Agenda item

The ADM Project Team – Finance Lead provided a presentation.  Gayle Monk, Anthony Collins (Solicitors), was available to answer questions from Committee Members.

A Member asked if there was confidence that HMRC wouldn’t criticise this arrangement as a tax avoidance scheme.  It was confirmed that there is confidence that it is not the intention behind this structure as there are other good reasons unrelated to tax, noting that there has been recent scrutiny of local authorities and public bodies to ensure that they are not avoiding tax.  The intention behind the two vehicles is to work in a way that is appropriate for the services that will be delivered.  The charity is tax efficient but appropriate for genuinely charitable services delivered for public benefit. The Teckal part enables a company structure to change culture and change the way services are delivered but in a way that is in line with the procurement rules. 

The Member noted that there is jointly chaired senior management instead of separate management for each entity for tax and legal reasons.  Clarification was provided that the intention is to ensure there is consistency in service delivery recognising that when the charity is set up, the key delivery vehicle will be the grant funding agreement. It was speculated that in the future that the charity, being independent from the council, may separate out. 

The Member expressed concern that it could appear to be a group structure or holding company and it could be asked what its purpose is - potentially leading to an answer of tax.  He suggested separate management for each side. He asked if the cost of governance been explored.  It was explained that there is an additional post built into the Company Secretary role for both companies and additional support in terms of democratic support in the authority and externally.  Trustee expenses have also been taken into account and it is believed that there is enough capacity within existing structures to deliver.  Some central support is sought as well.

The Member added that the cost of running dormant companies is expensive and it may be prudent to set up the minor companies later to save the cost until needed.  It was agreed that advice would be sought accordingly.

A Member asked a question about the articles of association; the assets for the charitable arm e.g. Caldicot Castle, Tintern Station etc. and if there would be a  trading arm for buying into the assets.  It was clarified that the Nelson collection is considered to be part of Monmouth Museum.  It was questioned which physical assets will be owned by the charity and clarified that the assets will remain in the ownership of the county.  The companies will run the services on behalf of the authority.  The new companies will not be in a position to buy assets.  There will be negotiation with the Council around leasing agreements making clear that the ADM will not be able to sub-let without the permission of Council. 

It was questioned why they had been classed as an asset if they are in the ownership of the Council.  The Cabinet Member agreed that the articles of association could convey the impression that the assets would be transferred to the company and suggested that this point needs to be addressed.  It was explained that the proposal is that the council would lease the asset to the charity.  The lease would be an asset of the charity.

A Member questioned the leasing aspect and asked for assurance that residents will retain access to the Country Park.  It was confirmed that there will no change for residents. 

The Member asked about the Teckal company and scrutiny arrangements.  It was responded that there was an expectation that the Teckal company will visit relevant select committees e.g. for statutory services, the same as any executive function.  It was added that there will be a management agreement in place to add to the annual monitoring process.

The Chief Internal Auditor noted that this arrangement is within a public sector environment and questioned the statement that, in terms of governance and strategic association, a shareholder agreement will be used “to avoid transparency”, and questioned why this is necessary.  It was responded that the intention is not to avoid it being a public document but to make it a more flexible arrangement as it is a more straightforward process to change a shareholder’s agreement than to change the company’s articles of association.  The shareholder’s agreement can be made a public document.

In response to a question, it was explained that implementation will be in December as long as all the documentation is in place.

A Member asked if all the entities will be VAT registered and it was confirmed that they would have separate VAT registrations.

The recommendation was for Members to reassure themselves that the draft Governance arrangements for the ADM are as expected and are satisfied with the process to date was accepted subject to the amendments arising from comments today.  The Recommendation was approved.