HCA downgrades Cosmopolitan's viability status as Riverside merger in doubt
Published by Max Salsbury for 24dash.com in Housing and also in Central Government, Communities, Regulation
The proposed merger between Cosmopolitan Housing Group and Riverside is now in doubt - on the day that the HCA's Regulatory Judgement downgraded Cosmopolitan's governance and viability status.
In a joint statement, the two housing providers said that "negotiations are making progress" and that they are currently in a "detailed phase of due diligence, considering the implications of the complex commercial leases in Cosmopolitan Student Homes".
Meanwhile, the HCA said that its downgrading of Cosmopolitan's status reflected "serious problems with its governance, risk management and financial position. These in turn reflect major shortcomings, including a failure to recognise and manage operational risks, an overly ambitious approach to development and the emergence of failures in internal control dating back some years".
The housing associations' joint statement continued: "Riverside wants to reach a position where it can merge with Cosmopolitan for the sake of all tenants involved. However, it will not put at risk its core business. We’re working very hard to achieve that position and believe that a union between the two organisations is the best possible outcome, but only provided appropriate commercial terms can be agreed.
"Due to the complexity of the situation we have not set a firm target date for the merger, preferring instead to take the time required to reach the right solution for all parties. While a merger before Christmas is not impossible, our horizon is now moving into the early New Year.
"Separately, while the negotiations with the lenders to our social housing businesses are not complete, we have been impressed by their generally constructive approach so far."
Riverside's chief executive, Carol Matthews, and Cosmopolitan's chief executive, John Denny, said: “We are very much at the table on the detail of this deal. The sale and leaseback leases are complex, and we need to achieve a balance which is fair to all parties and which recognises the potential risk to hundreds of millions of pounds of public money. Cosmopolitan and Riverside are working closely with the regulator. We’ve made good progress so far, and we remain positive and committed to finding a resolution.”
In December 2011, Chester and District Housing Trust became a subsidiary of the Cosmopolitan Housing Group.
The HCA said that post-merger, insufficient priority was given to the Group Board reviewing existing strategies or previous decisions, placing it in a position where it exercised inadequate control over the direction of the organisation and was unaware of the considerable risks it faced.
Read the full judgement here.