Helping Mole Valley District Council realise value from its property company

31ten showed Mole Valley District Council how decisions about its property company’s investments would affect the council’s own accounts, and our follow-on advice on restructuring the company’s funding is helping the council release cash that would otherwise have been trapped.

Background

Mole Valley District Council’s wholly owned property company, MOVA Property Limited, was reviewing its holding strategy for the investment properties it had acquired. It was considering whether to keep or sell its properties, and how either choice would affect the value of those assets on its balance sheet.

Because MOVA is 100% owned and funded by the council, any decision or property revaluation would directly affect the council’s accounts. The company couldn’t make these choices in isolation, so the council commissioned 31ten to analyse the proposed strategy and how changes in valuation would affect the book value of the debt and equity it had invested in the company.

Our project brief

We focused on how each of the options proposed by the council’s property consultants would affect both MOVA and the council, including:

Impairments and expected credit losses – Assessing the potential impact on the value of the council’s investment in the company.
Borrowing – Considering whether to repay Public Works Loan Board (PWLB) borrowing early.
Revenue implications – Understanding the Minimum Revenue Provision (MRP) and interest implications of each option.

Our approach

Our work included:

A detailed analysis of how the council funds MOVA
A full review of each proposed option and its impact on both the company’s and the council’s accounts
Follow-on analysis of options for restructuring the company’s funding
Working alongside legal and tax advisers to test a range of restructuring options, including early repayment of debt, writing off share capital, and switching equity for debt.

The challenges

As well as setting out the impact of each option, our analysis uncovered a significant risk. Under its existing funding structure, MOVA was unlikely to have enough retained earnings to pay out any sale proceeds to the council as dividends, so cash could become trapped in the company.

We recommended that the council restructure the funding to avoid this, and the council re-engaged us to explore how best to do it.

Key Outcomes

Our work gave Mole Valley District Council the clarity it needed to make informed decisions about its investment property strategy:

Decisions about the properties now take account of the financial and accounting impact on the council’s books as well as on MOVA’s, helping the council avoid unintended revenue costs.
Our advice on restructuring the company’s funding means the council can unlock cash that would otherwise have been stuck in the company. This money can now support wider council priorities.