Co-operatives UK Autumn Event
The Secretaries’ Forum
The Accountants’ Forum
Changes in IPS law
2002 - 11
Cliff Mills
29th November 2011
Oh no, the law has changed (groan)
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Rejoice and be glad!
20 years of silence and inactivity
Followed by 10 years of great activity
Previously the law was a real mess …
… unfortunately it still is
But there has been huge progress, such as
– Protection against demutualisation
– Updates to parallel company law
– Young people
– Share capital
This talk
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I will summarise the legislation to give you an overview
You need to look at the specific text for full details
I will flag up some things you need to note because of the changes
What we will cover
1. Industrial and Provident Societies Act 2002 (Gareth Thomas)
2. Co-operatives and Community Benefit Societies Act 2003
a) The CBS (Restrictions on use of assets) Regulations 2006
3. The Friendly and Industrial and Provident Societies Act (Audit
exemption) (Amendment) Order 2006
4. Building Societies (Funding) and Mutual Societies (Transfers) Act 2007
a) The Mutual Societies (Transfers) Order 2009
5. Co-operative and Community Benefit Societies and Credit Unions Act
2010 (not yet in force)
6. The Mutual Societies (Electronic Communications) Order 2011
7. The Legislative Reform (Industrial and Provident Societies and Credit
Unions) Order 2011
1. Industrial and Provident Societies
Act 2002
s.1 Requirements for conversion of registered societies into companies
– Used to require three-fourths majority of those voting at first meeting
– Now requires three-fourths majority of those voting at first meeting +
• Not less than half of the qualifying members of the society voted
• “Qualifying members” means members of the society entitled to
vote under the society’s rules
NOTE: this makes it important to keep the register of members up to
date
1. Industrial and Provident Societies
Act 2002 (cont.)
s.2 Power to modify, etc to assimilate to company law
• (“the Thomas power”)
• Only applies if, in modifying company law it appears to the Treasury to
be expedient to assimilate
• Done by Treasury making an order
• Certain provisions of IPSA 65 are excluded (e.g. registration,
amendment of rules, cancellation of registration etc.)
• Power only used once so far – audit exemption amendment (later)
2. Co-operatives and Community
Benefit Societies Act 2003
s.1 Community benefit societies: power to restrict use of assets
• Introduces ability for community benefit societies to restrict the use of
their assets (the so-called “asset-lock”)
– The restriction does not prevent use of the assets for the benefit of
the community, or in provided circumstances
– Detailed mechanics are set out in regulations
2(a) The CBS (Restrictions on use of
assets) Regulations 2006
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Require adoption of a rule in the prescribed form
At registration, or by special resolution (s.52 amended)
Cannot apply to an RSL/RP or charity
Does not prevent specified things e.g.
• Repaying share capital
• Transfer to another body with restrictions (charity, another CBS
with asset-lock)
– FSA has powers of enforcement including restitution, requiring
officers knowingly involved to make payment, removal
– Once introduced, the rule cannot be amended
2. Co-operatives and Community
Benefit Societies Act 2003 (cont.)
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Other provisions
– s.2 requires charitable society to specify status on all documents
– s.3 introduces “capacity” etc. provisions already applying to
companies, protecting third parties dealing with a society which acts
outside its rules (and other related provisions)
– s.4 makes enforceable contracts entered into on behalf of a society
before its registration
– s.5 removes requirement to have/use a seal, and provides for how
documents are to be executed
3. The Friendly and Industrial and
Provident Societies Act 1968 (Audit
exemption) (Amendment) Order 2006
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This amends the 1968 Act which
– In section 4 requires every registered society to appoint an auditor to
audit the accounts and balance sheet
– In section 4A enables a society with assets less than £1.4 million and
turnover less than £350,000 to disapply section 4
The amendment increases the figures to £2.8 million and £5.6 million
respectively
4. Building Societies (Funding) and
Mutual Societies (Transfers) Act 2007
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[First two sections apply only to building societies]
Makes it easier for mutuals of different types (building societies, friendly
societies, I and P societies, mutual insurers and an EEA mutual) to
merge by transfer of engagements
Within their sectors, generally mutuals enable merger more easily than
demutualisation
– E.g. for IPS merging with IPS, two-thirds majority, compared with
three-fourths + new turn-out requirements for demutualisation
This Act enables mergers between different types of mutuals to be
treated on the basis that they are not demutualisations
4. Building Societies (Funding) and
Mutual Societies (Transfers) Act 2007
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It works by mutual type A transferring engagements to a subsidiary of
mutual type B
The Act itself does not set out the mechanics (which are complicated); a
separate order is needed for each sector
The only order made so far is for building societies to transfer
A draft order for I and P societies has appeared, but it needed a great
deal more work, and seems unlikely to be issued in the foreseeable
future
4(a) The Mutual Societies (Transfers)
Order 2009
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Enables building societies to transfer engagements to a subsidiary of
another mutual
Modifies the approval process so that it is not equivalent to a
demutualisation
The arrangements must enable members of the transferor and
subsequent customers to become members of the transferee holding
mutual
5. Co-operative and Community
Benefit Societies and Credit Unions
Act 2010 [not yet in force]
s.1 Registration of societies as co-operative or community benefit societies
• The effect of this is
– To give legal recognition to the two distinct legal structures
– To make it clear in future under which category the society is
registered (currently unclear)
s.2 Renaming of Industrial and Provident Society Acts
• Changes titles of the legislation (65, 67, 68, 75, 78, 02 and 03)
• All to become Co-operative and Community Benefit Societies and Credit
Unions Act … except 75 and 78
5. Co-operative and Community
Benefit Societies and Credit Unions
Act 2010 [not yet in force] (cont.)
s.3 Applies Company Directors Disqualification Act 1986 to societies
• This means that
– A disqualified director cannot be a member of the board or
committee or be involved in the management of a society
– A member of the committee or board, or an “officer” of a society may
be disqualified under CDDA
• Disqualification normally arises from an insolvency where a person’s
conduct make them unfit to be concerned in management
• It can also be based on conviction for an indictable offence, persistent
breaches of legislation, summary conviction, and after investigation of
the affairs of the organisation
5. Co-operative and Community
Benefit Societies and Credit Unions
Act 2010 [not yet in force] (cont.)
s.4 Power to apply certain other provisions relating to companies
– Powers of investigation similar to those applying to companies
– Provisions governing the names of societies, including the power to
order change if similar to existing name
– Provisions concerning striking defunct societies off the register, and
restoring societies to the register
• (Remaining provisions only concern Credit Unions)
NOTE: when this Act comes into force, it would be sensible to check
that no directors or senior managers are disqualified
6. The Mutual Societies (Electronic
Communications) Order 2011 (cont.)
• Made under Electronic Communications Act
Article 22. Use of name in electronic communications
– Registered name (and if it is a charity, the fact that it is a charity) to
appear on all business correspondence and documentation that
takes an electronic form, and on all its websites
• and any officer who causes such an offending website is
punishable on summary conviction by a fine
• “website” includes a reference to a section of another person’s
website which relates to the society, and which the society
placed or authorised
6. The Mutual Societies (Electronic
Communications) Order 2011 (cont.)
Art. 23. Electronic transmission of annual returns and group accounts
– For a copy of the society’s latest annual return to be regarded as
having been supplied to a person if
• The person has agreed to it being available via the website, and
has not withdrawn that agreement
• The society has notified the person that it is on the website, the
address of the website, where it can be found, and how to
access it
• The return is on the website for the requisite period
– For these provisions to apply to latest group accounts as well
6. The Mutual Societies (Electronic
Communications) Order 2011 (cont.)
Art. 24. Inclusion of electronic address in register of members and officers
– Requires that where a member or officer has notified to the society
an electronic address for the purpose of the Act, the register of
members and officers shows
• That electronic address
• The purpose for which it has been notified
– Where it no longer appears that an electronic address is current, the
society may remove it
6. The Mutual Societies (Electronic
Communications) Order 2011
Art. 26 Form and delivery of documents to the FSA
– Ability to deliver documents electronically to the FSA
– FSA may impose requirements as to form, authentication and
delivery
– [Currently appears not to be possible]
– Electronic communication includes email and fax (Art. 27)
NOTE: The society’s registered name should appear on all
business correspondence and documentation in electronic form
7. The Legislative Reform (Industrial
and Provident Societies and Credit
Unions) Order 2011
• Comes into force on 8th January 2012
Article 3. Maximum shareholding
– Removes £20,000 limit for shares “which are not withdrawable”
– No definition of “withdrawable”, but will become important
– Likely to become significant for future funding possibilities
7. The Legislative Reform (Industrial
and Provident Societies and Credit
Unions) Order 2011 (cont)
Art. 4, 5 and 6. Annual return and accounting reference date
– Introduces right for existing societies to specify a new accounting
reference date (don’t need special circumstances)
– On registration of new society, can specify any date
– Existing societies continue as under previous arrangements subject
to specifying a new date
Art. 7. Provision of copies of rules
– Must provide free copy to members, can charge up to “specified
amount” (currently £5) to anyone else
7. The Legislative Reform (Industrial
and Provident Societies and Credit
Unions) Order 2011 (cont)
Art. 8. Members under 18
– Minimum age of 16 for membership abolished
– Minimum age to serve on committee reduced to 16 (was 18)
– Still subject to what the rules say – can specify minimum age for
membership
– Change does not take effect until 7 days after following the first
general meeting after 8th January 2012
NOTE: If your rules are silent about minimum age, or refer to the
minimum age set out in the Act, your rules will automatically
change
7. The Legislative Reform (Industrial
and Provident Societies and Credit
Unions) Order 2011 (cont)
Art. 9. Dissolution
– Provision allowing dissolution by special resolution if society is not a
credit union
Art. 10. Publication of interim accounts
– Previous prohibition on publishing unaudited interim accounts or
balance sheet changed provided:
• Published together with latest audited year end revenue account
and balance sheet
• Clearly marked “UNAUDITED REVENUE ACCOUNT” or
“UNAUDITED BALANCE SHEET”
Future legislation
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Bringing into force 2010 Act
Northern Ireland Credit Unions coming under FSA – I and Ps may follow
Future destination of registration function on demise of FSA
Consolidation of IPS legislation? I wish …
Questions and discussion
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Changes in IPS law 2002 to 2011 - Co