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Co-operatives UK Autumn Event The Secretaries’ Forum The Accountants’ Forum Changes in IPS law 2002 - 11

Co-operatives UK Autumn Event The Secretaries’ Forum The Accountants’ Forum Changes in IPS law 2002 - 11. Cliff Mills 29 th November 2011. Oh no, the law has changed (groan). Rejoice and be glad! 20 years of silence and inactivity Followed by 10 years of great activity

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Co-operatives UK Autumn Event The Secretaries’ Forum The Accountants’ Forum Changes in IPS law 2002 - 11

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  1. Co-operatives UK Autumn EventThe Secretaries’ ForumThe Accountants’ ForumChanges in IPS law 2002 - 11 Cliff Mills 29th November 2011

  2. Oh no, the law has changed (groan) • 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

  3. This talk • 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

  4. What we will cover • Industrial and Provident Societies Act 2002 (Gareth Thomas) • Co-operatives and Community Benefit Societies Act 2003 • The CBS (Restrictions on use of assets) Regulations 2006 • The Friendly and Industrial and Provident Societies Act (Audit exemption) (Amendment) Order 2006 • Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 • The Mutual Societies (Transfers) Order 2009 • Co-operative and Community Benefit Societies and Credit Unions Act 2010 (not yet in force) • The Mutual Societies (Electronic Communications) Order 2011 • The Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011

  5. 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

  6. 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)

  7. 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

  8. 2(a) The CBS (Restrictions on use of assets) Regulations 2006 • 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

  9. 2. Co-operatives and Community Benefit Societies Act 2003 (cont.) • 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

  10. 3. The Friendly and Industrial and Provident Societies Act 1968 (Audit exemption) (Amendment) Order 2006 • 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

  11. 4. Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 • [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

  12. 4. Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 • 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

  13. 4(a) The Mutual Societies (Transfers) Order 2009 • 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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”

  25. Future legislation • 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 …

  26. Questions and discussion

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