Will shareholder incentive survive rewrite of business plan?

In a document entitled ‘Sutton Education Services New traded services offers for Maintained Schools and Academies Autumn 2016 to Summer 2017’,  issued by Sutton Council, it specifies that schools and academies that are members of the joint venture company will be charged slightly less than those that are not.

For example, the cost of a session for Educational Psychologist support is set out at £247 per session for the member organisations and £285 for the non-member organisations.

When Sutton Council was working to launch its latest company, now called Cognus Limited, offering a discount to schools if they signed-up as shareholders, was perhaps considered an incentive to become part of the new enterprise.

It is not clear what influence this offer had on potential shareholders; around 30 schools and academies expressed an interest in the company and around two thirds actually paid up the £10 and signed the documentation.   But some people within the education community in Sutton were not convinced that the offer was sustainable for the company from an economic and marketing standpoint.

What emerged at the Sutton Shareholdings Board held on 20 September 2017, is that the newly appointed Managing Director will be re-working the business plan to be more realistic.  This begs the question whether the offered discount for shareholder schools will survive the rewrite, or whether, in order to deliver a credible business plan, and maintain market competitiveness, the company will have to charge all schools and academies the same rate for services offered.

New Business Plan needed

At the meeting of the Sutton Shareholdings Board held on 20 September 2017, the issue of the quality of the business plan for Sutton Education Services Ltd, now called Cognus Limited, was raised.

One interpretation of Sutton Council’s approach to the establishment of this new Council Company is that it was launched too quickly and that the business plan was too optimistic.  This is very much the view of Cllr Garratt.  Now it falls on the new Managing Director, Tracey Burley, to work up a new plan which more reflects what schools can afford.

It has been reported to Sutton the Inside that Tracey Burley gave a good performance at the meeting, coming across as credible and realistic.  Good thing since she clearly has her work cut out as she and her team unravel the fiasco over the B Shareholders, build relationships with the Sutton education community and rewrite a business plan.

Cllr Neil Garratt, Deputy Leader of the Conservative Group and member of the Sutton Shareholdings Board said:

The Council cared more about shoving this off its plate and getting someone else to deal with it, than making it work. So they hoofed it out the door with blind haste mid-year and no realistic plan; without even pausing to get the basics right. A year on, and the company still isn’t properly set up.

The new management is having to fix the legal problems and write a new, realistic business plan all while dealing with significant financial losses they inherited.  I hope they can make a success of it, and if they do it will be more in spite of the Council than because of it.”

Councillors got update on status of B Directors

At the meeting of the Sutton Shareholdings Board held on 20 September 2017 the issue of the status of the B Directors of the Sutton Council company, Sutton Education Services Ltd (now called Cognus Limited), was raised.

Sutton the Inside understands that the committee was told that the Council did not know whether the B Directors had been properly appointed or not.  Further investigations were require to establish the position.

Two things hold up the issuing of shares to the B Shareholders:

• the limit on capitalisation (which was resolved at the meeting though a resolution)
• the fact that the Council has not signed the Shareholders’ Agreement

The Company says that for B Shareholders to be issued share certificates new paperwork has to be issued and signed by schools, once the Council has signed the Shareholders’ Agreement.  Sutton the Inside understands that the meeting was assured that this will be sorted-out quickly and Cllr Garratt requested that members of the Sutton Shareholdings Board be informed, by email, as soon as matters have been resolved.

The Council must explain why key documents were not appropriately handled and  more attention was not given to the setting up of this company.

If someone from Sutton Council would like to give Sutton the Inside a statement on this issue, we would be happy to publish it.

So Sutton Council, if you a re listening – please get in touch.

When is a shareholder not a shareholder?

It seems that completing and signing the relevant document (Deed of Adherence), and paying the prescribed fee of £10, is not enough for Sutton Education Services to accept those Sutton schools choosing to participate in Sutton Council’s latest company, as Shareholders.

The issue of the status of what is called ‘B’ Shareholders came to light when Sutton Council published a decision notice concerning the change of name of the company to Cognus.  A few ‘B’ Shareholders, surprised not to have been sent details of the resolution, made enquiries.

Sutton the Inside has seen an email sent by Gerald Almeroth, Strategic Director, Sutton Council,  in which he states:

Whilst the absence of a signed Shareholders Agreement may appear to be a technicality, this means in reality that the Company must act in accordance with the adopted Article of Association and the Companies Act.  In effect this means that the Council is the only current shareholder.

Now that’s interesting, because the Shareholders’ Agreement, and the signing of it, was never, according to ‘B’ Shareholders Sutton the Inside has spoken to,  a prerequisite to becoming a ‘B’ Shareholder.

Further from the Shareholders’ Agreement that Sutton the Inside has seen, it looks like the agreement is between Sutton Council and the Company.  That being the case, it would seem that it is the Counci that is delaying the formal recognition of ‘B’ Shareholders. If correct, then the Council could go on for as long as it likes not signing the agreement and thus preventing the Sutton schools that have paid to become a shareholder of  this company, from becoming a shareholder.

All this is, of course, is true if one accepts the notion that a shareholder is only a shareholder once the Council has signed the Shareholders’ Agreement.   It would seem by any normal logic that once a school has signed the agreement and paid the fee, they are a shareholder.  The fact that the Articles of the company are unclear about how the relationship between the ‘A’ and ‘B’ shareholders work, does not prevent those schools applying under the ‘B’ shareholder category from legally becoming shareholders.

Sutton Council and Sutton Education Services Ltd seems to have got themselves into a bit of a pickle over this.  In an email sent by Gerald Almeroth he says:

This issue was discussed at CMT today where we considered a range of measures to strengthen the arrangements and governance of Council/shareholder interests in companies either wholly or partially owned by the Council.  This will include potential arrangements for company secretarial support that will help to reduce the likelihood of this instance happening again.

It has to be asked why there was not adequate company secretarial support for these companies in the first place and why the Council is only now looking at a range of measures to strengthen the governance.

Finally it is worth noting that whilst the ‘B’ Shareholders were not actually shareholders, they elected two directors to be part of the Board of SES.  What now is the status of those two Directors?