Directors, Committee Members and Officers in Co-ops & Bencoms

Words such as “officer”, “director”, “board” and “committee” are often used in an apparently contradictory way when co-ops and community benefit societies are discussed. The position on those labels in societies can be confusing, so here is my attempt to explain in response to a query from a reader of this website.

In the Co-operative and Community Benefit Societies Act 2014 (“CCBSA 2014”), the body that would, in a company, usually be referred to as the “board of directors” is called the “committee”. However, many societies e.g. consumer co-ops or housing associations, refer in their rules to “the board”, and committee members as “directors”.

There is no problem with that as the legislation allows a lot of leeway to the society’s rules and the role carried out is more important than the label when it comes to legal liability and the like.

Section 149 of the CCBSA 2014 gives the following definitions for the purpose of the Act:

““committee”, in relation to a society, means the society’s management committee or other directing body;…..

“officer”, in relation to a registered society—

(a) includes any treasurer, secretary, member of the committee, manager or employee of the society (except an employee appointed by the society’s committee), but

(b) does not include an auditor appointed by the society in accordance with the requirements of Part 7;”

That first quotation indicates, by saying “other directing body”, that it does not matter what the body is called. It will be the committee if it directs the society’s affairs. So a court would probably decide a dispute about that on the basis of a case by case approach looking at the legislation, the society’s rules, and the actual roles of the organs and people involved.

Particular sections of the CCBSA 2014 refer to the committee members or officers, for example, to impose liability – see sections 127 and 128 on criminal offences under CCBSA 2014.

For other purposes, e.g. certain liabilities under insolvency legislation and disqualification under the Company Directors’ Disqualification Act 1986, the case law under that legislation would be used to identify whether people had the role of a director, a de facto director, or a shadow director on the facts of that case.

For the purpose of deciding who should sign a document, you should go with what your rules lay down (they often require the signature of two committee members and the society secretary). Section 53 of the CCBSA 2014 makes all committee members and the secretary authorised signatories and requires the signature of any two of them to execute a document (i.e. turn it into a deed) – so that would allow any two committee members or one committee member and the secretary to sign.

However, as between the people signing and the society it is important that the signature of the document is properly authorised by the committee directly or indirectly. The more important the document, the more important it is to ensure that has happened. Also, some parties dealing with the society, e.g. banks, may require evidence of that.

Many contracts can be made by word of mouth without writing and then the issue is whether the person agreeing on the society’s behalf had some form of “authority” to make that contract. That often goes with a person’s role or job description or comes from habits developed over the years allowing them to make such contracts. In some cases, if it looks to the outsider as if the contract would be within that person’s powers, it can bind the society even if it was not properly authorised.

In practice, it is good to have clear internal procedures for these things and to stick to them e.g. clarity about when board authorisation is needed and when officials or employees can do things under powers delegated to them by the board. Paragraph 26 of Co-operatives UK’s, Corporate Governance Code for Consumer Co-operatives, for example, lays down:

“There should be a formal schedule of matters specifically reserved to the board.”

In smaller societies that need not be an elaborate list but the question of what needs board or general meeting approval and what can be decided by officers or employees must be clearly agreed and written in the society’s rules and/or a separate document, consistent with what the rules say which is actually followed in practice.

To find out who enjoys insurance cover under a society’s policy to cover directors for liability, a good starting point is to look at the wording of the insurance policy. It should cover everyone who takes part in committee meetings and others who play an important decision-making role.

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Ian Snaith 2014

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3 Responses to Directors, Committee Members and Officers in Co-ops & Bencoms

  1. Linda Barlow says:

    Thanks for this Ian, very insightful.
    Just one point, I was wondering if you could provide an example of “(except an employee appointed by the society’s committee)” in context as I would imagine it may vary depending on the governance arrangements of the society.

    Under s149, it seems to me that a ‘regular salaried employee’ which are invariably appointed by a senior management team via delegated authority from the Board, wouldn’t be an officer of the society? Is that correct? Does it matter that it wasn’t a direct appointment?

    In what instances would employees not be appointed by the Board?

    Thanks

  2. isn says:

    Hi Linda

    A Westlaw search reveals no case law on this question which does not surprise me. I think a court would look at this definition in the legislation in its context. On the face of it the words do seem to imply an employee directly appointed by the committee or board. In general, that will be the CEO and secretary in , for example, large societies as required by Co-operatives UK Consumer Co-op Governance Code paras 74 & 79. The Co-operatives UK Model Rules for consumer co-ops, at rule 8.4(a)(iv), provide for that as well. Given all that context, I think a court would probably see what a society’s rules said about how different levels of employees were appointed when applying this definition – after first looking at how the person in question was actually appointed. If the society’s rules were silent, evidence about the practice of that society when appointing different levels of employee might well be relevant. The above probably works for most hierarchically organised co-ops – like the consumer ones. In a worker co-op where, because of the membership requirement for employment every employee who was a member might be argued to be appointed by the committee, things would be less clear. If all members are also committee members (the collective model) then that works and all employees who are members are officers. If there is an elected committee which appoints all employees as members then the question might be trickier. A lot might depend on the way the distinction between membership and employment worked in a given co-op.

    • isn says:

      So I think you are right that it depends on governance arrangements of the society and employees not directly appointed by the committee will not be officers.

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