Purpose

A report relating to the financial restructure
of AN Ltd was consider by Council in March 2025. The report
recommended that any outstanding matters which required further
work would be overseen by Cabinet and a further report would be
brought back to Cabinet for consideration in due course.

The purpose of this report is to consider those remaining matters
and to approve the financial restructure of AN Ltd to be
implemented. The aim of the proposed financial restructure is to
enable AN Ltd to be more effective and efficient in delivering
regeneration, housing and environmental benefits for the county, in
line with the Council’s corporate plan, while achieving
better value for money from public expenditure.?

Content

RESOLVED
that:-
(3.1) Cabinet notes that it has oversight of the development of
the proposed implementation of the resolutions of Council taken on
26 March 2025 concerning the financial restructure of AN Ltd
subject to the requirement to revert to Council should there be
material departure from the underlying assumptions supporting the
envisaged financial measures approved in principle by
Council;
(3.2) Cabinet notes that the Executive Director of
Transformation and Resources and Executive Director of Place and
Regeneration, following consultation with the Director of Law and
Corporate Governance confirm to Cabinet that they are satisfied
that at present there has not been a material departure from the
underlying assumptions supporting the envisaged financial measures
approved in principle by Council on 26 March 2025;
(3.3) Cabinet notes the progress which has been made in relation
to the following to date:
3.3.1.
The incorporation of the new subsidiary company within the AN Ltd
Group; Advance Manor Walks Ltd (“AMWL”),
3.3.2.
The approval by Council’s Shareholder Cabinet Committee and
subsequent incorporation of the new subsidiary company within the
AN Ltd Group; Advance Green Futures Ltd
(“AGFL”),
3.3.3.
The advice from the Executive Director of Transformation and
Resources regarding the proposed changes to the remaining maturity
loans identified within the report to Council dated 26 March 2025
of £182.15 million (currently £171.09 million following
exclusion of those recent loans which have their own repayment
schedule (“Schedule 3 Loans”) to an annuity basis,
including the issuance by the Council to AN Ltd of a variation in
relation to the loan documentation for this and the reduction in
loans of £83.30 million due to the debt for equity swap will
be accounted for in line with the requirements of IFRS9,
3.3.4.
The steps taken to date by the Executive Director of Transformation
and Resources and Executive Director of Place and Regeneration with
the Director of Law and Corporate Governance to determine the
operational parameters and security arrangements associated with
the implementation of the Revolving Credit Facility
(“RCF”) for Cabinet approval and the legal review of
the proposed establishment of the RCF of up to £35
Million,
3.3.5.
The consideration of the implications of the subsidy control
requirements and the outcome of recent work to consider compliance
with those requirements by both council officers together with
external independent financial and legal advisors,
3.3.6.
Tax advice received by AN Ltd from its tax advisors Robson Laidler
in relation to the financial restructure on 19 May and 10 June
2025,
3.3.7.
Ongoing development of an effective Governance Agreement to replace
the existing Operating Agreement in place between NCC and the AN
Ltd Group to record and details working practices and the
relationship between the parties,
3.3.8.
An independent valuation of Manor Walks Shopping Centre and
Westmorland Retail Park commissioned by the Council to verify /
confirm the figures used within the Grant Thornton calculations /
assumptions / proposal, and
3.3.9.
Ongoing review / development of a suitable data sharing /
processing agreement to ensure data is shared in a lawful and
appropriate manner in accordance with data protection
principles.
(3.4) Cabinet notes that further due diligence work, is required
prior to implementation of the recommendations set out in paragraph
3.5, specifically, but not limited to, the outstanding matters
which are detailed within the report as follows:
3.4.1.
Independent future valuation of Manor Walks Shopping Centre and
Westmorland Retail Park to be considered by the Council’s
Strategic Estates function (paragraphs 6.8 & 7.1.3),
3.4.2.
AN Ltd provide updated asset disposal valuation to the Council for
the remaining commercial assets identified for disposal within
their 5 year Business Plan where it has not yet been possible to
verify the valuations(paragraph 7.1.1),
3.4.3.
Updated loan agreements incorporating the change from maturity
(interest only) to annuity (principal and interest)
repayments,
3.4.4.
Finalisation of the terms of the RCF, Debt for Equity Swap, and
deed of novation for Westmorland Retail Park (paragraphs 7.1.7
& 8.4.3),
3.4.5.
Finalisation of the tax advice from AN Ltd in relation to the Debt
for Equity swap and return on investment to the Council (paragraph
6.28), and
3.4.6.
Establishing appropriate governance arrangements (including the
RCF), through the Governance Agreement, between the Council and AN
Ltd Group (paragraph 8.5),
3.4.7.
Upon completion of the due diligence detailed above, council
officers will provide a report to Executive Director of
Transformation and Resources and Executive Director of Place and
Regeneration with the Director of Law and Corporate Governance to
summarise and confirm whether any of the points above would have a
material impact on the financial assumptions and / or CMO
assessment. (paragraph 10.15);
(3.5) Authority be delegated to the Executive Director of
Transformation and Resources and Executive Director of Place and
Regeneration, following consultation with the Director of Law and
Corporate Governance, and subject to:
i. The
Executive Director of Transformation and Resources being satisfied
that the outstanding matters set out at 3.4 above have been
appropriately dealt with,
ii.
The requirement to revert to Council should there arise, when
undertaking any further due diligence, a material departure from
the underlying assumptions supporting the envisaged financial
measures approved in principle by Council on 26 March
2025,
the final negotiation, authorisation and completion of the
relevant documentation required for implementation of the financial
restructure package for the AN Ltd Group on 1 October 2025, or as
near thereto as practical, the following (and for the avoidance of
doubt this is a package of support that has been assessed in its
entirety with each element being entered into together),
3.5.1.
The conversion of £83.30 million of loans provided to Advance
Northumberland (Commercial) Limited in respect of Manor Walks
Shopping Centre ultimately into ordinary shares as investment into
Advance Northumberland Ltd (debt for equity swap),
3.5.2.
The transfer of the Net Book Value (“NBV”) of the Manor
Walks Shopping Centre and Westmorland Retail Park assets
(£74.38 million at 31 March 2025), and the residual loans in
relation to Westmorland Retail Park of £38.00 million into
Advance Manor Walks Limited subject to legal charge being entered
into in favour of the Council,
3.5.3.
The conversion of those remaining maturity loans identified within
the report to Council dated 26 March 2025 to an annuity basis (the
value of which is now £171.09 million following the exclusion
of the more recent Schedule 3 Loans) (March 2025 Council report
£182.15 million, inclusive of Schedule 3 Loans), including
the issuance by the Council to AN Ltd a variation in relation to
the loan documentation for this and the reduction in loans of
£83.30 million due to the debt for equity swap, noting
confirmation in this report by the Executive Director of
Transformation and Resources that the proposed changes are
accounted for in line with the requirements of IFRS9,
3.5.4.
The establishment of the Revolving Credit Facility
(“RCF”) of up to £35 million for Advance
Northumberland (Developments) Ltd, with associated security
arrangements, subject to satisfactory legal review and to take all
steps necessary to determine the operational parameters and
security arrangements associated with the implementation of the
RCF,
3.5.5.
The Governance Agreement, setting out the relationship between the
Council and the AN Ltd Group including but not limited to
assurance, governance arrangements, performance management /
monitoring and Council funding, and
3.5.6.
Any ancillary agreement required to give effect to the
recommendations above including but not limited to any Data Sharing
/ Processing Agreement as advised; and
(3.6) Cabinet notes the progress outlined in the report and that
the Executive Director of Transformation and Resources (Section 151
Officer) and the Director of Law and Corporate Governance
(Monitoring Officer) will produce, in consultation with the Leader
of the Council and the Cabinet Member for Corporate Services, and
submit a report to a future Council meeting setting out the
proposed scheme of governance and reporting for oversight of the
ongoing performance and financial management of AN Ltd.