Following up my post of 31.01.2017, the 2017 March budget includes plans to relax audit limits for societies. Another triumph for Co-operatives UK lobbying for societies. See https://www.uk.coop/newsroom/lobbying-success-growing-co-ops

Hopefully the pressure will keep up to get primary legislation to change the Accountant’s Report requirement for societies turning over of £90K plus which companies are not required to have.

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In 2013, I wrote about Co-op Law reform proposals in the Republic of Ireland (ROI). They led to this 2014 legislation  which just dealt with some key problems like capital limits. The old industrial and provident societies  legislation from the 1890’s basically still applies there with some amendments.

This issue has been raised in the Community Shares Google Group on the question of whether UK style “community shares” are possible in ROI. As Dave Hollings of CMS has pointed out in response to Dave Boyle’s question on this, the issue is probably about ROI rules on prospectuses, financial promotion and the like. I don’t know the answer for sure but I suspect there may be no exemption for industrial and provident society shares there of the kind we have for co-op and bencom shares here in the UK. However, that needs to be properly checked. The treatment of shares in the new asset locked and limited purpose Designated Activities Companies allowed under Part 16 of the ROI Companies Act 2014 might repay careful study. See the general outline information here.

One day, I hope to find the time to delve into the ROI Companies Act 2014 and associated legislation. If anyone could beat me to that and share their findings, that would be great.

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There may be a hint of movement on a big disadvantage societies suffer compared with companies but we now need Government to act.

Debate was recently initiated by Christiana Dankwa on  the Community Shares Google Group about this old problem as understood by accountants:

“On Friday, 13 January 2017 18:45:41 UTC, Christiana Dankwa wrote:

As I pick myself up from the floor and dust my self down, I bring you actual content on Societies from ICAEW.  Unfortunately, if doesnt actually tell you what Societies should use.
Still: http://www.icaew.com/en/groups-and-networks/local-groups-and-societies/london-ds/london-accountant/features/jan17-pennyI’m inclined to wonder:1) Why does this advice differ from that urged by CSU in the Dec 2016 practiioner meet-up slides?2) Why didnt “the legislation” (which relates to FRS 105) include reference to Societies? (By which I really mean, did anyone from Coops UK or FCA contribute to the relevant consultations when they were open and if so were they just ignored anyway?)
I will write to the ICAEW (again!) and ask for clarification on this point FRS 102/FRS 105 point….”

I pointed out on the Google Group that this is a problem with the legislation:

This short paper I did for Radical Routes back in July 2015 may cast some light on this.My brief PDF document highlights the different rules about the need for an audit at all and the circumstances in which something less than full audited accounts is allowed. There is a big discrepancy because societies registered under CCBSA 2014 are rarely wholly exempt from audit while small private companies often are. I haven’t checked the current limits for companies but the limits and rules for societies in the PDF are still correct.
Accounting standards cannot override the legislation. The CCBSA 2014, despite its date, only consolidated and did not change, the law that applies to societies. Within those legal limits, accounting standards apply but legislation is needed to change the basics.

Any society with a turnover of more than £90k has to provide an “accountant’s report” which is a less stringent audit but has to be done by a qualified auditor. At over £5.6m turnover it needs a full audit. For charitable societies the threshold is lower – £250K gross income triggers a full audit. The FCA can also insist on a full audit even if the accountant’s report option is available to the society and has been chosen by it (that requires a members’ resolution with less than 10% of total membership and less than 20% of those voting opposing it). The opt out from a full audit has to be repeated by members’ resolution every year it is to apply. The FCA can require an audit for previous years retrospectively. Section 85 sets out what the accountant’s report has to do.

So the problem is legal and not one of accounting practice and, in fact, Co-operatives UK and the Co-operative Party have been working on it for some time and are well aware of it.

Co-operatives UK offer an audit guide for societies. They have also put the point forward to Government as a policy issue, as Linda Barlow has pointed out on the Google Group.

Late last year, Labour and Co-op MP Adrian Bailey raised the issue through a Ten Minute Rule Bill – see Hansard  and this gave the problem an airing in Parliament as part of the campaign to get improvements.

So Co-operatives UK and the Co-op Party are working hard on this and the ball is in the Government’s court. Now we have to await an announcement from HM Treasury in response to the pressure the Co-operative Movement have exerted……..

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On 1st April 2016 a new consultation was launched by the Cabinet Office covering England and Wales. It aims to make life easier for those English and Welsh charities currently using the company limited by guarantee (CLG) structure and for Community Interest Companies (CIC’s). The proposed regulations would be made under the Charities Act 2011 and would allow charitable companies and CIC’s to convert directly into Charitable Incorporated Organisations (CIO’s). Unincorporated charities have been able to register as CIO’s since 2013. Conversion avoids the need to set up a new CIO and transfer assets and operations into it. The consultation is open for responses until 5.00pm on 10th June 2016.

The CIO structure has been available for three years and is governed by Part 11 of the Charities Act 2011. It gives a charity the benefits of incorporation such as limited liability for trustees and members and the ability for the CIO to make its own contracts and hold property with continuity of ownership. It also allows those dealing with the charity to assess the risks of doing so more easily.

Those benefits are already available to charities using the other available corporate structures: the company limited by guarantee (CLG), registered with the Charity Commission, and the community benefit society (CBS) registered under the Co-operative and Community Benefit Societies Act 2014 (CCBSA 2014). Charitable CBS’s are recognised by HMRC as “exempt” charities but cannot register with the Charity Commission.

A charitable company is subject to two sets of regulatory requirements: they have to file annual accounts with Companies House and also with the Charity Commission and they are subject to both company law and charity law. Similarly, a charitable CBS has to comply with the regulatory requirements of the Financial Conduct Authority under CCBSA 2014 and also those of HMRC so as to maintain its charitable status for tax purposes.

A CIO, once registered with the Charity Commission, only needs to comply with the requirements of charity law and avoids dual regulation. As the consultation document points out:

“Since the introduction of the CIO legal structure in 2013 it has proven to be a very popular choice of structure for new and existing unincorporated charities. Over 6,500 new CIOs have been established since its introduction and it now accounts for over 25% of new charity registrations. It is expected that the option of conversion will be similarly popular for small charities that have opted for the company structure and for CICs.”
– Conversion to a Charitable Incorporated Organisation (CIO) (Cabinet Office, April 2016) pp 3-4.

The proposed regulations, working with the relevant sections of the Charities Act 2011, would allow charitable companies and CIC’s to convert into CIO’s only if they were not exempt charities and if their share capital (if any) was fully paid up.

The company or CIC would pass a special resolution to convert into a CIO. It would then send the Charity Commission copies of the conversion resolution, the proposed CIO constitution, and a company resolution adopting the proposed constitution. If the CIO constitution contained an entrenchment provision requiring a special procedure or bigger majority to change certain provisions the application would have to point that out. The Charity Commission could also demand any other relevant information or documents before dealing with the conversion.

Neither a company nor a CIC could convert if its returns and accounts to either Companies House or, for a company, the Charity Commission were not completely up to date. The proposed CIO constitution must comply with the registration requirements for CIO’s and must show that the CIO will be a charity. The CIO name must also comply with the rules applied by the Commission. If a converting CLG or CIC was limited by a guarantee of more than £10 per member, the CIO constitution must provide for at least the same level of guarantee if the CIO becomes insolvent. Where the guaranteed amount was £10 or less per member, the liability is extinguished and the CIO constitution need not make provision for any member guarantee.

For CIC’s, the regulations spell out more of the requirements for conversion as the Charities Act 2011 leaves the whole process to be laid down by regulations. The Regulations provide for liaison between the Charity Commission and the CIC Regulator. The CIC Regulator must decide that the CIC is eligible to cease being a CIC under section 55 of the Companies (Audit Investigations and Community Enterprise) Act 2004 (C(AICE)A 2004) and notify the Charity Commission of that decision before the CIO can be registered and established. The grounds for ineligibility are that the CIC is subject to current regulatory action by the CIC Regulator, such as appointing an auditor or appointing or removing a director of the CIC.

No provision is made for a community benefit society registered under CCBSA 2014 to convert in the same way – even if they are already recognised as charities by HMRC. That is because:

“a charity that would be an exempt charity following conversion cannot convert into a CIO because to become a CIO the charity must register with the Commission”
– Conversion to a Charitable Incorporated Organisation (CIO) (Cabinet Office, April 2016) para 38 pp 9-10 .

In England and Wales, charitable community benefit societies are “exempt charities” and cannot register with the Charity Commission. In Scotland they must register with the OSCR. That is why a process of conversion from charitable CBS to CIO is possible in Scotland but will not be available in England or Wales even after the draft regulations have been made.

That is particularly anomalous as English CIC’s, which are not generally regarded as charities, can convert into CIO’s but charitable CBS’s already recognised by HMRC as charities are not permitted to do so. Section 246(1) of the Charities Act 2011, under which the proposed regulations are to be made, specifically empowers the Cabinet Office to make regulations for the conversion of societies registered under CCBSA 2014 into CIO’s. The rationale given in paragraph 38 of the consultation document for failing to do so is odd since, following conversion, a registered society that had converted would no longer be an “exempt charity” as it would be a CIO if the only reason for its previous exempt charity status was that it was a society. It seems that all societies have been treated in the same way as those exempt charities which are subject to another regulator (such as educational Academies or Universities). Most CBS’s outside the housing sector are not subject to any other regulator.

It seems likely that the complexity of the range of exempt charities and limited resources at the Charity Commission have together delayed the completion of the changes to deal with registered societies and other exempt charities envisaged in CC23. That involves the use of a “principal regulator” for e.g. housing charities using the CBS structure and registration with the Charity Commission for those without a principal regulator – see Appendix 1 of CC23 for details.

If the changes go ahead after the consultation, the Government plans to phase in the availability of conversion as follows:

Charitable companies to CIOs:

○ 1 October 2016: Charitable companies with an annual income greater
than £500,000;
○ 1 December 2016: Charitable companies with an annual income
between £250,000 and £500,000;
○ 1 February 2017: Charitable companies with an annual income between
£100,000 and £250,000;
○ 1 April 2017: Charitable companies with an annual income between
£25,000 and £100,000; and
○ 1 July 2017: Charitable companies with an annual income of less than
£25,000

CICs to CIOs:

1 October 2017.

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This month an Updating Supplement to the Handbook of Co-operative and Community Benefit Society Law was published. It is a separate soft back, or ePDF publication of 108 pages and is organised by reference to Chapter and paragraph numbers in the 2014 Handbook so that the two can easily be used together.

It deals with the main legal changes that have affected societies since the publication of the Handbook in 2014. The main coverage is devoted to the FCA’s November 2015 Finalised guidance 15/12, Guidance on the FCA’s registration function under the Co-operative and Community Benefit Societies Act 2014 which gives new and definitive guidance on the FCA’s view on what is required to be and remain a co-operative or a community benefit society. This has particularly important implications for the first registration of societies, their approach to interest on share capital, surplus distribution, and rule amendments.

The Supplement also covers some recent case law with implications for  directors’ duties and for making sure that a co-op using a company structure gives each member one vote rather than one share one vote when shares are used. The update also covers changes to the legal sources that deal with credit union regulation now that the February 2016 PRA Credit unions handbook is available.

For anyone using the Handbook, it’s important to get hold of the Update which is available in hard copy and ePDF form from Jordan Publishing.

Like the Handbook that it updates, the Updating Supplement is the fruit of a collaboration between Co-operatives UK and Jordan Publishing with yours truly as the sole author of the update.

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Ed Mayo has put together a fascinating slide show on the concept of ownership and how it can be changed by co-operatives and commons. He suggests that the development of our society into one based on information will reduce scarcity. That, in turn, should cause ideas of ownership to evolve again towards sharing of one kind or another such as the commons and worker co-operatives. It’s important, as Ed says, to remember that neo-liberal capitalism and investor ownership are just a particular historical anomaly.

Aspects of that argument echo the views of Paul Mason on the future of capitalism and the implications of  the emergence of the information society. In his book “PostCapitalism, A Guide to Our Future” Mason suggests we should:

  • clamp down on monopolies such as Google and Apple so as to

  • let information and other products find the lower price levels that should come from the end of scarcity

  • increase automation of services as well as production,

  • encourage co-ops, time banks, collaboration through commons and de-link work from wages,

  • and thus create Postcapitalism to replace our failing neo-liberal system.

Some critics, such as Gillian Tett in the FT and Liam Halligan in the Daily Telegraph, point out that Mason’s optimistic analysis ignores the use of the new technology to create the profit making Uber, many of whose drivers join the precariat and Airbnb which is privately owned and profitably exploits “sharing”. With most social networks, such as Twitter and Facebook, also run by investor owned corporations, it’s easy to get depressed and Mason’s case for a state provided basic income for all looks utopian as we see UK Welfare system dismantled piece by piece.

Surely that all means that it’s up to us. We must push things in the direction Mason suggests by campaigning for a different State approach while organising our own work and lives to promote a PostCapitalist economy. Mason’s challenge to the Left is to understand the effects of the new technology and the limits of state power. Policy must unleash the potential of co-operatives and other sharing ownership initiatives, like open source, commons and the gift economy. That’s the alternative to pointlessly re-creating top-down hierarchical nationalised industry bureaucracies or caving in to globalised neo-liberal capitalism.

Co-operative Opportunities

The Co-operative Advantage a new book edited by Ed Mayo (reviewed and summarised by Anthony Murray in the Co-op News) identifies new opportunities for co-operatives to expand and develop new approaches. It’s worth looking at Anthony’s article to see the imaginative  range of ideas spanning agriculture and community food, energy, retail and giving consumers control of data, supporter owned sports clubs, insurance, banking, tourism, transport, criminal justice, creative industries, housing, social care and health.

The book itself assesses the relative opportunities, ease of entry to markets, existing co-operative presence, size, growth prospects, and international exemplars for each idea. It’s great that 55 potential projects and improvements have been put out there by a range of experienced UK expert co-operators.

So it’s time for the co-operative and sharing sectors to get busy……

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An inspiring weekend in Leicester brought co-operators old and (a few) young together to debate radical ideas for social change – both old and new ones. Here’s an account of how it seemed to me from the sessions I attended.

Karin Christiansen and Peter Davies kicked things off with a stimulating dialogue with much debate from the floor interspersed. They ranged over globalisation, climate change, the revival of co-op democracy, the role of co-ops in politics (and of politics in co-ops). That debate got things off to a lively start which meant that most sessions kept up the participatory atmosphere.

Andrew Bibby made the story of the Hebden Bridge Fustian Workers Co-op very relevant to the current situation as both a fascinating history and a source of lessons for now. Maybe the key points are the importance of  an asset locked common ownership rather than co-ownership structure to stop the worker owners being tempted to sell – in that case to CWS. Andrew’s book is a great read and a must for everyone interested in co-ops of all kinds but especially those into worker co-operatives.

Here’s my handout from the presentation I did on Legal Issues: IS Session O’Line UKSCS 05.09 It might be of interest for the web links in it. I tried to deal with the issues around defining a co-operative for regulation under the Co-operative and Community Benefit Societies Act 2014 and the FCA consultations plus Co-operatives UK’s position on the Bank and a quick trot around legal issues and the Commons. The last point is one that I’m still wrestling with and would like to do more work on.

Josef Davies Coates did a fascinating session on Co-operative Commons exploring the links between open organisations, commons and co-operatives. Josef referred to his own United Diversity project, the work of Bollier and “think Like a Commoner”, and Ostrom’s eight principles for managing Commons. He outlined the Open Organisation Guidelines and explained the links to the open source movement. This is a rich range of material and is valuable to co-operators who want to look at the next stages of co-operative development and at newer ideas about a different approach to property for a more mutual and solidarity based economy. All co-operators need to learn that it’s not just about governance. Culture is also vital. In legal terms the new commons movement combines contractual intellectual property approaches along the lines of Creative Commons and the GNU GPL. That may sound a bit techy but it amounts to using property law to undermine monopoly and to liberate both information and people. That’s a real revolution just like the one that went viral from Toad Lane in 1844.

A Research Round Table on Saturday evening allowed the sharing of information around Cilla Ross’s planned Co-operative Research network.

 In the final session on Sunday morning, Karin was back to talk about her project to use open data to bring co-operatives together and to facilitate improved networks and Co-operation among Co-operatives. That led to a discussion on the need and viability of the project and the best ways forward to make this happen.

So thanks to the UKSCS and especially Richard Bickle for putting together a great Conference with so much stimulation to innovative co-operative thinking.

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This is my Response to the FCA’s June Consultation on their revision of their 2014 draft Guidelines on the registration of Co-ops and Community Benefit societies.

As Cliff Mills and David Alcock have pointed out in the Co-op News, it is a big improvement. It should ease the legitimate worries of those who felt the original was too strict (e.g. the energy “co-operatives”) without allowing bodies just offering investors a big return without any concern for co-operative member-controlled trade or a community’s benefit  to use the privileges enjoyed by co-operatives and community benefit societies.

As Jo Bird of CBC points out in her comment to the online article and CBC point out in their submission to Co-operatives UK, the FCA does not address the problem of the use of the name “Co-operative” by businesses no longer in co-operative ownership or with any co-operative structure. They use the name on the basis of owning intellectual property rights to the “brand”. The ICA’s marque seems to be the only way forward on that one…..

We’ll have to see how the FCA approach works out over the next months and years……..

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Ian Snaith 2015


 

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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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I’ve just added a very late reply on this to my post of last December on committees, boards, officers etc under CCBSA 2014 and I thought it might be worth highlighting it with a post of its own. It’s a reply to this question from Linda Barlow of Co-operatives UK:

“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?”

My short answer is:

“I think you’re right that it depends on governance arrangements in the rules of the society and that employees not directly appointed by the committee will not be officers.”

My longer reply is this:

“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. The words do seem to refer to an employee directly appointed by the committee or board. In general, that will be the CEO and secretary in, for example, large co-operative 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 look at what a society’s rules said about how different levels of employees were appointed when applying this definition.  Then they’d look 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 workers’ co-op where, if the membership requirement for employment meant every employee who was a member could be said 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 and have the potential liabilities flowing from that. If there’s an elected committee which gives all employees membership then the question might be trickier but, in principle, if the appointment as an employee was made by the committee, the person would be an “officer” under s149 CCBSA 2014. So a lot will depend on the way the distinction between membership and employment works in a particular workers’ co-op which is a matter of detail.

The main consequence of that under CCBSA 2014 will be the application of sections: 30 (register of members and officers); 41-42 (security and accounting by officers); and, most important, 128 (offences by society also offences by officers if the rules made it their job to do something). However, in most of those cases, it’s committee members who are singled out.

So maybe employees who just happen to have been appointed by the board don’t have too much to worry about. In a collective where all members are committee members, the risks just go with the territory. Responsibility goes with power.”

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Ian Snaith 2015

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Last April Dave Hollings of Co-operative and Mutual Solutions Limited asked me two questions. He’s kindly given me permission to shares the Q & A’s on here.

Both questions are about co-operative societies. Apparently they were raised by a co-operative consortium planning to operate across national boundaries. There’s currently lots of interest in that model in the worker co-op sector. For example, both Altgen and uniteddiversity are working on developing the model. For question 1 see

Question 1 was answered in my last post. Here’s question 2:

2. Whilst the Act says clearly there can be corporate members, can there be corporate directors as in Companies?

Yes:

A corporate body can be a member of a society – s32 CCBSA 2014.

A “person” can be a committee member – s 30(3) CCBSA 2014.

In any Act “unless the contrary intention appears”, the word “‘Person” includes a body of persons corporate or unincorporate” – s5 & sched 1 Interpretation Act 1978. Therefore the answer seems to be “yes”.

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Ian Snaith 2015

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 Last April Dave Hollings of Co-operative and Mutual Solutions Limited asked me two questions. He’s kindly given me permission to shares the Q & A’s on here.

Both questions are about co-operative societies. Apparently they were raised by a co-operative consortium planning to operate across national boundaries. there’s currently lots of interest in that model in the worker co-op sector. For example, both Altgen and uniteddiversity are working on developing the model.

This post is on Question 1 the next one will be on Question 2.

Q 1 Does the minimum shareholding have to be in pounds or could it be in US dollars?

It would be interesting to designate share capital in US dollars (or any other currency) to see whether the FCA raise a problem on registering the rules but we can’t be sure of the outcome until a court (or the FCA on rule registration) come down on one side or another. Anyone know of a society already registered with shares not in £GB?

Here’s why: There is no direct law on societies as far as I know. However, the leading Company Law case, Scandinavian Banking Group PLC says that company shares can be in any currency or different classes in different currencies so long as a PLC has enough in sterling to meet the minimum of £50,000 that they are required to have issued – because that has to be in sterling.

By analogy, the argument against allowing non-sterling shares in a society is that the maximum holding in section 24 is expressed in sterling. However, that only applies to withdrawable shares so maybe non withdrawable shares could be designated in e.g. US Dollars. The problem with that is that sections 37 to 40 dealing with nominations of shares by members and other transfers on the member’s death impose a limit stated in the Act in sterling. Maybe that means that all shares have to be designated in sterling so that those limits are clear.

On the other hand, the reason for the problem with the PLC £50,000 limit was that the EU Directive requires the limit to be set in national currencies and it has prioity over conflicting national law (pp 103-104 attached judgment). Society law is unaffected by any EU Directives in this area therefore that argument does not apply to them and maybe the courts would be willing to allow any currency to be used as they do for other purposes as is explained in the Scandinavian Banking Group case (attached). The rest of the judgment shows courts willing not to let the tail (e.g. amount required to requisition meeting) wag the dog of allowing shares in other currencies (p 104 paras B to E). That argument could be applied to sections 37-40 of the CCBSA 2014 in our context. That is in line with the courts’ wish to be liberal when it comes to facilitating commerce.

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Ian Snaith 2015

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After a six month unplanned “sabbatical” from this blog and work on this web site, I’m back to blogging and tweeting around legal issues affecting co-ops and community benefit societies.

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Ian Snaith 2015

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A reader has raised a question about whether “political” groups can set up co-ops. They were thinking of groups like animal welfare groups, hunt sabs, anti-fascist groups and the like.

My quick answer was “yes” if they meet certain conditions. As long as the hunt sabs, anti-fascists and others:

1. Have a business trade etc as section 2 of the Co-operative and Community Benefit Societies Act 2014 requires

2. Serve the common needs and aspirations of their defined membership group as the ICA Definition of a Co-op requires, and

3. Respect the other aspects of the ICA definition & principles as interpreted by the FCA as registrar of societies (including the principle of autonomy) in addition to or as part of pursuing their wider “political” purpose there should be no problem with UK registration.

The principle of “political neutrality” was dropped in the 1966 version of the Principles. It had already been downgraded in 1937 – the ICA accommodated/accepted, from 1917-1918, the UK Co-op Party and the co-op movements in the “Socialist” countries like the USSR et al. See my 1996 article and references there. See also Brett Fairbairn’s Paper “Rochdale” for a fuller discussion of the history.

Many early co-ops were about changing society and many current ones still are e.g. Radical Routes and affiliates, other working and housing co-ops and new wave consumer co-ops. Also, some traditional consumer co-ops contribute to the Labour/Co-op Party (for now). All of this indicates that there is no prohibition on politics – and quite right too given the Movement’s origins and history.

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Ian Snaith 2014

by isn | Leave a comment

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

by isn | 3 Comments

Edgar Parnell  writes on federalism in government and in co-ops:

“Scotland’s referendum decision to remain within the United Kingdom has sparked a widespread debate about the division of powers between the different levels of government within the British Isles, which is the same underlying issue that fuels the ongoing debate about membership of the European Union. Such a debate should not just become a squabble about which group of career politicians and executives should exercise which powers on the behalf citizens but should address the basic issue of the true nature of federalism.

Effective federalism lies at the very heart of both representational democracy and of cooperative enterprise. The cooperative principle of ‘cooperation between cooperatives’ entreats cooperators to work together not only as individuals but, in order to reap even greater benefits from cooperation requires their cooperatives to work together. In practice this means the formation and operation of effective federal organizations. Federals provide the most efficient way of balancing the need to secure economies of scale with the need for effective member-control.

Just as both individual citizens and cooperative members alike delegate powers and functions to their representatives, their organizations in turn delegate functions to second and higher-level organizations acting on their behalf. However, ultimate power must always rest with the individuals that are at the base of the pyramid – powers are delegated upwards and not from the top downwards. Human nature being what it is, those acting with delegated power often seek to exercise power over the people they have been elected or appointed to serve. Those ultimately controlling federals of all forms need to accept several key concepts if they are to work successfully, including:

  • Subsidiarity, which implies upward delegation

  • The clear divisions of powers and functions between primary and federal organizations

  • Complete transparency of dealings between all levels

  • Dual loyalty, which means being loyal to both their primary organization and their federal, and

  • Having a zero tolerance of empire-builders and self-serving separatists.

If cooperatives are to prosper and serve the people that really need them, dynamic federals are indispensable. Within the UK we need to see the emergence of strong regional federal cooperatives that can provide those services that are needed by a wide range of forms and types of cooperatives. We also need regional cooperative development trusts to mobilise finance and support for new co-ops. The potential contribution that cooperatives could make to regional socio-economic development is just waiting to be unleashed, especially within the framework of a reinvented federal United Kingdom.

Please feel free to share this information with any of your contacts.”

Wise words.

by isn | Leave a comment

The Co-operative and Community Benefit Societies Act 2014 has consolidated the legal framework for co-operatives and community benefit societies (formerly known as industrial and provident societies). The Act builds on some key legal changes and simplifies and updates the language of the legislation. It applies separate registration for co-operatives, and community benefit societies respectively. That means that new charitable societies will register as community benefit societies and not co-operatives.

Practitioners with existing society charity clients need to be aware that the 2014 Act has consolidated the former Industrial and Provident Societies Acts and has renamed societies as “registered societies”. When looking at the options for establishing a charity, the society model should be considered alongside other options such as a company limited by guarantee, an unincorporated charitable trust, and a Charitable Incorporated Organisation.

To register a community benefit society, the business must be run primarily in the interests of people other than members, provide limited interest on members’ loans or any member shares, prohibit any profit distribution to members or distribution of surplus assets on dissolution. Some community benefit societies register as charities and these societies may include in their constitution a legally enforceable restriction on any asset distribution or conversion into a different legal structure. Housing associations are the biggest group of community benefit societies but the structure is also used by charities, community organisations and amateur sports clubs. The registration conditions must continue to be met after initial registration. If they are not, the FCA Mutual Societies Team can cancel the society’s registration.

The passage of the 2014 Act has highlighted the availability of this legal structure as an alternative to the use of other structures for charities.

Up to now, a community benefit society registered with charitable objects has been regarded as an “exempt” charity and, to gain the tax benefits of charitable status, has registered its status with HM Revenue and Customs rather than registering with the Charity Commission. That position continues for now but is likely to be be subject to change in due course.

Among the advantages of the society structure over the other available structures is the power, subject to the Charity Commission’s guidelines on share capital, to issue “withdrawable” shares to members which can be repaid to allow exit to members.

The Charity Commission guidelines on shares impose a number of restrictions on return and repayment:

“1. The interest rate is set at a level which is not in itself a motivation to buy shares and which the charity trustees can justify as being in the interests of the charity by reference to available commercial rates for borrowing.
2. The cost is part of the society’s revenue expenses and met before the surplus is determined.
3. The rates are declared in advance of the period for which they will become payable, just as for a bank or building society account, and never retrospectively.
4. There is a power to suspend interest payments in the interests of the society.
5. There is a power of the society to withhold repayment of the shares, either temporarily or indefinitely and to write the value down below the nominal £1.
6. The shareholding does not confer any rights to the underlying assets of the society.
7. In the event of a solvent dissolution, shareholders cannot be paid more than the nominal value of their shares.”

Charitable community benefit societies also enjoy certain exemptions from Financial Services and Markets Act 2000 requirements when shares are issued.

Practitioners should be familiar with this legal structure so as to offer a full range of choices to clients setting up a charity. It is also important to be able to advise clients already operating a community benefit society charity.

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Ian Snaith 2014

by isn | 1 Comment

The Co-operative and Community Benefit Societies Act 2014 has consolidated the legal framework for co-operatives and community benefit societies (formerly known as industrial and provident societies). The Act builds on some key legal changes and simplifies and updates the language of the legislation. It applies separate registration for co-operatives, and community benefit societies respectively.

One of the key legal changes made in advance of the consolidation was the application of corporate rescue procedures to most of those societies in the event of their insolvency.
The 2014 Act consolidated, in section 123, the provision which has always applied to societies all the winding up and dissolution procedures applicable to companies. Through that provision society directors are also potentially liable for wrongful and fraudulent trading. However, only the implementation by SI 2014/183 from 6th April 2014 of the new section 22E of the Company Directors’ Disqualification Act 1986 allows for the disqualification of society directors or committee members on the same basis as company directors.

Similarly, the Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 SI 2014/229 (“the ARA Order”) allows most co-operatives and community benefit societies to use company voluntary arrangement and administration procedures when insolvent. The ARA Order applies to most societies, including credit unions, but not to societies that are private registered providers of social housing, or registered social landlords.

Before the 2014 changes, liquidation or receivership were the only insolvency procedures available to societies. The ARA Order applies an amended version of Parts 1 (company voluntary arrangements) and 2 (administration) of Insolvency Act 1986 to societies. It also applies the arrangements and reconstructions provision of Part 26 of the Companies Act 2006.

Some modifications are made to the insolvency and company legislation when it applies to societies. In particular, the procedures may require greater engagement with the FCA as registering authority for societies than would be needed in the case of a company and its registering authority, Companies House. For instance, where compromises or arrangements are proposed in either an administration or a Scheme of Arrangement, the FCA must be satisfied that it is not contrary to the rules of the society or the provisions of the Co-operative and Community Benefit Societies Act 2014, and if appropriate, the Credit Unions Act 1979.

Receivership applies to societies on a contractual basis but is technically not an administrative receivership under the Insolvency Act 1986 because those provisions do not apply to societies.

As a result of these changes, the rules applicable to insolvent co-operative or community benefit societies are now very similar to those that apply to companies and the same remedies apply to society directors who fall short of their obligations in that context. However, it is important to check for detailed variations in the application of the provisions by the legislation governing societies.

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I think this essay is worth reading and discussing so I’ve reproduced it here at Liam’s invitation. Enjoy:

If we believe that changing the world involves changing the kinds of relationships we have with one another, what role do organising structures have in helping or hindering the relationships we are trying to create?, asks Liam Barrington-Bush.

In the early days of the US civil rights movement, Martin Luther King Jr used the phrase “beloved community” to describe the kind of change he was working towards. The beloved community expressed a way of organising that made non-violence and compassion both its means and its ends, and placed strong relationships at the core of wider social transformation. The phrase, initially coined by philosopher-theologian Josiah Royce, articulated the idea that organising based on love will create a culture of love in its wake. King said:

“Love is creative and redemptive. Love builds up and unites; hate tears down and destroys. The aftermath of the ‘fight with fire’ method … is bitterness and chaos, the aftermath of the love method is reconciliation and creation of the beloved community. Physical force can repress, restrain, coerce, destroy, but it cannot create and organise anything permanent; only love can do that.”

The King Centre describes the beloved community as “an overall effort to achieve a reconciled world by raising the level of relationships among people to a height where justice prevails and persons attain their full human potential”. But what does the beloved community look like when we get past its romantic broad-brush prose? And how can we organise ourselves in ways that align our methods with the visions our social change organisations and movements are trying to create?

The chicken-and-egg of structures and relationships

“I often say to people”, Margaret Wheatley tells me over Skype from her Utah home, “if you get the room set up right, you’re at least 60% of the way towards creating what you want.”

While seemingly a far cry from the ideals of beloved community, Wheatley has spent decades exploring what helps people work meaningfully together, primarily in organisational settings, and places great importance on structuring the kinds of spaces we gather in. Her first book,Leadership and the New Science, became a bestseller in 1992 and offered a glimpse of what human leadership might look like if it followed the organising patterns found elsewhere in nature. She is deeply critical of hierarchy and over-specialisation, and an advocate of self-organising and individual autonomy.

“If we’re creating a good process – people are highly engaged, self-motivated, thinking again, feeling creative”, she tells me. “What we’re really doing is reintroducing people to what it feels like to work well together.”

But to what extent is “working well together” something that is created – by place or process – and to what extent does it emerge through the individual relationships involved? Or is this simply a chicken-and-egg conundrum that leads in an unending circle? Even if the “relationship/structure” question is ultimately rhetorical, the exploration remains a critical one if we are going to find better ways of organising our communities, organisations and social movements towards something resembling a beloved community.

The political is personal

Following King’s articulation of beloved community, the feminist movement in the 1960s made a quantum leap in northern/Western understandings of social change with the articulation that “the personal is political”, grounding each of our lives in the wider social dynamics they are a part of. More recently, new social movements have traced this relationship back again, looking at how dependent widespread system change is on deep reflection about the kinds of individual relationships we choose to form together. In other words, the political is also personal.

Marina Sitrin lived in Argentina for several years in the early 2000s. An American activist and writer, she documented and took part in an emergent form of organising – Horizontalidad (or horizontalism) – that offered an alternative to the top-down structures of most political parties, unions and NGOs.

While many of our current organising structures were initially used to bolster the iron-fist management practices of the industrial era, horizontalism emerged in worker-occupied factories, neighbourhood assemblies and direct actions undertaken by unemployed workers after Argentina’s economic collapse in late 2000. Hierarchies were flattened, management teams disappeared, decisions were made via consensus and actions were taken collectively. Sitrin has written two books about her experiences there, offering eloquent articulations of horizontal organisational forms that have influenced countless social movements around the globe in the past decade.

“In Argentina”, Sitrin explains to me from Berlin, “the focus was on creating a new relationship where people could be heard, and finding that in that process it was developing … new ways of thinking about oneself, a new dignity.”

It is around this “new relationship” that Sitrin’s work meets with Wheatley and others at the more progressive end of the organisational spectrum, grounding transformative organising in the transformation of the relationships between those involved. “We are all bundles of potential”, Wheatley opines, “that manifest only in relationship”, highlighting that if we are to realise our individual or collective potential, it will be based on the quality of connections we are able to form with one another.

Liberation via structure

Kiran Nihalani is a founding member of The Skills Network, a women’s collective based in Brixton, south London, that organises cooperatively around directly democratic principles. She finds it hard to distinguish between the means and the ends of organising, as so many have – from traditional charities to revolutionary armies. “It is difficult to separate structures and relationships”, she writes. “They feed off each other … [the structures] help people think about their relationships with others in the group (and people outside it) in a different way.”

In societies built on deeply unequal power dynamics, we often need to be reminded of equality, wherever we are used to finding ourselves in the social pyramid. “I would be a proponent of a little more structure”, Sitrin cautiously encourages, based on the relatively loose methods used by most of the non-hierarchical groups she worked with in Argentina. “Structure helps facilitate more horizontal relationships.”

Making explicit reference to King’s idea of beloved community, Sitrin continues: “Beloved community … doesn’t just happen magically; we’re coming with so much baggage; people are coming from the system where [they] are so divided from each other and so alienated from each other, and alienated from themselves, that we need help in relating to each other in an equal way. We need help with structure to not permit certain behaviours. And if we agree to those structures ahead of time, collectively, there’s nothing hierarchical about that.”

Similarly, Peroline Ainsworth, another founding member of the Skills Network adds: “In our context, where people are so used to feeling ‘less than’, realising that everyone gets paid the same rate, deciding on paid to unpaid ratios together and seeing that you can participate in making formal decisions is crucial.

“…the nuances of interpersonal relationships, although they are important, need to be combined with the really objective structural stuff to make it real for people. This is an essential starting point in situations where a lot of people are so used to being made to feel unequal, even though they are told that they are equal.”

Another core member of the Skills Network, Hannah Emmons, described the liberating nature of their organising structures as follows: “I think if those [non-hierarchical] structures and processes didn’t exist, [members] would be exactly where they felt they belonged – at the bottom … that they didn’t matter. So the structures we put in ensure people know that they do matter, and they are relevant, and what they have to say is worth hearing. [In] the hierarchical state, there’s always someone at the bottom and unfortunately the majority of the people coming through our doors, they believed they were at the bottom of that hierarchy. So when we’ve kicked off the hierarchical structure, for the first time in ages for some of them in a public space, they are equally important as everyone else in the room.”

But are alternative structures enough to undo all the ways we inevitably adopt bits of the structural inequalities that surround us? When we have been raised in deeply unequal societies, Tana Paddock, co-founder of the South Africa-based Organization Unbound project, reminds me: “Those experiences live on inside of us and we’re going to replicate them. So what do we do when these patterns come up? No structure can keep them down. No structure can rid our inner selves from those patterns.”

The question then becomes: are non-hierarchical structures and processes enough? Or do we need to think beyond these nuts and bolts if we want to foster our own beloved communities?

The shortcomings of non-hierarchical organisation

According to Paddock: “The form should always grow out of the experience. All the time, no matter how beautiful that form looks from the outside, it can eat us.” While no advocate of hierarchy, Paddock is also dubious of the focus many social movements since the 1960s and 1970s have placed on non-hierarchical structures: “The feminist movement was hugely successful in experimenting with ways of flattening hierarchies”, she argues, “but in doing so they became quite ideological. And thus the ideology started to overrun everything else.”

Paddock stresses the need to stay open to a range of forms, and that those forms must remain responsive to the people in the group and the contexts they are in. “Structures are certainly helpful”, she says, “but they are only helpful if they grow out of relationships”, pointing to various experiences where “pushing the structure on the people just because of a philosophy of participation, then can end up having the opposite result in practice and in experience”.

Similarly, in north America and Europe, the concept of horizontalism has become rigidly associated with the particular form of consensus decision-making used by Occupy and the 15-M movement in Spain since 2011. The experiences of some participants in both movements reinforced the thesis of Jo Freeman’s 1970 essay, The Tyranny of Structurelessness, in which she argued that soft hierarchies simply replace formalised power when formal hierarchy is removed. In some of these protest camps, the rigid adoption of a particular form of decision-making ended up placing power in the hands of those most versed in that process, often silencing those less familiar with the intricacies of “jazz hands”, “blocks” and “speaker stacks”.

Sitrin echoes Paddock’s sentiment about ensuring structures grow from the place they are being used, describing a far less dogmatic understanding of consensus in Argentina: “Horizontalism doesn’t necessarily mean any form of consensus… it’s that the group together decides what makes most sense for that group without anyone having power over other people.”

She continues, highlighting that in many of the neighbourhood assemblies, “there was no formal consensus process at all. People referred to consensus, but what they meant was finding agreement with each other by seeking a compromise in a conversation”.

Wheatley, too, warns against the wholesale adoption of any particular structure or process: “The issue for me is getting hooked on one, and only one [process]… so it’s all that you know how to do. It’s just like people assumed I always want to sit in a circle [when facilitating a session]. I would urge people to stay with their game here and not get hooked on one particular practice.”

When relationships transcend structures

While in theory non-hierarchical structures are more egalitarian, as we’ve seen, this is not universally the case in practice. In fact, does an on-paper hierarchy necessarily create inequality, any more than an organisation that is officially flat automatically creates egalitarian relationships? Tana Paddock began to wonder about this when working with a community organisation that had adopted a very traditional management structure.

“This place seemed to develop this really embedded culture of strong relationships and trusting relationships, so much so that no matter who came in, in those positions, they were forced to work in that way because it was so embedded in their being as an organisation, as a collective. I’m in this place that looks on paper to be very structurally hierarchical, and it’s the healthiest place I’ve ever been, and it had consistently been like that for years and years. So it’s not just reliant on a charismatic leader or someone who’s really good at relationships, it seemed to really develop this really deep way of working, despite the structure. Who am I to say, ‘No! You should be a flat structure!’?”

Many of us have experienced moments where particular organising relationships become so much more than how they are described on paper. Peroline Ainsworth of the Skills Network describes some of the relationships she has in the network as feeling more “like equals than most relationships I’ve had in my life”, and that while they have initially been shaped by formal process, they have become “something that is more than and exists beyond and between the formal structures”.

This is further reflected in Hannah Emmon’s description of the day-to-day application of their consensus decision-making process, where a culture of ongoing dialogue has often come to supersede the formalities of consensus process: “The more important decisions which really need everyone, we do ensure there is everyone. However on smaller ones, I think we’ve got mini-versions of consensus, where you turn to the next person [and ask their perspective]. Nothing in Skills happens completely individually; before anything is finalised it always comes back to the group before the next step happens. We are always conferring with each other.”

Among Argentina’s primarily indigenous-led defence of the land movements, formal rules were often eschewed in exchange for a culture of direct discussion, and when needed, confrontation. According to Marina Sitrin: “When faced with the challenge of different kinds of political parties trying to infiltrate [assemblies], they tend to not have rules that [those parties are] not allowed to participate, but a culture of calling them out. Which is a step forward.”

While this hasn’t always been the case within these movements, Sitrin sees this type of constructive confrontation as an improvement on the culture of passivity that pre-dated it. Rules become less necessary if you have a culture that offers collective accountability. “Once you have good trusting relationships”, Wheatley adds, “you can sit on the ground or meet on a bus and it all works … over time [structure] becomes less important.”

What does it all mean?

Let’s recap:

+++ Non-hierarchical structures can help us challenge the parts of ourselves and others that have been negatively shaped by wider social inequality and injustice.

+++ But those structures, just like their hierarchical counterparts, can become oppressive when used too rigidly, playing into wider social privilege and bestowing undue influence on those who know the systems best.

+++ And relationships may transcend the structures we create, although if we want them to do so in a positive way, we still need to be very conscious of how we relate to one another.

But perhaps rather than juxtaposing structures and relationships, a beloved community is more about the intent behind them? “When you’re creating structure, where is it coming from?” Tana Paddock asks me pointedly. “Is it coming from a place of fear, of what could happen if you didn’t have that structure, or is it coming from a place of wanting to generate something positive?”

“Most institutions”, she asserts, “are created out of fear. Rules and structures are created [because] something bad happened and you don’t want it to happen again, so you create a structure or a process or a regulation to keep it from happening again.”

If we start from a place of fear – expecting the worst and focusing on avoiding it – how much more likely might we be to create the very patterns we are afraid of? Many traditional organisational policies start by telling people what they can’t do, and end up spawning the kinds of dishonesty and carelessness they aimed to avoid. Might some of our most seemingly democratic and participatory organising structures have the same effect?

Imagine if we organised primarily with the intention of liberating human potential? While the prevalent use of horizontalidad among Argentine social movements reflected widespread intent to create equal relationships, the specifics that emerged in groups varied vastly. And while the Skills Network remains a strong advocate of consensus process because it wants to correct the powerlessness so many of their members feel in wider society, it hasn’t stopped it from adapting their understanding of consensus to fit the needs and aspirations of those members. In other words, there is no silver bullet that will address the rich complexity of human dynamics, but if we think more about the intent behind each structure, each process, each relationship we form on the path to creating a beloved community, we may just find we get there along the way.

Liam Barrington-Bush is an activist, facilitator, and author of the book, Anarchists in the Boardroom: how social media and social movements can help your organisation to be more like people. He tweets as @hackofalltrades, blogs at morelikepeople.org and posts stuff on the ‘more like people‘ Facebook page.

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by isn | Leave a comment

As many of you will know I have been working with the Co-operative Group as an independent advisor for the last three months as part of a team developing Governance Reform Proposals. On 30th August those proposals need a 66% majority at the Co-op Group Special General Meeting. It seems to me vital that they are passed.

Co-op News reports that a petition has been launched by Co-operative Business Consultants urging a rethink of the proposed reform. The petition has proved a rallying point for many people with legitimate worries about the way the current proposals deal with the issue of member control of the society. There is also anxiety about the trend towards corporate domination in our neo-liberal world.

I think that passing these reform proposals is the best way forward on both of those points. The Group will still be a co-op with its status entrenched. Its assets will remain under the control of that co-op and its employees will still work for that consumer co-op.

I understand why people feel as they do after the bruising experiences of the last year or two. However, this is a time for clear thinking and a calm rational approach. The vote a week on Saturday will decide the future of the assets built up in CWS and then the Group over 150 years. It will also affect the jobs of 87,000 people.

So let me explain why I believe that for this co-op in this situation, these reforms offer positive benefits.

The petition advocates a board composed of a majority of directors elected from the membership. But is that required by the ICA Principle?

Let’s look at what the Principle 2 actually says:

“Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.”

For many co-ops that means a majority of elected directors from the membership but that is not the only way of complying with it.

Survival in the market demands a high level of skill and experience – especially when a business is as big and diverse as the Co-op Group. That has been acknowledged most recently by Prof Johnston Birchall in a research project on governance in large co-ops around the world. He acknowledges the importance of member voice, member representation, outsider expertise and effective management. A balance is needed between these elements. At this time the Co-op Group is in need of a boost in member voice and outsider expertise. In my view the reforms provide that.

The Group’s recent failings resulted at least in part from the nature and composition of its board and the process of decision-making where the executive is separate from the directors. It would be irresponsible to ignore those problems and refuse to agree proposals to impose greater control on the executive than was achieved under the previous system. Under the reforms directors will be equipped to fully participate in business decisions and will be held to account both by all members through direct OMOV meetings and other decisions and by the member elected Council of activists.

It is unclear how the system proposed in the petition would remedy the problems of governance that have brought the Group to this pass. The petition’s proposal, while based on OMOV, seems to remove a key part of the Nomination Committee’s role. To be effective in making sound business decisions as part of a team with the Executives and in challenging them on their plans and proposals, the spread of skills on the board needs to match those required at a particular time. The Board is best placed to assess that and appointing the independent people seems the obvious way to achieve it. To get the right people as Independent Non-exec Directors, a sophisticated recruitment process needs to be carried out.

The reforms allow for that. They also ensure contested elections for three board places and empower the membership using OMOV to reject any Independent Non-execs at the first AGM after their appointment and to remove any director during their term. That gives the members control while giving the best possible chance of effective business decisions.

The ICA President Pauline Green and Ed Mayo of Co-operatives UK both urge support for the reforms on the basis that members have sufficient control.

Rule 118 protects the powers of each organ: the Council, the members using OMOV, and the board. It is a balanced institutional structure. However, the members elect the Council and can remove directors so they ultimately control both of those bodies and so could radically change the governance structure if they chose. That gives a possible route to a new governance structure and certainly ensures that both Board and Council will have to respond to demands for change. There is also a commitment by the current Board and Executive to a full review of governance in three years’ time.

The vote on 30th August is for or against the current proposals. Those proposals are agreed by the current board and have been the subject of extensive consultation with the active members – through Regional Committees and the existing structure. They have been substantially changed during that process.

If they are rejected, the rules will remain unchanged and that would leave the Society and its business in a challenging position. Time is of the essence at this pivotal moment in the history of British Consumer Co-operation. See Richard Pennycook’s video on both the reasons for the speed of the process and the risks and consequences of voting these proposals down.

I understand the comment about autonomy in the petition but when you operate in the market place, as all co-ops do, bank loans and other credit comes with strings to protect the lenders’ interests. That leads to some loss of control and does not imperil autonomy in the sense of causing a change of ownership, which is what the ICA Principle deals with. Once you take on debts, you have to deal with the consequences. Under the old governance system the Group took on the debt. Now we have to deal with the consequences of that.

The reform proposals address the governance problems that caused the Group to lose so much control to the Banks and to make such unwise business decisions. Without the full Nomination Committee process and the appointment of INED’s, who will be required to become members, those problems will not be remedied and we are at risk of losing, sooner or later, yet more of the accumulated asset value of the Co-op Movement as well as imperilling many of our 87,000 employees’ jobs.

In my view, this is not a time to reject reforms on the basis of a simplistic view of member control with fingers crossed in the hope of avoiding more problems.

For everyone who cares about our Movement this is a time for responsible solidarity in support of reform.

Then the Group can seize the opportunities of a new culture of member involvement, the expansion and rejuvenation of the active membership base through the Council, local structures and initiatives, and the use of digital communication.

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The UK Co-operative Group has published its proposed governance reforms and called its Special General Meeting for 30th August 2014. You can see the press release about the proposals here. The full rules including all the amendments intended to achieve the Governance Reforms [as at 05.06.2015. when this post was amended to replace a broken link] can be found here.

Through DWF LLP, I have worked as a consultant with the Group’s Steering Committee on developing these proposals. A paper explaining why I support them is being circulated to active members as part of the information pack being sent out. You can read or download my paper here.

The process of developing these reforms has not been easy for anyone but they are essential for the future of the Group. I am convinced that these changes will remedy the governance flaws which were in large part responsible for the recent commercial disasters. They also retain and guarantee the continued co-operative identity of the Group, give an enhanced role for ordinary members and maintain and expand member engagement between general meetings and elections through the Council.

We must all hope that the delegates who vote on 30th August grasp this opportunity for change and improvement so as to draw a line under the turbulence of recent years and open up new opportunities for the biggest UK consumer co-operative and its 90,000 employees.

© Ian Snaith 2014 Creative Commons LicenseThis work is licensed under a Creative Commons Attribution-ShareAlike 2.0 UK: England & Wales License.

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Ian Adderley of the FCA Mutuals Team writes:

This is a short update to sponsoring bodies and advisers highlighting some developments in the world of mutual societies registration.

Co-operative and Community Benefit Societies Act 2014

You may be aware that the Co-operative and Community Benefit Societies Act 2014 (the 2014 Act) commences on Friday 1 August. We’ve produced a ‘one minute guide’ explaining the Act and hopefully answering any questions you may have. It can be found here: http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/cooperative-and-community-benefit–societies

Forms

As a consequence of the 2014 Act we have updated all of our forms and information notes.  The forms have mainly just updated legislative references.  But we have also taken the opportunity to add or slightly amend questions on some of the forms. In particular, the new registration, rule changes, and annual return forms are affected.

While we have been flexible on the use of older versions of forms over the last year or so, as a result of the changes outlined above, any applications being determined from 1 August must be submitted on the new forms.  If in doubt whether a form is new or not, you will see at the footer of the new form that it says “July 2014”.

Our website has been updated with the new forms. http://www.fca.org.uk/firms/firm-types/mutual-societies/industrial

Guidance

This is advanced notice that we will be publishing draft guidance about registered societies for consultation, hopefully within the next month or so. I will let you know when it is available.

Fees to the FCA

Societies have to pay an annual fee to the FCA, and the 2014/15 invoices are being sent out to societies in September 2014. Our preferred method of payment is Direct Debit, which efficient and convenient for both parties.  If societies haven’t already set one up, then please consider doing so.

Societies can also now view their FCA invoice online. Online invoicing offers:

  • easy access to your fees account

  • ability to pay online for your fees using a debit or credit card (from September 2014), should you not wish to set up a Direct Debit

  • immediate email notification when we invoice you

Please call the Customer Contact Centre on 0845 606 9966 or email: fcafees@fca.org.uk.  to set up a new Direct Debit or register for Online Invoicing.

 

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Many of you will have heard about the legal changes that have come into force this year. At some point I’ll tidy up this website to give them more prominence as a resource for readers, whether lawyers, co-ops, bencoms or housing or co-op development workers.

In the meantime, here are some brief thoughts an their implications followed by detailed legal references with links to the legislation itself. The one missing piece of this jigsaw is the FCA document about how they intend to apply the new law. That is expected later this year.

You can also visit Co-operative UK’s website for their input as well as the ABCULAnthony Collins LLP, CroftonsDWF LLP, and Trowers and Hamlyn  websites.

Legal Changes: What To do Now

Co-ops of all kinds and Bencoms, such as housing associations, and their advisors need to be aware of the changes described below. The implications to think about are:

Might the increased availability of share capital by individual or company members of societies be useful?

If the former £20,000 maximum holding limit for withdrawable shares is written into the rules, rather than a formulation such as the maximum allowed by law, the rules will have to be amended to take advantage of the new limit of £100,000 or a lower limit with which the society is comfortable for liquidity reasons.

Do society rules need to be reviewed in the light of the availability of new insolvency and Scheme of Arrangement options to e.g. allow for dissolution after administration?

If society rules refer to specific named legislation rather than the law currently in force they could be changed to refer to the 2014 Act.

Societies, especially energy co-ops, need to be prepared to deal with the new FCA advice publication expected later this year and the increased reporting requirements and more fully explained limits on return on capital that it is likely to include.

Co-op development workers, business advisors, lawyers, and accountants advising clients setting up a new business need to be aware of the availability of the co-operative and community benefit society structures as well as companies limited by shares or guarantee, partnerships (registered or unregistered), and Community Interest Companies to advise on the full range of choices. Spread the word

With the help of a team of practitioner colleagues, a newly updated second edition of my Handbook of Co-operative and Community Benefit Society Law is to be published by Co-operatives UK and Jordan Publishing in September 2014 and can be pre-ordered now.

More Detail and Links

Four new pieces of legislation and new regulatory guidance reform the law that applies to co-operative societies and community benefit societies in 2014:

From 1st August 2014 the Co-operative and Community Benefit Societies Act 2014 (“CCBSA 2014”) consolidated and brought together all the legislation governing societies and changed their name. It also introduced registration as either a co-operative or a community benefit society rather than as a society which shows it is one or the other.

From 6th April 2014 six statutory instruments changed the law to facilitate the use of co-op and bencom societies for business:

The Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 SI 2014/229 used the power granted by section 255 of the Enterprise Act 2002 to apply the insolvency rescue procedures of creditors’ voluntary arrangements, administration and schemes of arrangement under the Insolvency Act 1986 and the Companies Act 2006 to societies. This puts insolvent societies in the same effective position as insolvent companies.

The Co-operative and Community Benefit Societies and Credit Unions (Investigations) Regulations 2014 SI 2014/574 applied part 14 of the Companies Act 1985 to societies so that the FCA have powers equivalent to those available to the Department for Business Innovation and Skills (BIS) for companies where they take the view that fraud or other wrongdoing requires the inspection or investigation of a society. This should increase confidence in societies as they are subject to the same investigation regime as companies.

The Industrial and Provident Societies and Credit Unions (Electronic Communications) Order 2014 SI 2014/184, made under sections 8 and 9 of the Electronic Communications Act 2000, permitted the electronic submission of a single registration document to the FCA when an application was made to register a society. Its amendment of the 1965 Act is consolidated by section 3(1)(b) CCBSA 2014. This adds to the ability of societies to use electronic communications.

The Industrial and Provident Societies (Increase in Shareholding Limit) Order 2014 SI 2014/210 used the power available to HM Treasury under section 2 of the Industrial and Provident Societies Act 1976 to raise the limit on the amount of withdrawable share capital that a person other than another society can hold in a society from £20,000 to £100,000. That provision is consolidated from 1st August 2014 by section 24 of CCBSA 2014. This increases the access of co-operatives and community benefit societies to capital.

The Co-operative and Community Benefit Societies and Credit Unions Act 2010 (Commencement No. 2) Order 2014 SI 2014/183 adds section 22E to the Company Directors Disqualification Act 1986 to apply the disqualification provisions to committee members and officers of societies. This applies the same discipline to directors, executives and committee members of societies as apply to company directors.

The Nature of Co-operative and Community Benefit Societies and effect of the new Legislation

These societies have been called “industrial and provident societies” since 1852. From 1st August 2014 they have officially been called co-operatives or community benefit societies. There are two types of society using one legal structure.

The legal structure is used by co-operatives. They are businesses owned and controlled by their consumer, employee or supplier members and not by outside investors who own shares. They include the large scale consumer co-operatives which have been in the news recently as well as credit unions (savings and loan co-operatives), village shops or pubs rescued from closure and businesses owned and democratically controlled by employees.

The structure is also popular with community benefit societies, such as housing associations and green energy producers, which do not benefit their own members but rather serve and benefit the community or pursue wider social aims.

Both types of society are registered by the Financial Conduct Authority (FCA) Mutual Societies Team but are not otherwise regulated by the FCA or the Prudential Regulation Authority (PRA) unless they operate in financial services, which most don’t. They share with companies the key features of corporate personality, limited liability of members for society debts and the ability to use shares and loan capital to raise funds. They differ from companies because, to be able to register and remain registered, they must prove to the FCA’s satisfaction that they are either a co-operative or a community benefit society and their registration can be cancelled if they no longer meet those conditions.

The Co-operative and Community Benefit Societies Act 2014 provides a boost for this legal structure and will facilitate its use by people setting up co-operatives and community benefit businesses by reducing the time and trouble needed to find, apply and understand the law that applies to them.

The increase in capital limits allows greater use of members’ share capital by societies while encouraging the use of withdrawable shares which can be effectively redeemed or bought back by the society allowing the member to realise their capital investment.

However, new guidance expected from the FCA in August 2014, to coincide with the coming into force of the 2014 Act, is expected to underline the limited return societies are expected to provide to investors in shares or loan capital as well as increasing reporting requirements for societies to provide the FCA with information to show that they still meet the co-operative or community benefit registration requirements.

Societies compete in the market place with companies so on issues such as insolvency law, director disqualification, electronic communications with their registrar (the FCA) and powers of investigation and inspection they have now been placed in the same legal position.

Challenges from the New Laws

These reforms provide a golden opportunity for lawyers, accountants and other business advisors to offer clients a wider range of legal choices when businesses are established or change ownership.

With the help of organisations such as Co-operatives UK www.uk.coop and the FCA Mutual Societies Team http://www.fca.org.uk/firms/firm-types/mutual-societies lawyers can offer clients the possibility of a structure which enjoys all the benefits of corporate personality, limited liability and share capital while serving the needs of the community or preserving control by employees, consumers, suppliers or other stakeholder groups. Societies also enjoy some exemptions from the FSMA rules on financial promotion when shares are offered to members and can issue withdrawable shares and so ease the problem of exit from members who invest.

Important Dates

The 1st August 2014 saw the new legal framework for societies fully in place. New FCA guidance is expected to be issued later in 2014. Increased capital limits, the application of insolvency rescue provisions, new investigation powers, and director disqualification all came into force on 6th April 2014.

© Ian Snaith 2014 Creative Commons LicenseThis work is licensed under a Creative Commons Attribution-ShareAlike 2.0 UK: England & Wales License.

 

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I must apologise to (both of?) my readers for the long silence. I have been, and still am, very occupied with getting the manuscript (really a libreoffice document) of the law book to the publishers in time for it to come out in September. I’m also working with the Co-op Group on their Governance Steering Committee. In the meantime, here are some thoughts I shared in the Co-op News Debate on participation, membership and governance. It’s really two ideas I’ve always wondered about – the role of the employees in consumer co-ops and the mysterious idea of culture which is crucial but hard to define.

Structures, legal rules and systems can facilitate and encourage the right culture but can’t create them. That takes people. However, I’ve recently come across the work of Shann Turnbull which gives lots of food for radical thought in a similar direction. His 2012 paper “A Sustainable Future for Corporate Governance Theory and Practice” is well worth a read.

Here’s what I wrote on the Debate site:

“I have always thought it odd that employment and management practices within many large consumer co-ops have followed very traditional command and control hierarchical systems.

I see that Kelly has picked up on the consequences of this for the Co-op Bank. He includes: a tendency not to welcome challenge; a willingness to accept certain key assertions without subjecting them to proper scrutiny; a tendency to promote good news and to delay bad news; a tendency towards being inward-looking; a failure to take seriously enough the warnings given by the Regulator; tolerance of mediocrity; and less than complete transparency as factors leading to the recent calamity – see http://www.thekellyreview.co.u… pages 9-10 for the list and 129-130 for more detail.

Historically, part of the blame must go to the Webbs’ victory in the early C20th debate about the role of employees in consumer co-ops with GDH Cole, G.J. Holyoake and others and the failure of the “Co-partnership societies”. Chapter 8 of GDH Cole’s “Self Government in Industry” http://s.coop/1ucm2 promoting his “national guilds” idea explores some of the issues.

But this is not just history. Even without worker involvement in governance, many capitalist firms do better than a lot of co-ops in developing a healthy “culture”. A flatter, teamwork based approach gives people more responsibility for success or failure and rewards or losses to go with it, a culture of openness and free debate, encouraging people to learn from failures, and a business leadership happy to be told they got it wrong and open to debate and criticism all look as if they would have been helpful in the Bank. I suspect the Group and large independents could also learn from these remarks. That also involves a willingness to accept change and make tough decisions when necessary.

So Co-op principles, values and working methods are not just about governance. They are about what goes on in the organisation every day at every level as well as attitudes and approaches of openness and, yes, “co-operation” in relations between the executives and the directors.”

© Ian Snaith 2014 Creative Commons LicenseThis work is licensed under a Creative Commons Attribution-ShareAlike 2.0 UK: England & Wales License.

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On Saturday 17th May 2014, Delegates at the Co-op Group General meeting consider a resolution on the reform of the Group’s governance. That is part of the process of considering Paul Myners’ recommendations on governance and the Kelly Report on the great Co-op Bank disaster and demutualisation of 2013.

Saturday’s decision will determine whether the Co-operative Group has a chance of survival. Getting it wrong may well bring insolvency proceedings closer. The implications of that for the UK and world wide co-operative movements would be grave indeed.

This is not a time for small minded political bickering or dogmatism. Those voting must rise to the challenge of giving UK Co-operation a future by allowing space for the revival of the Co-op Group as an effective co-operative business.

The resolution accepts four key principles about the direction of reform.

  • A Board elected by members that is individually and collectively qualified to lead an organisation of the size and complexity of the Group

  • A structure that gives the Co-operative Group’s members appropriate powers to hold the Board properly to account for business performance and adherence to co-operative values and principles

  • ‘One member one vote’ with appropriate representation for independent Co-operative societies

  • Necessary provisions in the Rules to protect against de-mutualisation.

Ursula Lidbetter as Chair of the Group has said that Myners’ recommendations are not “stapled to the back” of the resolution. She is working to achieve reforms acceptable to the Group’s members and their elected representatives which also address the serious governance problems that the Myners and Kelly Reports identified.

Ursula has made clear her willingness to talk to people with concerns. She has set up a board committee to work on reforms. She has said:

“I would be concerned if we don’t pass the motion. I think it would send a message to the world that we don’t actually understand the problems that we have. I can’t envisage that would happen.”

Co-op Group employees, through their trade union support reform. Many wise and experienced co-operators support the process: Sir Graham Melmoth expects sanity to prevail, Vivian Woodell has presented the case for a yes vote with his usual clear and principled approach, Cliff Mills, despite his reservations about Myners’ recommendations, has accepted (at http://www.mutuo.co.uk/news/the-myners-report-a-response/) that as long as it is clear that a process of debate and reform follows Saturday’s meeting people should accept the Principles.

How much clearer could the next stage of the process could be? A vote in favour of the resolution leaves the detail to be filled in by the members’ meeting. Only rule changes needing a two thirds majority at one or more further general meetings can actually change the system. That leaves scope for debate about the detail of the structure once the principles are agreed – although changes need to be in place by the end of 2014.

The background to Saturday’s meeting is last year’s disastrous £2,500,000,000 loss. The bank consortium, whose covenants have already been renegotiated once and without whose support the game is up, have already sent in a “troubleshooter” to look at selling off businesses.

If the resolution is lost it is not hard to imagine the banks’ reaction. If it is passed, the next stage allows co-operators to work alongside the executives, the employees, the creditors and the board to put reforms in place. The prize is more power for ordinary members than they have at present and a board with the skills necessary to run a business of the size of even the smaller Group that will survive, held to account by a body elected by members. Sales of parts of the Group are, sadly, necessary to reduce the debt burden left by the grandiose failures documented by Kelly and Myners.

The lessons from this debacle have been expensive. It is important that the whole co-operative movement takes them on board. There is no room for complacency about governance by other big societies.

To me, the choice about how delegates should vote on Saturday is a no brainer. The resolution should pass with an overwhelming majority. Then the real work can begin.

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