Member Articles

In this article we look at joint venture issues which bidders and bid participants should consider in relation to the Freeport Governance Body (FGB).

Bidders must consider how they will manage their freeport. They need not have formal governance procedures in place when they submit their bid, but there is an expectation that informal steering groups will be in place to collaboratively shape the bid. Importantly, each bid must include more detailed proposals for a FGB which will be responsible for the implementation and delivery of the freeport.

Bidders should consider the FGB as a form of joint venture; one which is shaped to meet the government’s key criteria, but that also takes account of other practical considerations. These include:

• The form of the FGB. Different structures include a limited company, a limited liability partnership, a general partnership or limited partnership or a simple contractual joint venture. While there is no requirement for the FGB to be incorporated, subject to the tax requirements of its members, it is likely that the protection of limited liability offered by a limited company or a limited liability partnership will prove attractive.
• The members of the FGB. As a minimum the FGB must include the port(s) involved and the unitary and/or upper/lower tier council where the freeport is located. In building an appropriate coalition, other parties might come from the public or the private sector, but there needs to be a clear rationale for their role in delivering the freeport.
• The delineation of the roles that the different members will play within the FGB (and their obligations, both collective and individual). The government has specified eight key functions that the FGB must complete to deliver the freeport, but bidders may identify more.
• The FGB’s personnel. The government expects initial bids, as a minimum, to identify the chairperson. Guidance additionally indicates an expectation that the board of an FGB should have no more than 12 members.
• The decision-making process within the FGB must be clear. Considerations include:
  • how decisions are taken;
  • whether any decisions are reserved for a particular majority or members or require the consent of one or more specific members. Importantly, the local authority/mayoral combined authority members need to be accountable for public money (including initial seed capital);
  • dealing with conflicts of interest;
  • dealing with a deadlock. On the assumption that FGBs will not have just two equal members (where deadlock is inherent), deadlock may arise where a minority approval for a reserved decision is not forthcoming. Thought should be given to how a deadlock is escalated, or whether the parties are required to reach a solution or risk a winding-up.
• The operation of the FGB. In addition to decision making, bidders should consider:
  • financing requirements;
  • the mechanism to review and update the business plan, and to adopt any policies that will govern both the operation and delivery of the freeport;
  • how to deal with profits made by the joint venture, and the ability to distribute those profits to members/stakeholders;
  • what happens should a member be in default of its obligations, and how to resolve disputes between members;
  • the term, and termination, of the joint venture:
    • unlike a typical joint venture it may be prudent and/or necessary to lock members in for a minimum period of time to ensure the right members are in place to deliver the freeport. Alternatively, detailed transfer requirements are needed;
    • in what circumstances can/should the joint venture be wound-up? What is the outcome of such a winding-up for the different parties?
      
      

At Shoosmiths, we are closely monitoring developments in relation to freeports. We have a dedicated team of specialists who would be happy to discuss the opportunity that freeports present with you.

If you have any queries, do get in touch.