The Co-operatives Act one year on

This joint blog post with Linda Barlow or Co-operatives UK’s Legal Team marks the first anniversary of the Co-operative and Community Benefit Societies Act 2014 coming into force. The Act was a legislative change lobbied for across the co‑operative sector with the aim of cleaning up and consolidating 17 pieces of outdated legislation.

The Act is having an impact on existing co-operative societies as well as the 240 new co-operative and community benefit societies that have registered since it became law, requiring administrative changes whilst opening up the possibility for new innovations that were previously difficult or impossible.

Here are the top five things that co-operative and community benefit societies need to know.

1 Renaming of the Act

The term ‘industrial and provident society’ became defunct.  Any new society registered on or after the 1 August 2014 chooses to register as a co-operative or as a community benefit society and must, on application, provide evidence of which ‘condition of registration’ the society is seeking to register under.

A society registered prior to the 1 August adopts the title ‘pre-commencement society’ or the more palatable ‘registered society.’  Practically, this has caught many societies out, especially in relation to how a society presents its registered details on society stationery.  For more information consult the Financial Conduct Authority’s guidance.

In addition, the FCA has amended its statutory forms which requires a society to provide evidence both on registration and throughout the society’s lifetime – e.g. on completion of the annual return – as to what condition of registration it is set up to meet.

2 Amending society rules

It is good governance for any corporate body to revisit its rulebook regularly to ensure that it is still fit for purpose.  However, a change in the law makes the need more pressing. Co-operatives UK has spent a significant proportion of the year reviewing and amending the rules of societies to ensure they refer to the 2014 Act and removing any references to previous legislation.

3 Increase in withdrawable shareholding

Some societies have been making the most of a time-limited power included in The Industrial and Provident Societies (Increase in Shareholding Limit) Order 2014, which enables societies with rules limiting individual shareholding to £20,000 to increase it up to new statutory maximum of £100,000, without the requirement to follow the rule change provisions in the society’s rulebook.  Societies can make use of this power up until the 5 October 2015.

4 Business rescue & insolvency

Before April 2014, societies could not make use of creditor’s voluntary arrangements (CVAs), the administrative procedure and administrative receivership available to other business forms, which limited the methods available to a society on wind-up. From 6 April 2014, the Industrial and Provident Societies and Credit Unions (Arrangements Reconstructions and Administration) Order 2014  has enabled societies to enter into a CVA or administration.

5 Directors’ duties

Society directors have always been subject to the common law rules governing directors’ duties.  However, from 6 April 2014, the Co-operative and Community Benefit Societies Act 2010 inserted a new section into the Company Directors’ Disqualification Act 1986 (CDDA 1986) to apply CDDA 1986 to societies.  As a result, a society director may be disqualified from office if s/he, amongst other grounds, is convicted of fraudulent or wrongful trading.

What next?

The new Act is an important step in putting co-operatives on an equal footing with other models of business. However, there is still work to do to ensure co‑operatives are regulated in a way that puts them on a level playing field and gives them flexibility to innovate.

The FCA, which regulates co-operatives and community benefit societies in line with the new Act, is currently consulting on its regulation and guidance. Following lobbying by Co-operatives UK and the wider sector this guidance has been improved, but there are still areas of issue.

The FCA’s consultation is open until 14 August and Co-operatives UK is urging co-operatives to use its template consultation response, developed with detailed input from its members, and submit it to the FCA in order to add weight to the campaign.

The template response and guidance on what you need to do are here.

For a full legal analysis of the Co-operative and Community Benefit Societies Act 2014 and other legal rules applying to co-operatives and community benefit societies, see the Handbook of Co‑operative and Community Benefit Society Law published jointly by Co-operatives UK and Jordan Publishing Ltd.

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Co-operatives UK and Ian Snaith 2015

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