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Co op fortnight lect 2013

Ian Snaith
Ian Snaith
Ian SnaithConsultant Solicitor at DWF LLP

The slides from the 2013 UKSCS Ian Pyper Memorial Lecture "Local, Loved and Trusted.....with Legal Support? given at Holyoake House on 03.07.13 on recent and planned Co-op Law Reform in the UK

Co op fortnight lect 2013

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Local. Loved and
Trusted......with Legal Support?
Ian Snaith
DWF LLP, Leicester University
www.iansnaith.com
Lecture Outline
•Legal Support that Co-ops Need
•Problems with Legal Support
•Improving Support 2000 – 2012
•Major Improvement 2013 Onwards?
•Questions & Comments
Legal Support that Co-ops
Need
● Security of Co-op Identity against
demutualisation
● Ability to apply ICA Principles/Definition
to business
● Level Playing Field for Business
Purposes
● Clarity & Simplicity
Choice of Legal Support
Structure
Can use CLG, Private Company, LLP or
General Partnership – subject to
protection of “Co-operative” name
BUT
Industrial and provident (IPS)/ co-
operative and community benefit
society(CCBS) is tailored to Co-ops
Creaking Support Before 2000
●
Before 2000 - Fast Change to
Company Law in C20th – only limited
change since 1860's for CCBS
●
Outdated CCBS Legislation –
accounting, capacity, capital rules,
insolvency & rescue, not updated
●
Conversion to demutualise too easy
Legal Support Grows: 2000 to
2012
I & P S Act 2002
•
Demutualisation: Turnout of 50% with
75% Majority to convert to company
•
Level playing Field: Power to
assimilate to changes to Co Law by
regulation (except key defining CCBS
features)
•
s255 Enterprise Act 2002

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Co op fortnight lect 2013

  • 1. Local. Loved and Trusted......with Legal Support? Ian Snaith DWF LLP, Leicester University www.iansnaith.com
  • 2. Lecture Outline •Legal Support that Co-ops Need •Problems with Legal Support •Improving Support 2000 – 2012 •Major Improvement 2013 Onwards? •Questions & Comments
  • 3. Legal Support that Co-ops Need ● Security of Co-op Identity against demutualisation ● Ability to apply ICA Principles/Definition to business ● Level Playing Field for Business Purposes ● Clarity & Simplicity
  • 4. Choice of Legal Support Structure Can use CLG, Private Company, LLP or General Partnership – subject to protection of “Co-operative” name BUT Industrial and provident (IPS)/ co- operative and community benefit society(CCBS) is tailored to Co-ops
  • 5. Creaking Support Before 2000 ● Before 2000 - Fast Change to Company Law in C20th – only limited change since 1860's for CCBS ● Outdated CCBS Legislation – accounting, capacity, capital rules, insolvency & rescue, not updated ● Conversion to demutualise too easy
  • 6. Legal Support Grows: 2000 to 2012 I & P S Act 2002 • Demutualisation: Turnout of 50% with 75% Majority to convert to company • Level playing Field: Power to assimilate to changes to Co Law by regulation (except key defining CCBS features) • s255 Enterprise Act 2002
  • 7. Legal Support Grows: 2000 to 2012 Co-operatives and Community Benefit Societies Act 2003 • Levels playing field on Capacity and Contract making in line with 2003 Company Law • FCA enforced “Asset Lock” to prevent demutualisation for bencom I & P - can do it with rules – not available for co-op - Compare CIC Company
  • 8. Legal Support Grows • Asset Lock for bencoms implemented by SI 2006/264 • Audit exemption thresholds and rules for smaller societies in line with Co's in 2006 SI 2006/265 – out of line again now Electronic Communication with members and FCA SI 2011/593 •
  • 9. Legal Support Grows • European Co-operative Society from August 2006 – unused so far • Non-user Investor members in co-ops since 2006 • CCBSCUA 2010 – not yet in force -part of package in 2014 Shareholding limit, under 16's as members, easier interim accounts & dissolution LRO SI 2011 268
  • 10. How Support Developed • Pressure from 1990s via UKCC and Co- ops UK & Co-op Party • Private Members' Bills 2002,2003 & 2010 as no Parliamentary Time • Secondary Legislation Builds on PMB's – esp LRO's • Govt support • Still Big gap on insolvency – no rescue procedure only liquidation for now
  • 11. New Foundations? 2012-2014 Co-ops UK Initiative via No10: • HMT referred it to Law Commission • Law Commission has drafted the Bill • Draft CCBS Bill 2013 is now with HMT
  • 12. New Foundations? 2012-2014 ● Publication of Bill September 2013 for Consultation? ● Fast Track legislation before Parliament starts in December 2013? ● No change to substance ● Law in one place and language simpler ● Package of changes at once? 2010 Bill in force, increased WSC holding limit, insolvency rescue procedures, new FCA Guidance – all in 2014?
  • 13. New Foundations? 2012-2014 Financial Services Bill 2012 registration to Financial Conduct Authority (FCA) New Obligation on FCA in Sch1 of SI 2013/496 : “5.—(1) The FCA must maintain arrangements designed to enable it to determine whether persons are complying with requirements imposed on them....”under IPSA's
  • 14. Capital: Foundations for New Growth Basic Co-op rules: OMOV Profit Distributions on Transactions not shareholding Limited return i.e.
  • 15. Capital: Foundations for New Growth Bona Fide co-op requirement of FCA: “ members should receive only limited compensation (if any) on any share or loan capital which they subscribe. Interest on share and loan capital must not be more than a rate necessary to obtain and retain enough capital to run the business.”
  • 16. Capital: Foundations for New Growth “Section 1(3) of the 1965 Act states that a society may not be a bona fide co- operative if it carries on business with the object of making profits mainly for paying interest, dividends or bonuses on money invested with or lent to it, or to any other person.”
  • 17. Investors as Support? FSA 2006 Policy Statement on Non-User Investor members - Society rules must still fit b f co-op: • Express society rules on investor membership • User member not permitted to hold Investor Shares • Investor Shareholders can elect some directors
  • 18. Investors as Support? FSA 2006 Policy Statement on Non- User Investor members User member not permitted to hold Investor Shares No investor vote on a motion to convert the co-operative to company
  • 19. Capital: Shares as Support WSC Holdings still limited - s6 IPSA Non-WSC holdings are not – LRO 2011 Non-WSC cannot be purchased or redeemed by the society but can be transferable – Trevor v Whitworth Other Rights e.g. preference shares not prohibited
  • 20. Support by Self Help Community Shares Unit Co-ops UK plus DCLG & FCA Village Shops & Pubs Energy
  • 21. Support by Self Help Best Practice on Investor/Member protection No FSCS Prospectus & Financial Promotion Exemptions Best Practice with Guidance from CSU with FCA support
  • 22. How It Looks in 2015 Registration as Co-op or Bencom – clarified with new FCA Guidelines Director Disqualification as for Companies – CCBSCU A 2010 FCA Powers to police wrongdoing as for Companies – CCBSCU A 2010 Power to align with present Company law and changes – CCBSCU A 2010
  • 23. New Foundations by 2015 Co-operative and Community benefit Societies Act 2014 in force – one source, clear, modern language. Application of Rescue Procedures of Administration etc to CCBS's by SI from BIS & HMT under s 255 Enterprise Act 2002
  • 24. New Foundations by 2015 Clear Guidelines on Capital reward and shares with flexibility within Co-op Principles Redeemable Shares available with proportionate creditor protection - overcoming Trevor v Whitworth problem A Legal regime for Co-ops fit for the 21st Century....