To consider proposals including exempt information regarding the next steps for the Pathway for Care company.
The observations and comments from the Overview and Scrutiny Committee from its meeting on 15 March 2018 will follow as an Addendum.
Minutes:
Councillor Mrs R. Mill, Executive Member for Leisure and Wellbeing, explained that the report, and information set out in Addendum 1 and Addendum 2 (tabled at the meeting), set out proposals in relation to the future structure and ownership of Pathway for Care.
Councillor Mrs Mill advised that the Council had established Pathway for Care in August 2016 to offer a better care service to local residents, particularly those paying privately, by using new digital technology to help customers maintain happy, healthy and independent lives.
The Executive noted that as a new venture, the company had required investment. Councillor Mrs Mill explained the Council had provided funding in the form of the loan which had increased over time to £1.1m. Due to lower than anticipated income within the company during start-up it was noted that the company had fully drawn down the loan.
Councillor Mrs Mill advised that the company had diversified into supported living, providing high quality services in Horley and that this, together with interest from health and social care organisations for the digital care service, provided a positive outlook for future growth. However, it was noted that the company required further investment in order to maintain and grow the business. The Executive Member commented that there was no support for increasing the Council’s loan to the company, and that as a result the Directors had sought external investment.
The Executive noted that the report, and information contained in Addendum 1 and Addendum 2, set out proposals for securing two significant investments and to separate the supported living and digital businesses. The report also set out relevant statutory powers, legal, financial and equalities implications, risk management and other considerations, consultation undertaken and policy framework factors.
Councillor Mrs Mill advised that on 15 March 2018 the Overview and Scrutiny Committee had considered the draft Executive report on the next steps in relation to Pathway for Care. The Executive Member attended this meeting and thanked the Committee for their time in reviewing the proposals.
In response to the Overview and Scrutiny Committee’s comments, and in view of ongoing negotiations, it was noted Addendum 1 and Addendum 2 provided all Councillors with additional information. This included:
· A summary of the discussions, updates, and changes that had been made to the Executive report in relation to the proposals.
· An extract of the minutes from the Overview and Scrutiny Committee.
· Financial information relating to Pathway.
· A summary of the terms of the share transactions.
· Additional recommendations for the Executive’s consideration in relation to the points addressed by the Overview and Scrutiny Committee.
Councillor Mrs Mill explained the recommendations before the Executive proposed for the Council to split the company and to sell its majority stake in each to external investors. It was noted that a complete set of recommendations had been set out in Addendum 2 (to take account of the additional recommendations arising from the Overview and Scrutiny Committee’s consideration of the report).
The Executive Member concluded by stating that the proposals, whilst not how the Executive envisaged the company developing, presented a positive step for growing the business, expanding the quality of the service offered to local residents, and generating future revenue income and capital returns for the Council.
During the discussion a number of issues were considered, including:
· Shareholding arrangements for the new company.
· Accounting treatment and implications.
· The company’s finances and balance sheet.
· The inclusion of a repayment of a debt financing arrangement, where the Council would provide short term lending against invoices.
· Assets in relation to digital monitoring.
· The importance of safeguarding the Council’s interest in the companies
· The Council’s liabilities.
· The fact a number of individuals were either benefiting from, or scheduled to benefit from, services provided by Pathway for Care.
· The importance of considering lessons learned from the experience with the company, ensuring input from both Members and Officers.
· The importance of keeping all Councillors informed as transactions for both the sale of Pathway for Care and the incorporation / other actions for the Pathway Digital Company progressed.
In view of the Companies Act 2006, issues were considered in relation to the Council’s current and future representation on company boards to allow for the Council’s Executive and Committee’s to be fully advised. It was highlighted that the legal duties of a company and a Local Authority were very different.
The importance of pre-decision scrutiny was recognised. It was noted, in response to comments from the Overview and Scrutiny Committee and ongoing negotiations, that a number of issues had been highlighted for further consideration. These were set out in the report, Addendum 1 and Addendum 2.
During the discussion it was also identified, as highlighted in the minute from the Overview and Scrutiny Committee, that the restructured Pathway for Care company expected to have a more significant asset base. It was noted that this would improve the security of the Council’s investment, although it was recognised any assets may also be subject to charges from lenders.
In response to questions about the proposed review, concerning the Council’s experience with the company, it was noted that this would be led by the Council’s Monitoring Officer. Clarity was provided on both the functions of the Monitoring Officer, set out in the Council’s Constitution, and the role of the Monitoring Officer as the lead officer for the review. It was noted that the scope of this review, with the support of a Member Working Group, would be confirmed in due course.
The Executive was informed that in the event transactions to secure investment in the digital company were unable to proceed before or on the same date as Pathway for Care transactions, the Council would provide a loan of up to £15,000 to fund working capital of the digital monitoring company to continue operating whilst investment was finalised.
It was noted that the Mayor had authorised the disapplication of the Call-In procedure as this item was considered urgent under the Council’s procedure rules.
Note: Councillor V.W. Broad, Leader, and John Jory, Chief Executive, both left the room for the consideration of this item.
RESOLVED that:
(i) The Council purchase the remaining shareholding in Pathway for Care from T7 Group for a nominal value set out in the report;
(ii) The Council receive 1,100,000 redeemable preference shares in Pathway for Care in exchange for the debt currently owed to the Council and the Finance Director be authorised to complete this transaction;
(iii) The proposal to split all activities of Pathway for Care into 2 companies (the existing company Pathway for Care and a new digital monitoring company) and secure external investment for these companies be supported;
(iv) The proposal for the Directors of Pathway for Care to transfer appropriate assets, contracts and liabilities to the digital monitoring company be noted;
(v) The Council subscribe for 80% of the digital monitoring company ‘B’ shares representing 40% of the digital monitoring company’s share capital;
(vi) The Finance Director be authorised, in consultation with the Executive Member for Finance and the Head of Legal, to agree the terms of, finalise and sign all documents required to complete the purchase and sale of shares as set out in the report and summarised as follows:
i. Purchase of Pathway for Care shares from T7;
ii. Sale of 70% of Pathway for Care shares to private sector investor;
iii. Sale of 10% of Pathway for Care shares to Director A;
iv. Sale of 10% of Pathway for Care shares to Director B;
v. Subscription for 80% of the digital monitoring company ‘B’ shares representing 40% of digital monitoring company’s share capital;
(vii) Subject to advice from the Head of Legal and Finance Director, the Deputy Leader of the Council be mandated to make all shareholder decisions required to complete the transactions set out in the recommendations of this report, including:
i. Any new shareholder agreements
ii. Any new Articles of Association
iii. Any new Director appointments
iv. Any other matters reserved for shareholder consideration
(viii) In the event that the transactions to secure investment in the digital monitoring company are not able to proceed before or on the same date as Pathway for Care transactions, the Finance Director, in consultation with the Deputy Leader of the Council and the Head of Legal, be authorised to:
i. Establish appropriate corporate governance structures for the digital monitoring company, including Articles of Association and Shareholder Agreement
ii. Determine any shareholder decisions as required
iii. Appoint Directors to the digital monitoring company for the purpose of finalising and agreeing investment
iv. Provide a loan of up to £15,000 to fund working capital of the digital monitoring company to continue operating whilst investment is finalised
In order to support the completion of Pathway for Care transactions. If these actions are required, the Head of Finance provide a report on options for the digital monitoring company to the next meeting of the Executive.
(ix) The comments of the Overview & Scrutiny Committee be noted and in particular the suggestion to consult with Members and Officers to consider the lessons learned from its experience with the company;
(x) The Overview & Scrutiny Committee be thanked for their thorough consideration of the report; and
(xi) The Monitoring Officer be requested to review the Council’s experience with the company as part of a wider governance review, with the support of a Member Working Group.
Reasons for decision: The Council, as majority shareholder, must agree any investment proposals and changes to share ownership that result.
Alternative options: To reject the recommendations, and for the Council to retain majority ownership, and either increase the loan to Pathway for Care or reject the recommendations with no increase or delay making a decision to enable further negotiations.