Beyond establishing any new authority, the LGR process will demand a substantial investment of time and resources to ensure the smooth transfer of day-to-day operations and minimise any impact on service delivery. 

In this series 'LGR practicalities', we break down the practical realities of LGR and how to approach dealing with it - looking at contracts, procurements, property and ongoing litigation.

In this Passle, we focus on the impact on local authority companies when LGR is taking place.

Whether it is concerned with trading, service provision or is simply a vehicle to hold assets, a company (and we use that term to cover a variety of different legal structures) is a legal entity in its own right and it will not simply dissolve on the dissolution of its owning local authority(ies) on vesting day. 

In the case of a continuing authority, the interest in any entity will transfer to (or remain with) the continuing authority. Where there are new authorities, it will be essential to ensure that a section 16 agreement deals with this transfer.

Authorities must examine and evaluate every entity in which they hold an interest to determine:

• the nature and extent of the interest;
• the business the entity undertakes;
• the governance of the entity;
• how that business interacts with the authority’s functions;
• the risks, liabilities and rewards (e.g. profit distribution) that relate to the interest;
• any contracts (including loans/funding arrangements) between the authority, other owners and the entity; and
• whether the entity has a role moving forward.

Just as with contracts, the continuing or new authority needs to be armed with the information to know what, if anything, needs to happen before vesting day and then how to engage with the entity post vesting day.

If possible, consider dissolving or placing into dormancy entities that will not be needed post vesting; though we accept this is likely to be aspirational, given the competing demands and will only be progressed if there is a compelling reason.

The predecessor and continuing or new authority should be engaging ahead of LGR with the entity and any other partners/owners, just as they would with their contractors. This ensures all parties are informed and understand the implications of LGR in their area and how it affects them.

Whilst vesting will occur, it is important to consider the company law practical implications and if possible, take steps to comply before vesting day. In the case of a share company, this should include executing a stock transfer form for zero value to take effect on vesting day. For a company limited by guarantee, the existing authority member needs to resign and the new authority apply for membership, all to take effect from vesting day. In both situations, providing the SCO as support. All company registers need to be updated and any filing taken care of.

If there are shareholder/member agreements, loans and other contracts, then consider formalising the change with novations so that there is a clear document trail.

Post-LGR (although the discussions may start sooner), consider reviewing the governance, funding and operational arrangements of the company to ensure they reflect what the new authority wants. Depending upon who the previous owners were, LGR might result in fewer owners (if multiple authorities have dissolved) or more owners (e.g. a county-owned company becomes owned by two unitaries). In either scenario, the governance arrangements will need review and refreshing. 

The transfer of functions is effected by statutory transfer, but as our blog series demonstrates, there is a lot of due diligence and thought needed about how services will be delivered post vesting day to be able to implement LGR successfully. It can be a daunting task and one that has to take place in a short time period to ensure effective transfer. 

How we can help

Our team at Anthony Collins is well versed in the issues arising from LGR and can assist authorities (whether predecessor, continuing or new) with the process, including due diligence and implementation. Please contact us for more information.