Combined authority defends subsidy control challenge over loans worth £140m made to developer

The appellant, rival developer Aubrey Weis, applied to the CAT for review, under section 70(1) of the Subsidy Control Act 2022, of the GMCA’s decision to grant alleged subsidies, as defined in section 2(1) of the Act, to two special purpose vehicles in the Renaker group.

A loan of £70.8m was made to Trinity Developments (Manchester), which is developing four high-rise residential tower blocks on two parcels of land known as “Trinity Islands” located by The River Irwell and Trinity Way.

A second loan of £69.2m was made to New Jackson (Contour) Investments, which is developing two high-rise residential tower blocks known as “Contour” in the Great Jackson Street area.

Weis, owner of the Weis Group, argued that the loans would not have been granted by a commercial operator and that they had been concluded on non-market terms and had distorted the proper and fair operation of the relevant market in and around Manchester.

The loans were made under the Greater Manchester Housing Investment Loans Fund by the GMCA.

Summarising the dispute, the CAT said that the issues that fell to be determined were as follows:

• Had a subsidy decision been made by the GMCA within the meaning of section 70 of the Act? If so, when was the decision taken? (Issue (1)).
• Would the loans made to Renaker have been approved by a commercial market operator and did the rates of interest and other charges applied reflect the market rate? (Issue (2)).
• In relation to the appeal, had the GMCA breached its duty of candour and, if so, in what respects and what were the consequences? (Issue (3)).

In relation to Issue 1, the CAT explained that, in determining the key issue in the case as to whether or not the loans amounted to financial assistance which confers an economic advantage, the Tribunal would not simply look at the terms of the decision of the GMCA Committee on 22 March 2024 to approve the loans: it would need to consider the whole process including the various stages leading up to that decision as well as the due diligence and final terms of the loans; it would also consider the internal records on the setting of the interest and other terms. 

As regards Issue 2, the Tribunal held that the process followed by the combined authority in reaching the subsidy decision and thereafter entering into the loans was “perfectly rational and not inherently defective”.  

The CAT added: “It provided for decisions to be made in the light of input and consideration by officers experienced in making lending decision and recommendations, as well as those on the various panels and committees. 

“The Respondent (like any commercial lender) would regard the 2024 Renaker Loans as relatively low risk where there was only a minimal risk of loss even in the event of a default. There were a number of risks inherent in such lending: the special purpose vehicles going out of business, lower than expected sales, increased costs beyond budget.

“However, even if such risks materialised, the structure of the 2024 Renaker Loans, including covenants and security, and the low loan to value meant that in the event of a default it was most probable that the Respondent would recover the full amount of the loans plus interest.”

The Tribunal found that the GMCA was entitled to consider that in entering into the loans they were on terms that other lenders would enter into in terms of rates.

Finally, as regards Issue 3, the Tribunal concluded that the GMCA had discharged its duty of candour before the Tribunal. It considered each of the criticisms made by the appellant and the GMCA’s response but was satisfied that there was no breach. 

A spokesperson for the Greater Manchester Combined Authority said: “We’ve been clear from the start that all monies lent through the Housing Investment Loan Fund were offered at market rates and were therefore not a form of subsidy. [The] ruling confirms this.

“The Tribunal Chair also roundly dismissed the claimant's suggestion that loans were agreed behind closed doors as ‘rather unreal’. And he recognised our ‘perfectly rational’ process and the robust measures we’ve put in place in administering loans – a process which incorporates independent expert advice.”

The spokesperson added: “Since the Housing Investment Loans Fund was set up in 2015, we have not turned down a single viable scheme and have supported a wide variety of developers and projects – including 38 small loans offered to SME developers. There have been no defaults, with all loans repaid with interest, providing outstanding value for money for taxpayers. 

“We’ve reinvested our share of the interest in supporting our housing priorities – including work to bring forward the country’s first Good Landlord Charter and training new housing enforcement officers to drive up standards for renters. 

“This judgment completely vindicates the approach we’ve taken.”

A spokesperson for the Weis Group said: “Regarding the ruling, leading counsel considers that there are strong grounds for an appeal, not least due to the lack of a transparent and arms length credit approval process that any commercial lender would follow.”

The Competition Appeal Tribunal judgment can be found here.

This article is in part based on the summary of the ruling provided by the Tribunal.