Hot off the press….a new Draft Statutory Instrument to implement the changes proposed in “Growth Through Co-operation” on IPS insolvency procedures.

I’ve not had time to go through it yet. Any takers?

Responses to by 20th September 2013

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My detailed personal submission on the HMT Consultation “Growth Through Co-operation” went in today. It’s  about WSC holding limits, insolvency procedures for IPS’s and credit unions, inspections and investigations for societies, access to the register of members and electronic information filing. I managed to comment on the draft SI’s published last month as well. I have tried to do a thorough job. Here’s the full Text to download if you like:

Consultn IS submission 08.13

The main points can be found in this summary answers to questions:

HMT Summary Q & A 04.09.13

Essentially, most of this is very welcome.

However, I have strong reservations about the plan to allow societies to charge their members to inspect the Register of Members (which companies are not allowed to do) and even to allow them to charge for providing copies (which companies are permitted to do). This seems inappropriate when democratic member control is at the centre of co-operation.

The right for societies to apply to court to prevent members from gaining this information at all is also unhelpful. That could mean imposing costs on ordinary members who just want that information. They would always have to give detailed information including reasons for wanting the information and details of everyone to whom it might be passed. That will make it harder for members to get information as of right.

Neither the fee nor the possible court application will affect members who just want to look at their own entry. Other members are already prevented from seeing the financial information about a member’s account but these changes would make it harder for members to find out who else is also a member. In a small workers’ co-op members may know everyone else but they won’t in a big consumer co-op.

In co-operatives with thousands, or millions, of members, how can people organise or get the numbers needed e.g. to call a special general meeting, alter the agenda, or just to form a coalition to change things if they are not allowed, or cannot afford, to find the contact details of other members? Even if there is a legal right, as now, the cost and effort involved may be prohibitive. Complicating that legal right will make matters worse. We need more accountability by boards and executives – not less.

The planned measures, apart from charging members to inspect the register, reflect the position for companies. They were introduced because of the perceived threat by animal rights activists to shareholders in Huntingdon Life Sciences.

However, for societies I think just applying this without a careful review of statutory rules about relations between members and their society and fuller consideration of the statutory duties societies should have to their members would be wrong. For example, the clear duty to provide information, enforceable by court order and a daily fine, that applies to companies would not be carried over but the criminal offence by a member who provides misleading information when applying to see the register would. That is unfair on members of societies.

I am sure these problems are inadvertent and can see why societies want this reviewed. But there should be a full two sided review and not just the application of a Companies Act rule to internal co-op democracy.

What do you think?

Responses needed to by 20th September 2013

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Co-operatives UK have issued a brief indication of their response to the HM Treasury Consultation Document “Growth Through Co-operation” that came out on 26th July and their fuller response to the technical questions is available to download there as well.

Responses are needed to HMT at by 20th September 2013

It’s interesting that the model based  research carried out for Co-operatives UK and cited in their more detailed draft full consultation response  indicates that the new limit for withdrawable share capital needs to increase  to £100,000 to eliminate any disadvantage in the financing and operation of industrial and provident societies from having such a limit at all. The Consultation document gives a £31,000 limit as the amount reached if the present £20,000 is raised in line with inflation. It will be interesting to see what the Government goes for.

The other issues addressed in the consultation are about the availability of insolvency rescue procedures for IPS’s, the introduction of electronic filing of legally required documents with the FCA, the protection of IPS registers from vexatious information requests if the society goes to court to get authorisation to refuse the request, boosted inspection and investigation powers for the FCA and applying Banking Act rescue procedures to credit unions.

All of those issues are very important but the detail is technical. However, the guiding principle on all of them is that societies should be treated in the same way as companies as long as their nature as co-operatives or benefit of the community societies is properly protected by the FCA. Co-operatives UK express that in their fuller response (draft full consultation response).

I offer this brief outline of the main thrust of the consultation proposals for you to download and will make my full legal nerd type response to the Treasury once I’ve finished it, possibly in collaboration with colleagues at DWF LLP

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More detail is  now out to add to the July 2013 HMT Consultn IPS 07-09.13 document on Changes to IPS Law. The plan, you will recall, is to increase the limit on withdrawable share capital,  apply insolvency rescue procedures to societies, protect the register of members from vexatious applications for information, and beef up the FCA’s investigation powers.

Now these three draft Statutory Instruments have been issued by HM Treasury to anyone who had asked for them. They are the planned legal instruments to bring about three of the changes dealt with in the July 2013 Consultation:

Copy of mutuals register order draft of 7 Aug 2013

Share Capital Increase SI final draft

Copy of Investigations Regulations draft 7 Aug 2013

Comments on the drafting of these SI’s are welcome before the end of August (earlier than the Consultation deadline of 20th September) and should be sent to

The SI to implement the insolvency rescue procedures won’t be out in draft form until September.

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IPS Reform in Ireland – Comment if you Know More

Chris Gordon was referred to me by the Legal team at Co-operatives UK with this query:

Hi Ian

Hey Ian I was put in contact with you by Cooperatives UK Legal team to have a quick chat. It’s about Irish Company Law and including cooperatives in the new updates to the law and having them in the mix. The Irish Company Law is under review and there is an open window to have amendments for companies but no-one has lobbied for Cooperatives to be included. I think this is an oversight and would like to talk to you about it.

The reason for the urgency is because, the public open submissions close and I need to get at least 30 responses in to the Department before the 9th September for inclusion in discussions.

Looking forward to chatting to you and getting your opinion if possible.

Kindest regards


I’ve never really researched IPS Law in the Irish Republic, although I know it’s based on the UK 1893 Act with some later amendments. I had also come across this consultation back in 2009: ROI IPS Consultation Paper (Final 2) 20.4.09.

However, a little internet research reveals that legislation is about to be brought to the Dail by the Department for Jobs Enterprise and Innovation. Here’s the detail of what I found out plus some thoughts and info based on the UK experience.

At least in ROI, unlike the UK, the same Department deals with both IPS and Company Law. I see it’s now called the Department of Jobs, Enterprise and Innovation (DJEI) and does cover both – but not in the same legislation.

Here, in the DJEI Action Plan for Jobs 2013 2nd Progress Report at page 84 there is a reference  IPS Law reform:

“Action 237:

Publish legislation aimed at easing the regulatory burden on co-operative societies and making it easier to run a co-operative as an alternative form of enterprise organisation.

Q2 Measure:
Support the OPC in drafting of the Bill and subsequent publication. (DJEI, OPC)

Update: Delayed
The Department of Jobs, Enterprise and Innovation worked closely with the Office of the Parliamentary Counsel in the drafting of the Friendly Societies and
Industrial and Provident Societies (Miscellaneous Provisions) Bill and the drafting was completed on July 2nd.”

The company law reform is dealt with on page 66:

” Action 168:
Progress the very substantial reform of the Companies Acts, following publication of the Companies Bill in December 2012. This Bill will bring significant benefits to companies of all types throughout the country, and will be a key part of the Government’s drive to make Ireland the best small country in the world in which to do business.”

Q2 Measure:
Assist in completing Second Stage in the Dáil. (DJEI)
Update: Complete
The Second Stage reading of the Bill commenced on April 23rd 2013 and was completed on April 25th 2013. Committee Stage is expected to commence in the autumn.”

So it looks as if separate legislation will be coming to the Dail on IPS law in due course. It is already drafted.

My limited knowledge of ROI IPS Law is that there is no test like our “bona fide co-op” or Bencom requirements for registration as they were introduced in the UK in 1939, after Irish Independence. I don’t know what the decision was in the end about whether to import something similar in ROI, although the Consultation document seems to suggest deferring it unless there was a lot of pressure in favour of it.

I also have limited knowledge of ROI Company law, although the large amount of EU Harmonisation means some things are bound to be the same as they are in the UK.

Here, the big problem has always been the failure to update IPS Law in line with desirable Company Law changes, while retaining the special co-op and bencom nature of the IPS. So what are the changes we have campaigned for and achieved on that over the years?

Most of them have been based on the idea that, as businesses competing in the marketplace with companies IPS’s should have many of the same rules. Among changes to achieve that by catching up with later company law developments have been:

The Co-operative and Community Benefit Societies Act 2003 which dealt with the technical processes of making contracts, the old ultra vires rule and issues around directors’ powers to bind societies. Essentially, the Company Law provisions were applied to IPS’s verbatim see sections 3 to 5 of the 2003 Act.

Then, using the power already provided by the Industrial and Provident Societies Act 2002, changes were made by regulations to bring the accounting exemptions for small societies more closely into line with those available to companies.

When the Co-operative and Community Benefit Societies and Credit Unions Act 2010 is implemented sections 3 and 4 will apply Company Director Disqualification rules to society directors and broadly bring the investigation and inspection powers applied to IPS’s in line with those applied to companies.

Perhaps most important of all, IPS’s never benefited from the administration or company voluntary arrangement procedures available to rescue insolvent companies – they were first introduced in 1986. Now, 11 or 12 years after the power was conferred by section 255 of the Enterprise Act 2002, the government plans to apply them and is
consulting on how to do that as well as on applying the inspection and investigation regime from the Companies Act 2006.

Finally, a Consolidation Bill is drafted, will be consulted on, beginning next month, and, Downing Street promises, passed before the 2015 general election.

Can anyone who knows more about the Irish plans and developments add comments to this post to keep us all up to date?

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Rory Ridley Duff writes:

“In my role as Course Leader for the MSc Co-operative and Social Enterprise Management at Sheffield Hallam University, I’m pleased to support – and participate in the delivery of – a new educational initiative organised by European colleagues.  The International Programme for Community Leaders brings together experts in social enterprise development from Social Enterprise Europe Ltd (French Office) and the Education & Solidarity Network (based in Paris).

I would be grateful if you could publicise this new initiative widely, through networks, blogs, newsletters and social media.

The programme has three phases:

·        A preparation phase, including on-line conferences (October 2013)

·        A three day residential in Paris, 25th-27th November 2013

·        A project development phase with the support of the delivery team (2014)


A course flyer, with costs, can be obtained from:


·        Geof Cox – Social Enterprise Europe Ltd –

·        Thierry Weishaupt – Education and Solidarity Network –

The programme is supported by MGEN, a French educational mutual.

Best wishes

Dr Rory Ridley-Duff

Sheffield Business School, Sheffield Hallam University”

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Here is the recently issued July 2013 HMT Consultn IPS 07-09.13 document on Changes to IPS Law as a PDF. Annoyingly it seems to be available only in html form on the website.

This is part of the Consolidation process but deals with implementing changes to the limit on withdrawable share capital under HMT’s IPSA 1965 Act powers and the detailed application of insolvency rescue procedures under s 255 of the Enterprise Act 2002.

I’ll be getting my head round the detail in due course but I thought the PDF might be useful to people in the meantime. Responses needed by 20.09.2013

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On Monday afternoon Lord Naseby introducedprivate members’ bill in the House of Lords which will, if passed, be very helpful to co-ops, friendly societies and mutual insurers. It removes some of the technical legal obstacles that limit their use of shares to raise capital. This Bill lays the essential legal foundations to make capital more easily available to co-operatives, friendly societies and mutual insurers.

The Bill is a vital part of the improved legal infrastructure being developed for mutuals over the next year or two. That includes the new Co-operatives and Community Benefit Societies Bill, increased limit on withdrawable share holdings in and regulations to apply the administration procedure to those societies (Budget 2013 at para 2.260), commencement of the Co-operative and Community Benefit Societies and Credit Unions Act 2010, and the publication of new FCA Guidance. For more information on those developments download the mp3 and listen to my Co-operatives Fortnight Lecture and follow the slides for it.

The Bill also complements the valuable work of the Co-operatives UK and Locality  Community Shares Unit (funded by the UK Department for Communities and Local Government) which makes the use of IPS shares available as a concrete reality on the ground and promotes best practice and investor protection.

The Mutuals’ Redeemable Shares Bill has been promoted by Mutuo and the information from them on it can be found here. The Co-op News has also given the new Bill considerable coverage.

To access a full copy of the Bill and follow its future progress go here.

This post explores the rationale and effect of the various clauses of the Bill as it stands at its First reading in the House of Lords. I must declare the interest that I took part in the initial drafting of this Bill on a paid basis for Mutuo through DWF LLP.

Why is the Mutuals Redeemable Shares Bill needed?

The Bill addresses a number of problems faced by different types of mutuals when it comes to using share capital to raise funds.

For friendly societies, it would for the first time permit societies registered as corporate bodies under the Friendly Societies Act 1992 to issue shares – see clauses 1(1) and 5.

For mutual insurers, it would allow those using either a company structure or a structure based on their own private Act of Parliament to issue shares – see clauses 1(1) & 5. Currently a company limited by guarantee, the structure used by some mutual insurance companies, may not have share capital if it was registered after 1980 – Companies Act 2006 s5

For industrial and provident societies, the problem is about the possibility of exit for holders of shares that are not defined as “withdrawable”. Since  January 2012 when the limit on holdings of nonwithdrawable society shares was removed, there has been interest in exploring the use of such shares. However, it is likely that the old Company Law “Rule in Trevor v Whitworth” would apply to such shares to prevent their purchase or redemption by the society itself (see the Hayes vs Snaith debate for the arguments on this). That means that people holding non-withdrawable shares in societies need to transfer them to other people to recover their investment. That severely limits the effect of the liberalisation of the holding limit.

How The Mutuals’ Redeemable Shares Bill would Work

Like the previous private members’ Acts used to improve the law for co-operative or mutuals in the UK in 2002, 2003, 2007 and 2010, this Bill, if it becomes law, will empower HM Treasury to change existing legislation by the use of secondary legislation to permit the use of redeemable shares.

That means that if the Bill becomes Law, its effects will still depend on the preparation of one or more Statutory Instruments, consultation on them, and a resolution of each House of Parliament to approve them under the affirmative resolution procedure – clause 1(3). That will all take time.

The Nature of Redeemable Shares

The Bill proposes that redeemable shares in an IPS may be transferable but not withdrawableclause 1(2)(a). That leaves the society’s rules or the terms of issue to decide on the details of the rights attached to the share, subject to other provisions of the Bill, as long as the share is not withdrawable. That will permit the use of redeemable shares without limit on the value held. For friendly societies and mutual insurers, that question is left to the regulations to be issued by HMT to permit such shares – clause 1(2)(b) & (c).

When will it be possible to redeem the shares? That will be found in the terms of issue of the shares and there is flexibility about those terms. It can be a date fixed there, a date worked out as the terms provide, or a date chosen either by the mutual or the holder of the share – clause 2(1).

After redemption, there will have to be at least one share left which is neither withdrawable nor redeemable – clause 2(4). This reflects the equivalent Companies Act provision on redeemable shares and ensures that there will always be at least one share in the mutual which has not been redeemed.

Other terms of redeemable shares, e.g. par value, number issued, minimum and maximum holding, and detailed provisions for redemption, can be left to the mutual’s board as long as either the mutual’s constitution or a members’ resolution allows that, otherwise the mutual’s constitution must itself set out those terms – clause 3(1) to (4).

Protecting Mutuality

The decision on whether to issue redeemable shares will have to be to be made by members – the mutual’s constitution must allow it and may restrict the use of them – clause 2(3) & (4). That means the members will have to decide whether or not to allow their use and can define the limits within which they can be issued. This protects basic member control.

In addition, the Bill requires that redeemable shares:

  • are held only by members

  • entitle the member to only one vote regardless of how many shares they hold

  • only give the holder a level of return allowed by the constitution of the mutual

  • can be redeemed only at nominal (par) value with no other bonus or right to participate in surplus

Clause 1(2)(d)

The Bill also prevents the use of redeemable shares for demutualisation. It limits the voting rights of anyone who gains membership only by holding a redeemable share as they cannot propose or vote on a resolution to convert the mutual into a company – clause 4. So even the one vote the member has cannot be used in that way. On the other hand, a user-member of the mutual who happens to hold a redeemable share will still be able to use their single vote on any demutualisation proposal.

Protecting Creditors

The basis for the Rule in Trevor v Whitworth that  prevents corporate bodies from buying back or redeeming their own shares is creditor protection. People who lend or give credit to companies and other corporate bodies, whose owner-members have limited liability for business debts, take the risk of business failure. However, if that happens and the business is wound up, there is a clear order of priority among the creditors for a share of the remaining assets. The rights of holders of shares are postponed and they get nothing until all the debts and costs of the insolvency process have been paid. If the company buys back its shares or redeems them and then is wound up the holders of shares may have jumped the queue. as a result the courts refused to allow companies to do that.

Over the years, parliament relaxed that rule and the current position is that, so long as certain procedural safeguards and rules about funding the redemption or buy back are observed, a buy back or redemption of shares is allowed. Those safeguards can be found in sections 658-737 of the Companies Act 2006.

Broadly, the redemption or purchase must be out of distributable profits or the proceeds of a new share issue. However, in the case of a private company, if sufficient funds are not available from those sources, shares may be redeemed out of capital, as long as the directors and auditors formally report on the solvency of the company, the redemption is approved by a special resolution and public notice is given of the redemption out of capital. It is then open to any shareholder who voted against the resolution or any creditor to apply to the court for the resolution to be cancelled.

Clause 3(5) of the Mutuals’ Redeemable Shares Bill 2013 allows regulations to apply the same protections where redeemable shares are issued by mutuals.

A Vital Development

We must hope that this Bill succeeds in its passage through the two Houses of Parliament despite being a private members’ bill.

It deals with a basic legal problem for co-operatives and bencoms and extends the ability of friendly societies and mutual insurers to raise capital. It also represents an important level of co-operation between those different but related mutual sectors. It’s important that everyone rallies in support of it.

So write to your MP to support it.

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In a resolution of  2nd July 2013, the European Parliament has acknowledged the role co-ops can play in overcoming the economic crisis.

For anyone arguing for better treatment for co-ops at either national or EU level, this is a helpful support and provides useful facts and figures.

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Here is a recording of the Co-op Fortnight Law Lecture and Discussion in mp3 form for you to download if you have an hour to spare or trouble sleeping…..If you look at the slides while listening, it may make more sense.

Thanks to the UK Society for Co-operative Studies, DWF LLP and Co-operatives UK for the support and to the audience for good questions and a vigorous discussion in the finest traditions of Co-op Debate.

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As promised to those who attended on Wednesday night and for the benefit of those who were unable to be there, you can view the slides here. You can also download the slides from the lecture HERE by following the link and clicking the “download” button in the bottom right hand corner.

Thanks to UKSCS, DWF LLP and Co-operatives UK for the excellent support and facilities. The opinions expressed were my own – as were any errors etc. I hope to upload a recording of the lecture if my technology and skills permit.

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This is the planned outline for my lecture on 3rd July:

“Ian will be outlining current legal issues around the co-operative and community benefit society structure. He will deal with recent developments in co-operative and community benefit society law and changes likely to be seen in the next 12 to 18 months. They include the proposed new Co-operative and Community Benefit Societies Act, the entry into force of the Co-operative and Community Benefit Societies and Credit Unions Act 2010, the application of the administration procedure to insolvent societies, the new registration system for societies under the Financial Services Act 2012 and the new FCA guidance expected in late 2013 or early 2014. He will also examine some issues around share capital in societies.”

I’m honoured to be giving the Ian Pyper Memorial Lecture (kindly sponsored by DWF LLP for the UK Society for Co-operative Studies) at 7.00pm on 3rd July at Holyoake House, home of Co-operatives UK for Co-ops Fortnight. For free food in advance come at……

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This morning, the Co-op Bank announced its plan to deal with the problems acquired with the Britannia Building Society and how it intends to meet the Basel III requirements for increased capital for banks. The plan has been agreed by the Banking regulator. The PRA has agreed that the bank needs £1.5billion in capital and has approved the current plan by the bank and the Co-op Group to achieve this.

Once the plan is carried out, the Bank will no longer be a wholly owned subsidiary of the Co-op Group but will be a Stock Exchange Listed Company with ordinary shareholders. The plan is that the majority of ordinary shares will still be held by the Co-operative Group.

Lets look at the detail of the plan and think about its implications. The full text of the plan is available on the Co-op Group’s website. An interview with Euan Sutherland is available on Youtube as well. The main features of the plan seem to be as follows.

The Plan

It has been agreed that the Bank needs £1.5 billion in Common Equity Tier 1 capital. For the meaning of “Common Equity Tier 1 Capital”, see Basel Committee on Banking Supervision, “Basel III: A global regulatory framework for more resilient banks and banking systems”, December 2010, revised June 2011 at pp 13-17.

£1 billion is to be contributed in 2013 and a further £0.5 billion in 2014. The first £1 billion will come from an “Exchange Offer” to be launched in October 2013. The holders of “target securities” i.e. preference shares, subordinated bonds and subordinated notes in the Bank will be offered the chance to swap those securities for a mixture of senior but unsecured debt securities in the Group, plus possibly similar securities in the bank, AND ordinary shares in the bank. See pp 6-7 of Co-op Bank Plan Full Statement 17.06.13 for a list of the securities involved and their ranking.

The exact mixture offered to those security holders will vary according to the ranking of the securities that they hold


“more junior ranking Target Securityholders are likely to be offered a substantially greater proportion of Bank Shares relative to the Group Instrument. The most senior ranking Target Securityholders are expected to be offered the substantial proportion of the Group Instrument.”


Preference shareholders will get the highest proportion of shares and holders of Notes the highest proportion of debt securities (pp 6-7).

The target securities in the Exchange Offer will be redeemed below the bank’s book value (p3 of the Co-op Bank Plan Full Statement 17.06.13). That is the contribution of those security holders to solving the bank’s capital shortfall. For “small retail investors”, the Bank is considering both “alternative options” and “the provision of independent financial advice” (p4 Co-op Bank Plan Full Statement 17.06.13).

The Co-op Group’s contribution as part of the Exchange Offer is that the proceeds from issuing its senior but unsecured debt securities will be used indirectly to finance its own subscription to additional ordinary shares in the bank while Co-op Group will meet the interest and principal payments on that debt from its own resources.

Part of the £0.5 billion to be raised for the Bank in 2014 will be found by the Co-op Group. It will be made up of  the proceeds from the sale of  Co-operative Life Assurance and Asset Management – agreed but subject to regulatory approval – and  from the sale of Co-operative General Insurance by the Group. In addition, the Bank will embark on a cost saving programme and the sale of non-core Bank assets.

The bank will focus in future on serving retail customers and small businesses rather than larger corporate and commercial customers with complex requirements.

The Effects?

So, what does this mean?

  • The detailed proportion of the bank’s ordinary shares that will be held by minority shareholders rather than the Group will not be known until the detailed Exchange Offer (“Equity Swap”) is made in October and the response of Target Security holders is known.
  • There has been a genuine effort to develop an “equitable” solution to the problem.
  • The existing outside investors in the Bank make a contribution by getting a new bundle of ordinary shares and debt securities which do not reflect the book value of the bank.
  • So, watch out for a short term reduction in the credit rating of the “target securities” subject to the Equity Swap and of the bank’s senior issuer credit rating – p5 Co-op Bank Plan Full Statement 17.06.13.
  • The Co-op Group raises funds based on its own credit worthiness and invests in ordinary shares in the bank as well as investing the proceeds of the sale of the insurance businesses.
  • The bank employees and management participate in cost cutting and a refocus of the business.
  • The Co-op group avoids selling other profitable businesses to bail out the Bank
  • The requirements of UKLA and the Disclosure and TransparencyProspectus and Listing Rules as they apply to Ordinary Shares will impose a level of transparency and accountability on the management of the Bank and, indirectly, of the Group that will be healthy and useful to Co-op Directors and members.

All in all, this looks like a reasonable and proportionate plan to deal with the serious problems that emerged earlier this year and to clean up the mess.

Using the bank’s PLC status to come up with a solution looks like the least of the evils. However, we must hope that any slippery slope towards reduced Co-op Group control of the Bank is avoided.

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Andrew Bibby has published an interesting and thoughtful analysis in the Guardian of the issues currently faced by the Co-op Bank in the wider context of the problems faced by many co-ops in raising capital.

He outlines the interesting recommendations of Mark Hayes in a recent report for Co-operatives UK for the use of transferable shares in co-ops and the establishment of a secondary market in those shares. He also points to the difficulties faced in agricultural and other co-ops who have gone down the path of using equity capital while trying to maintain their co-operative identity.

Andrew points out that the Co-op Bank is a PLC owned by the Co-op group and comments that:

“Interestingly, the Co-op Group already has the legal powers to issue transferable shares to its members in the form of what its rule book calls Member Investor Shares. Were the Co-op Group to pursue this idea, it would create a major new financial instrument for cooperatives to develop further. Behind the scenes, recent lobbying by the co-operative banking sector has aimed to ensure that transferable shares of this kind are recognised under Basel III Tier 1 rules as core capital.”

This is a good point and the availability of transferable shares could be helpful. The problem will always be the existence of a market in shares of this kind and so the ease (or difficulty) with which they can be sold when people holding them want cash them in.

If the Basel III Tier 1 rules are tweaked to allow such shares to count, it seems unlikely that shares issued by the group would be directly relevant. They are not the bank’s capital.

However, the ability for the Group to raise more capital by a share issue might assist in plugging the hole in the bank, if the funds were then invested in the bank as further equity held by the Group in the bank. That would count because it was equity. When the shares were issued, it would have to be made very clear to those taking them that the purpose was to support the bank.

As I remarked in my long post on the bank last month:

“For co-operatives registered as industrial and provident societies capital raises difficult legal and regulatory issues.

Shares classified as withdrawable give the holder an exit possibility as the society can pay the money back and cancel the shares. This is contrary to the usual rule that corporate bodies (e.g. companies) are not permitted to buy back their own shares without special procedures and safeguards for creditors and remaining shareholders. However, apart from withdrawable shares held by other societies, only up to £20,000 worth of those shares can be held by any person (individual or company).

Non-withdrawable shares in societies are not subject to any limit on the value of a holding but they probably cannot be bought back by the society at all under the governing common law rule in Trevor v Whitworth. This is unfair to societies as companies, as long as they follow certain procedures and provide some safeguards, can buy back their own shares out of profits available for distribution or, in the case of private companies, even from capital not so available.

Primary legislation is needed to deal with this issue and to put societies in the same position as companies in that respect. If that were passed, it would significantly ease the position of all co-operative societies, including the Co-operative Group.”

There is no doubt that an expansion of the range of shares that societies can issue to  include redeemable shares that are not subject to the holding limit on withdrawable shares but that do offer an exit route subject to appropriate safeguards for creditors would be very helpful.

© Ian Snaith 2013 This work is licensed under the Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 2.0 UK: England & Wales License.

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I’m honoured to be talking about recent and imminent legal developments and Co-ops at the Ian Pyper Memorial Lecture (kindly sponsored by DWF LLP for the UK Society for Co-operative Studies) at 7.00pm on 3rd July at Holyoake House, home of Co-operatives UK for Co-ops Fortnight. For free food in advance come at……

Further information from Richard Bickle –

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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Understanding What’s Happened to the Co-op Bank……

As a simple lawyer I write on this with trepidation. But my passion for the Co-op Movement means I want to get my head round this.

Why did Moody’s downgrade of the Co-op Bank’s credit rating last Thursday? What are the ramifications of that for the Co-op Group, and co-operatives more widely?

So, I’ve done what I can to research it and share here what I have found from the press and other sources, providing, as far as possible, links to useful sources and some attempt to explain them.

What Moody’s Said

The Moody’s downgrade can be read in full here.

The key point seems to be:


The lowering of the BCA to b1 reflects Moody’s view that the bank’s 2012 revaluation of its risk exposures announced in March indicates that the significant deterioration in the credit quality of the bank’s non-core portfolio has exceeded the bank’s expectations and that its earlier valuation reserves and provisions built against these risks may well be inadequate. Most of these risks stem from the legacy portfolio of Britannia Building Society, which the Co-operative Bank acquired in 2009. Moody’s believes that the bank underestimated the risks of that acquisition, especially against the backdrop of the continued weak economic environment. Moreover, the bank’s ability to generate the earnings needed to replenish capital, if higher losses materialise, is diminished by its slow progress in realising merger-related revenue and cost benefits.

Moody’s believes that the combination of (1) low capital levels; (2) a low problem-loan coverage ratio relative to other UK banks; and (3) weak internal capital-generation capacity suggests that the bank’s capacity to absorb future losses is now too low to support an investment grade rating and that it possesses only speculative standalone strength, subject to high credit risk in the absence of extraordinary external support. The ratings assigned to the bank’s subordinated and junior subordinated debt reflect the possibility that losses may be imposed on holders of these securities in order to achieve the capitalisation levels that the UK regulators require.”

.. and The Guardian Elaborates

As Patrick Collinson’s Guardian commentary, says, CRE (commercial real estate) loans, mainly from Britannia, formed most of the increase from 8.1% to 10.9% in the bank’s problem loan ratio by the end of 2012. As a result, £1.7bn of the bank’s total £9.4bn commercial loan book is impaired and this is apparently down to 12 big loans. Moody’s argues that this is worse than the bank expected and may worsen further beyond the £351m total impairment loss shown in the 2012 accounts.

To compound this, Collinson and Moody’s both report that, although the bank’s capital ratio improved from 8.8% to 9.2% during 2012, and was above the regulatory minimum, as Collinson says, it compares badly with Lloyds at 12.5%.

Moody’s also takes the view that the Bank’s ability to improve its capital ratio is limited due to low likely profitability, partly because it has been slow to generate benefits from the Britannia deal. That is because the integration of the two systems has been on hold pending Project Verde which was aborted last month .

Collinson points out that although the average loan to value on residential loans is 54%, 10% of them are above 100% i.e. more is owed than the property is worth. That again comes from Britannia through its subsidiary “Platform”, which leant through intermediaries, sometimes with minimal income checks or self-certification. Arrears on those are running at twice the industry average.

As “UK Taxpayer” succinctly put it in a comment on the FT Alphaville piece on 10th May:

“It was the Britannia Building Society that did it. Nationwide was far more canny when they took over Dunfermline, in ensuring that the Government took over the problem loan portfolio”

However, other FT comments point to issues with Moody’s behaviour. “OrderOrder” argues that Moodys have been “irresponsible” by first giving a high credit rating and then dropping it “dramatically” (six points) “on data that was evident earlier according to their own report (the impact being their 2009 purchase of Britannia)”. Paul Munton suggests that the PRA should step in with their own analysis of the Co-op Bank’s credit risk to set the record straight.

According to the supportive Independent, the Bank of England and PRA are refusing to comment in public at present, although the Co-op is obviously in discussions with both of them. The Independent also argues that customer loyalty stemming from the ethical policy makes a run on the Co-op Bank less likely and allows the Bank of England and the PRA off the hook.

What Happened Then

The immediate result of the Moody’s announcement on Friday was the announcement that Barry Tootell was stepping down as CEO. According to the Guardian, that had already been agreed and only the announcement was speeded up.

It is not known how much Mr Tootell will receive by way of pay off but his predecessor, Neville Richardson, inherited from Britannia, left early in 2011. This morning’s Daily Telegraph reports that he left with:

“a package worth £4.6m, including a £1.4m payment for “loss of office”, as well as £1.39m in “compensation” for leaving.”

The Group Board are reported to be considering trying to recoup some or all of that as the Telegraph reports that:

“The Co-op Bank is among the lenders to have brought in so-called “malus” clauses for its staff to allow it to claw back pay from current and former staff if it is discovered that the lender’s performance at the time the pay was granted was based on taking positions that subsequently soured.”

The report suggests that such clauses apply to the bank but not the Group itself.

On the Markets, the value of the Bank’s 10 year Bond, maturing in 2021 fell 25% on Friday raising the yield from 9% to 15% (see this Stock Exchange Chart). In addition, the value of Co-op Group debentures fell significantly. This makes it more expensive for the Bank and the Group to raise capital on the markets until the values recover as a result of new developments.

Most of the newspapers estimate the capital shortfall at the bank at around £1bn. However, that depends both on how much can be raised and on the valuation of assets, which in turn depends on the loan portfolio and whether the performance of loans deteriorates further.

The Co-op Group has pointed out that, “like the rest of our banking sector peers” they need to strengthen their capital position due to the economic downturn and the imminent introduction of stricter regulatory requirements.

The current plan seems to be to raise £600m plus from the sale of the general insurance arm of CIS to add to the £219m to be raised from the already agreed sale to Royal London of the life insurance arm.

What Happens Next

According to the Sunday Telegraph  (12.05.13), Euan Sutherland, who takes over as CEO from Peter Marks at next Saturday’s AGM of the Co-op Group, will launch a review to evaluate all the group’s main businesses to decide which to sell to raise capital. The results of that review may be available by August. The article suggests that Mr Sutherland feels that “the supermarket business is at the heart of the mutual’s operations”.

Iain Dey in The Sunday Times reports that the Bank has already submitted a rescue plan to the Bank of England. He estimates the “black hole” as £750m but asserts that the £650m the Group hoped to raise by the sale of non-life insurance is seen by the City as optimistic. This morning’s Times talks about the sale of property and of assets that came with Britannia as an additional source of capital.

Speculation on the Options

All this seems to focus the options facing the unfortunate Euan Sutherland and acting bank CEO, Rod Bulmer, on a limited number of possibilities, none of which look great.

1. Leave banking and concentrate on the core retail business.

The problem here would seem to be how to exit. This does not look like a good time to be selling a bank. New and tougher regulatory requirements affect all banks. We have seen the problems Lloyds TSB have had unloading the branches the Co-op had hoped to buy. They are now launching them on the Stock Exchange. That implies the Co-op being on the wrong side of a fire sale of just the kind it was hoping to exploit buying those Lloyd TSB branches for a low price through Project Verde. Holding nerve and gradually sorting the mess out seems like a better strategy.

2. Soldiering on with the bank

This means plugging the gap in its capital and the PRA and Bank of England would expect the Group to find the funds. To see the current regulatory requirements in detail, peruse the new Genpru and Bipru sections of the PRA’s Handbook. Then consider the additional requirements being developed for implementation soon. Of course, the sale of other parts of Co-op Financial Services would be the first resort. But what happens if more is needed? That suggests the sale of other parts of the Group’s family of businesses. Presumably that’s one of the issues the review reported in the Sunday Telegraph will look at.

3. Partial disengagement from banking.

Reduction in the scope of the activities of the bank might help especially if it could be done so as to reduce the level of capital requirements or ease the position on the poorly performing loans inherited from Britannia. There might be some element of realising further assets of the bank as part of that as well.

4. Capital Injection

The Co-op bank is a PLC. It only issues preference shares and so the Group keeps 100% control. There is a precedent along the lines of the 2011 JV with Thomas Cook used to ease out of the travel business.

Maybe that could involve a partnership with equity investors in the ownership of the Bank? That would be a shame, but the subsidiary structure (as opposed to direct member ownership of the bank) opens up the possibility of tapping the equity market or using that as part of a strategy to put in more capital by agreement with a partial buyer. That approach, undesirable as it is on co-operative grounds, might be preferable to stripping out assets from the rest of the Group to prop up the Bank. At least it would be clear what remained a co-operative and what did not.

Of course, if the perennial problem of capital for co-operatives could be resolved that would help the Group for the future, and retain its co-operative nature. It might even be part of the solution to the current problems.

Co-operative Capital

For co-operatives registered as industrial and provident societies capital raises difficult legal and regulatory issues.

Shares classified as withdrawable give the holder an exit possibility as the society can pay the money back and cancel the shares. This is contrary to the usual rule that corporate bodies (e.g. companies) are not permitted to buy back their own shares without special procedures and safeguards for creditors and remaining shareholders. However, apart from withdrawable shares held by other societies, only up to £20,000 worth of those shares can be held by any person (individual or company).

Non-withdrawable shares in societies are not subject to any limit on the value of a holding but they probably cannot be bought back by the society at all under the governing common law rule in Trevor v Whitworth. This is unfair to societies as companies, as long as they follow certain procedures and provide some safeguards, can buy back their own shares out of profits available for distribution or, in the case of private companies, even from capital not so available.

Primary legislation is needed to deal with this issue and to put societies in the same position as companies in that respect. If that were passed, it would significantly ease the position of all co-operative societies, including the Co-operative Group.

The other way to ease the position of co-operative societies is to create and develop a secondary market in non withdrawable shares but that would, at best, be a long term project and, to develop that, careful thought would have to be given to the conditions attached to those shares and the operation of any such market. That mechanism might be useful for smaller co-ops but is unlikely to help large well established societies.

Lessons from the Story of the Bank

It is rather early to try to draw lessons from these events but a few questions seem to be raised by them.

Can Growth and Governance by Members be Combined?

Edgar Parnell has pointed out in an email sent out last week (edgar View 12.05.13) that “chasing growth to the detriment of the real interests of the membership has proved to be the downfall of major consumer co-ops in many countries in Europe”. He cites the 1998 collapse and later liquidation of Coop Dortmund-Kassel in Germany after a DM45m investment in modernisation with fundraising from investor members with high share dividends and the reduction in the role of members as well as the 1995 bankruptcy of Konsum Austria.

However, this raises the issue of whether co-operatives are destined always to remain small or whether growth while retaining member control is possible. It would seem to be a counsel of despair to insist that co-ops always have to be small and marginal.

Surely, we must work to ensure that democratic control and sensible governance can still prevail in large co-ops.

Is a Group Structure a Problem?

Since the resolution of the debates between the Webbs and GH Cole in the early twentieth century, British consumer co-ops rejected large scale co-partnership between employees and consumer members in favour of outright ownership by consumers.

The consolidation of the consumer movement after WW2 then concentrated the business in the Co-operative Group – particularly after the merger of CWS and CRS in the early 21st century to deal with problems at CRS and the merger with United Norwest to recruit Peter Marks as Group CEO.

The Group has kept its complex hybrid structure of Corporate members and individual members and reflects that in its board and general meetings. Of course, it has adapted significantly since those mergers by having outside Independent “expert” Non-Executive directors on both the CFS and the main Group boards to improve the chances of challenging management. It has also rationalised its governance and regional structure and adopted recommended corporate governance practices. However, as events have shown, none of that provides any guarantee against mistakes such as the acquisition of Britannia and the attempt at further expansion before it was properly integrated.

The Bank has always been a subsidiary (latterly part of CFS) and the relationship between the Bank and Group CEO’s always seemed a little mysterious. We now see that the Bank impacts the whole group despite the separate corporate entities because of the regulatory requirements for banks. Maybe further adjustment of governance will emerge as part of the clarification and simplification of the Group as a result of the present review of all its businesses.

We can only wish the new Group CEO and his team well in dealing with all these problems and hope that the input of the two boards, the members, and the executives can together result in a stronger, if perhaps a leaner and more focused, Co-operative Group.

Tough decisions seem inevitable.

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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Protect the “Co-operative” Name – contact BIS by 22.05.13

It is vital that everyone supports Co-operatives UK’s campaign on the Government’s proposal to remove the current protection for the use of the word “Co-operative” in the name of a company, LLP, sole trader, limited partnership, or unregistered general partnership. Do that by sending your opinion BY 22nd May 2013 to

It may be helpful to give some of the technical legal background to the proposal here and to explain its importance to UK co-operatives.

Co-operatives UK’s excellent response  to the consultation provides practical evidence and coherent and convincing arguments against the change mooted by the government. I support that 100%. This short post elaborates the background and some of the arguments to complement the Co-operatives UK response.

Why Is Protection Needed?

In the UK legal system there is no requirement for co-operatives to use any particular business structure. Many co-ops use a society registered under the Industrial and Provident Societies Acts 1965 to 2003 (IPSA’s) – soon to be renamed Co-operative or Community Benefit Societies Acts. But many co-ops use registered companies and limited liability partnerships because they find them more convenient. It is also possible for co-ops to use a limited partnership registered under the Limited Partnerships Act 1907 or an unregistered general partnership governed by the Partnership Act 1890, although this is less common due to problems with liability in those cases. While a co-op cannot, by definition, be a sole trader, protection of the name against abuse by sole traders is important.

This freedom to choose any business structure arises from our liberal tradition of business law and has advantages. It allows flexibility and the development of new co-op businesses and initiatives without the constraint of one rigid legal straitjacket. On the other hand, as the whole concept of a co-operative is based on values and principles, some protection of their identity is needed.

The FCA Mutual Registrations team require that any society registered as a co-op under the IPSA’s, meets the ICA definition. In the case of other business structures, protection against misuse of the name “co-operative” depends on the legislation now being reviewed by the Department for Business Innovation and Skills (BIS).

These protections are vital to ensure that the public are not misled into believing that they are dealing with a co-operative when they are not. They also prevent the co-operative idea from being tarnished by fraud and abuse.

How Does the Current Protection Work?

The regulation of words used in business names is governed by the Companies Act 2006 and regulations made under it. However, the protection extends to all business structures and not just to companies. How does this work?

Section 55  and Part 41  of the 2006 Act set the system up.

Section 55 requires permission from the Secretary of State (in practice Companies House) for the use of certain words in company or LLP names- See reg 2 of SI 2009/2615  for the application of this to LLP’s.

Sections 1192 and 1194 require the same permission for any of those words to be used to carry on business in an unregistered or limited partnership or as a sole trader. They make it a criminal offence for anyone to do that in the UK.

Under The Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009 SI 2009/2615 the word “co-operative” is protected from use in a company name, an LLP name, or by anyone carrying on business using any unregistered structure.

What Change is Proposed?

The current consultation by the Department for Business Innovation and Skills (BIS) questions whether any of the names on the list in those regulations should remain protected.

It does this by asking whether regulations are necessary at all and, if so, whether they can be “reduced, simplified or improved”.

Why Does it Matter?

In paragraph 39 of the consultation document the rationale for the protection is set out:

“39. All the words specified as “sensitive” and listed in Schedule 1 of SI 2009/2615 (see Annex A) were included to protect the public from being misled by a business’ name as to either its status or the nature of its businesses activities (e.g. charity, co-operative, Institute). However, as language evolves words, which may have been considered worthy of protection at the time, may no longer be considered such a risk”

In paragraph 52 certain names are suggested as being particularly in need of protection:

“52. Those which appear to be particularly important to protect include: Accredited, Bank, Charity, Institute, Insurance, Police and University. Misuse of these words poses a high risk to the general public.”

The internationally accepted ICA Statement of Co-operative Values and Identity  gives a clear focus for the meaning of the word “co-operative” and clear criteria against which to judge a business or person seeking to use the name.

The misuse of the word “co-operative” leads to similar risks to the misuse of the words listed in paragraph 52 (above) of the BIS document.

People may well wish to trade with a firm because it is a co-operative and because the name implies certain standards of behaviour and an ownership structure which protects and facilitates that. For legal structures other than industrial and provident societies, there is no other agency or government body that provides that assurance so the preservation of this protection is essential.

The use of the name is not restricted in the IPSA’s because the flexibility to use a range of business structures for co-operatives is beneficial. In addition, to impose such a restriction, primary legislation would be required. Such a change would not amount to a consolidation so it could be achieved as part of the current Law Commission and HMT project.

If the regulations are to be removed or reduced radically, it is essential that protection is retained for the word “co-operative – and extension to the words “coop” and “co-op” is desirable.

Maybe the function could be removed from BIS to the FCA which carries out the same role for societies, or to Co-operatives UK as the custodian of co-operative values in the UK.  However, that would be unlikely to reduce red tape as a different government body would be involved in the process on the registration of a company or LLP and in prosecuting for violations by sole traders or unlimited and limited partnerships.

It makes sense for the function of approving the name to remain with the body involved in company and LLP registrations and for the prosecuting function to stay with the same body.

UK International Obligations

The International Labour Organisation in its Recommendation 193 of 2002 makes clear the expectation that states who have signed up to the ILO Convention will promote co-operatives. That applies to the UK.

Paragraph 7(2) of the recommendation provides that:

“Cooperatives should be treated in accordance with national law and practice and on terms no less favourable than those accorded to other forms of enterprise and social organization.”

To fail to protect the identity of co-operatives taking advantage of the flexible system of business structures in the UK would fail to meet that requirement.

Under paragraph 10 states are to adopt  legislation and regulations on cooperatives guided by the cooperative values and principles. The removal of the protection afforded by the UK Business Names rules would fail to do that.

Given that governments are also urged in paragraph 10 “to consult cooperative organizations in the formulation and revision of legislation, policies and regulations applicable to cooperatives”, the submission of Co-operatives UK should carry particular weight.

As a member state of the European Union, the UK should also have regard to the European Commission’s Communication of 23rd  February 2004 (COM(2004)18) on the Promotion of Co-operative Societies in Europe. In paragraph 3.2.4. the Commission emphasises the importance of  the co-operative definition, values and principles set out by the International Cooperative Alliance (ICA) in 1995, and refers to their endorsement by the UN and the ILO. It goes on the state:

“Consequently national legislators should be based (sic) on the co-operative definition, values and principles when drafting new laws governing co-operatives. In this context however Member States  are required also to be sufficiently flexible in order to enable co-operatives to compete effectively in their markets and on equal terms with other forms of enterprise.”

That Communication has been endorsed and applied by the European Court of Justice.

This all shows that the removal of the protection of the word “co-operative” would be a violation of the principles expressed by the EU, the ILO and the UN. This adds weight to the campaign on this issue.

What To Do

You can help :

BY 22nd MAY 2013

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA



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Co-operative Commission Website Hacked and Destroyed

On trying to research the 2000 Co-operative Commission today, I discovered that its website has been wrecked. I have put its report up on my website (click coop-advantage) and it is also on the Co-operatives UK Website. It would be good if Co-operatives UK or the Co-operative College or the Co-operative Group could rescue or renew the Co-operative Commission website as it had many useful details and resources on it.

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Full 1995 Proposal for UK Co-operatives Act Now Available

UKCC Legal Working Group 1995 Proposal for a Co-operatives Act for the UK:

Part I: UKCC Co-op Law Proposal pp1-25 &

Part II: UKCC Co-op Law Proposal pp26-53

After the Thatcher Government abolished the UK’s national Co-operative Development Agency in 1990, some of the money from it was used to finance the UK Co-operative Council. That was an apex co-operative body including the Co-operative Union (consumer co-ops), ICOM (worker co-ops) and the main agricultural co-op and housing co-op bodies. Co-operatives UK is now the equivalent body and, before developing as such, contracted to administer UKCC’s affairs.

I was the co-ordinator of the UKCC Legal Working Group. The members were Charlie Cattell for ICOM (now part of Co-operatives UK), Roger Jones (then CWS Secretary) for the consumer movement and Michael Finch from NFU representing agricultural co-ops.

The Proposal represented the fruit of many years’ work by that group in attempting to develop a modern Co-operative Law for the UK that would accommodate and meet the needs of all the sectors. By 1997 it was turned into a voluminous Parliamentary Bill which was presented to the incoming Blair Government early in May 1997.

From then on, despite the sterling efforts of Lord Dennis Carter and Ted Graham (Lord Graham of Edmonton), and the work of Sir Graham Melmoth   (“the man who saved the co-op”) and the late John Tilley as CWS Parliamentary Officer, lack of Parliamentary time prevented the development of a Government Bill. However, some but not all of its proposals became law through a series of private members’ bills and pieces of secondary legislation between 2002 and 2011.

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Co-op Bank Thinks Better of Project Verde

In what is probably a very wise decision the Co-op Group board decided yesterday to pull out of the plan to buy 632 Branches from Lloyds TSB. Maybe organic growth, while unexciting, is healthier and the demand for capital, while still real will be less. The FT  reckons the need for extra capital for the bank remains and will require further sales of businesses by the Group. Read the Group statement here.

While this must be disappointing for the Group and the deal was planned at a good price, the problem of the increased capitalisation demanded across the banking sector and the impossibility of using Equity without threatening the identity of the co-op just made it a step too far.

It’s great to see the Group supporting the Bank in the way it is without going down a route such as issuing equity in the Co-operative Bank PLC subsidiary, which would threaten the whole co-operative nature of the organisation. That would be a disaster for the British Co-operative Movement.

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A New Social EntrepreneurshipTeaching Tool……

For those involved in higher education or otherwise interested, this US project on teaching social entrepreneurship may be useful. Here’s the email about it: Do Good Well 04.13 and here’s an overview of the project: Overview of Do Good Well . This looks interesting – especially for those into Social Entrepreneurship. Contact Nina Vasan on

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International Co-operative Alliance UK and Blueprint

This link gives an up to date account of the relationship between the ICA’s Blueprint Plan on legislation and this year’s UK developments. Essentially, we have the consolidation which it is hoped will become law by late 2013 (see My Blog Entry of early 2012) and the 2013 Budget announcement of a plan to review the limit on holdings of Withdrawable share capital in societies and to look at applying insolvency rescue procedures to societies as recommended here. See Linda Barlow’s Blog for an outline of the implications.

As usual with Budget announcements, the announcement was thin on detail:

“2.260 Co-operatives legislation – The Government will consult in summer 2013 on options for raising the limit on individual subscriptions for Withdrawable Share Capital in Industrial and Provident Societies (IPSs) and introducing insolvency procedures for IPSs and credit unions.”

See Budget 2013 at page 94.

So now we await the consultations in the “Summer”….. and maybe the Draft Consolidation Bill earlier than that?

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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Co-op Group Results: Project Verde in Doubt but Legal Services Does Well

This is not a legal post but does touch on an important issue for the whole UK co-op movement.

The massive concentration of the movement into the Co-operative Group has led to a renaissance in terms of retail market share and big improvements in the approach to ethical trading and promotion of the co-operative ownership model as different from PLC’s.

However, the latest results have been seriously affected by the need to account for the cost to the Co-op Bank of PPI misselling and bad debt. The bad debt was apparently inherited from Britannia, which became part of the bank only a few years ago and which has not yet been fully integrated.

Maybe this will spell the end of the project to buy all those Branches from Lloyds (Project Verde). The FT certainly seems to think so. Maybe a little time to consolidate would be healthy and useful for the Group and, particularly, the bank? With so many of UK consumer co-operation’s eggs in one basket, the security and safety of that basket becomes particularly important.  The insurance side of the business is being sold and travel has already gone via the Thomas Cook  joint venture. Will there be yet more concentration on retail? What about funerals and farming?

It will be interesting to see how the new CEO moves things forward. What really matters is to keep emphasising the co-op difference and the importance of members and of governance. That is the  co-op’s USP. It should be constantly used and promoted. A certain amount of movement in and out of businesses ensures that the service to members  is improved and developed.

The new Co-operative Legal Services business has broken even in its first year. That is impressive and maybe points the way forward…..

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FSA/FCA Mutuals Registration Team: Job Advert & 01.04.13 Changes

Jonathan Bromberger Manager – e-Money, Mutuals & PSD Teams at the FSA writes in a widely circulated email:

“I am writing to update you on several current (or upcoming) changes for the Mutuals Registration Team (“the team”) as these will influence the way we interact with your organisation and the mutual sector more generally.

The team is in the midst of delivering significant change which will cover:

  • Actively considering how to implement the Draft Mutual Societies Order and how our role as registrar changes as a consequence;
  •   Reviewing our processes, systems and ways of working;
  •   Up-skilling the team;
  •    How we engage with the co-operative and mutual sector more generally &
  •    Planning for succession.

There is also a restructuring in the wider FSA, as we approach 01 April 2013 when FSA legally separates into the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).  However the registrar function will operate as part of the FCA and provide all the services required by societies whatever their society type.

In recognition of the importance FSA places on the successful delivery of these challenges the manager of the team will now have solo responsibility for the team, rather than managing a multiple portfolio.  The team will be located in the Approved Persons Passporting & Mutuals (“APPM”) department in Authorisations.  At 01 April, I will step down as the manager of the team and Beverley Walker will run the team on an interim basis.  Beverley will do so while the FSA seeks to recruit a permanent replacement and she will report to Graeme McLean who is the experienced Head of Department for APPM.  I will be in the FSA for a period after 01 April and will ensure an orderly handover of my mutual responsibilities.

I have attached a draft copy of the Mutuals manager job advert, if you are aware of any candidates this might suit or interest, please forward the advert to them (Job ad template Auth (6) (4) (4) (2) (3) (4) ).

If they wish to discuss the role, I am happy to do so with potential applicants and they can submit their applications via the following hyperlink: ………………………

Looking to the future I would also like to introduce Ian Adderley.  Ian joined my team this month as a Senior Associate and comes to us with a background of involvement in the co-operative movement. He previously worked for Co-operatives Yorkshire and the Humber– a regional co-operative council, representing, promoting and connecting co-operatives in that region. Whilst there he successfully organised and deliveredFutures North– an event bringing together co-operators across the north of the UK; and frequently spoke at events explaining and advocating the role of co-operatives and the co-operative economy. Ian has been active in the co-operative movement in various other ways including as a director of a national co-operative and previously as an elected member on committees of The Co-operative Group. Prior to working in the co-operative movement Ian read Law with Politics and was later called to the Bar at Lincoln’s Inn.  Most recently, Ian worked for the public services trade union, UNISON. There he worked as the national Ballots Manager, responsible for ensuring legal compliance in the running of industrial action ballots. His work also involved reviewing ballot processes, project managing the creation of new systems, writing guidance and delivering training.

I know Ian is keen to speak with people from across the co-operative and mutual sector. He will be in touch with you once he has completed his initial period in the team, however if you would like to contact him sooner, his contact details are:


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Whatever Happened to Cobbetts…….

This has been a hectic week that has involved living in interesting times.

Some of you will  know that, when doing legal practice work, I have, for many years, operated through a freelance consultancy arrangement with Manchester Solicitors Cobbetts LLP .

On 31st January 2013 Cobbetts announced its intention to go into administration. It emerged that this was a “pre-pack” arrangement involving the purchase of the business out of administration by DWF LLP. That was confirmed by DWF on  7th February 2013. Pending further discussions about the future of my arrangement with DWF, I am currently working through them as the successor organisation to Cobbetts. The insolvency of law firms registered as LLP’s raises interesting issues.

It is sad to see the demise of a firm known particularly for its interest in co-operatives and mutuals and generally for its civilised approach to its stakeholders. We must hope that as many jobs as possible will be saved by this move and that the civilised behaviour that was always my own experience of the firm will continue under the new regime. All good wishes to everyone involved.

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit Creative Commons or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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