place were not adequate to provide financial information, over a sufficient timeframe, for the board to accurately assess its short-term funding requirements, the regulator said.

 

Auxesia had no contingency plans in place to identify alternative sources of funding should the asset sales be delayed or fail, and independent advice showed limited options were available for alternative funding.

 

The RSH found that the pinch points were foreseeable and other options may have been available if the board had acted sooner.

 

The regulator said the liquidity issue was averted as Auxesia secured an additional facility from Matter Real Estate. This is the manager of the fund that represents Auxesia Lux SCSp, the majority shareholder which provided the funding via its subsidiary, Auxesia FinCo SARL.

 

However, an emergency waiver was required from one of Auxesia’s other funders in order to complete this transaction, the regulator said.

 

The regulator said: “While this was eventually obtained, and the new facility has eased the immediate liquidity pinch point, this has highlighted deficiencies with the effectiveness of the governance arrangements and the robustness of the information the board is receiving to inform its decisions.”

 

The regulator said business planning and risk management frameworks “failed to ensure that the board were in receipt of accurate information to allow it to proactively manage its key risks and to put in place effective mitigations”.

 

Auxesia’s stress testing was also “underdeveloped” and did not cover some of its key risks, it added.

 

The regulator has concluded that Auxesia has failed to demonstrate that it has an appropriate, robust and prudent risk and control framework in place.

 

The RSH said: “Auxesia has failed to assess, manage, and address risks to ensure the long-term viability of the registered provider including ensuring social assets are protected by carrying out detailed and robust stress testing, and before taking on new liabilities, ensuring it understands and manages the likely impact on current and future business and regulatory compliance.”

 

This lack of effective board oversight and management of its key risks was a “fundamental failure of governance”, it found.

 

As a result, the RSH has concluded that the Auxesia board has not been able to demonstrate that it is managing its affairs with an “appropriate degree” of skill, independence, diligence, effectiveness, prudence and foresight.

 

It said that Auxesia’s board has acknowledged the regulator’s concerns and has put forward a plan of proposed improvements.

 

This includes working with external consultants to identify additional board members, appointing a new permanent finance director, and improving its approach to financial monitoring and reporting.

 

The RSH welcomed the board’s commitment to address the issues and obtain independent assurance that any improvements are effective.

 

The regulator said it will keep any further action, including whether to exercise any of its powers, under review.

A spokesperson for Auxesia Homes said: “The Auxesia board has acknowledged the regulator’s concerns and has put forward a plan of proposed improvements which seeks to strengthen the governance arrangements in place, and to develop enhanced financial monitoring and reporting.

 

“The regulator has welcomed the board’s commitment to addressing these issues. In the meantime, Auxesia Homes will continue to work to ensure the provision of high-quality, affordable homes across the north of England.”

 

As Auxesia Homes has fewer than 1,000 units, it is classed as a small provider by the regulator and does not have governance and viability grades or receive regulatory judgements.

 

Instead, like in this case, the RSH publishes a regulatory notice where it has evidence that a small provider is not meeting the regulatory standards.

 

Auxesia is not the only for-profit to be the subject of an RSH investigation. In July, Heylo Housing was placed on the regulator’s gradings under review list, as it is being investigated over its governance.