An Act of housekeeping: revisiting IPS law

The Act largely consolidates existing legislation relating to industrial and provident societies (‘IPSs’), which is currently contained within a number of dusty pieces of primary and secondary legislation. Despite this, it is a welcome step, and indicative of political interest in the legal framework for co-operatives in particular. It is also important for those who are involved in the management of a society to be aware of the Act’s key changes:

• by far the most dramatic change is that, as we reported earlier, the collective term “Industrial and Provident Society” (which has long been considered an outdated term) will no longer be used for societies registered after 1 August. They will instead be registered either as a “co-operative” or a “community benefit” society. The Act specifically states that this does not affect societies registered before that date, which will have the catchy title of “pre-commencement societies”, although in practice even existing societies are likely to be known under the same categories. There is no immediate need for existing societies to update websites or stationery to refer to them being a “community benefit” or “co-operative” society, but societies may wish to do this in time;
• the requirement to demonstrate “special reasons” to register as a society rather than as a company has been removed. This is unlikely to make much difference in practice, as the Financial Conduct Authority (‘FCA’) (the regulator of societies) determined some time ago that “special reasons” could be demonstrated by an organisation if it is formed for the benefit of the community. In any event, an organisation will still need to meet the criteria for registration as a community benefit or co-operative society;
• the effect of the definition of “year of account” for IPSs registered on or before 7 January 2012 has been simplified so that it will end with the date of the last balance sheet published by the society or, if no balance sheet is published, 31 December. This will apply unless a society alters its year end date; and
• the removal of special rules relating to intestacy and “illegitimate” members (a particularly timeworn provision).

As we reported earlier this year, some key changes for societies have already been introduced (with effect from 6 April) and will be carried forward under the Act. In summary these changes:-

• increase the limit on withdrawable share capital per shareholder from £20,000 to £100,000. It will be interesting to see what, if any, the impact of this increase will have in relation to finance transactions of societies, as it has widened the opportunity for societies to raise equity investment (something that has not been widely used in the sector to date). Registered providers of social housing (‘RPs’) will still need to bear in mind the restrictions under s122 of the Housing and Regeneration Act 2008 in relation to the payment of gifts, dividends and bonuses to shareholders;
• applicants seeking to register a new society with the FCA are able to submit documents electronically;
• the provisions of the Company Directors Disqualification Act 1986 apply to societies in the same way as to registered companies, meaning that board members of societies will be open to the full range of disqualification offences and penalties under the Act;
• the FCA now has increased investigatory powers, coupled with sanctions on societies which fail to co-operate or comply; and
• rescue procedures applicable to companies will now apply to registered societies, so that they can appoint administrators or use voluntary creditors’ agreements, rather than having to cease trading immediately upon insolvency. However, these powers will not apply to RPs.

We understand that the Office for Civil Society has asked the Homes and Communities Agency (‘HCA’) to become the principal regulator for charity law compliance of currently exempt RPs who are also registered societies. The response of the HCA is awaited and it is likely that if the HCA were to decline, such societies would be required to register instead with the Charity Commission. Although this has been widely anticipated for some time, it would remove the current relatively light touch regulation of exempt charities.

Many will be disappointed that the opportunity to make more widespread changes, such as those recommended by Co-operatives UK, has not been taken up. However, the Act does herald a welcome move towards modernising the rather dusty world of IPS legislation.

For more information

If you have any queries on the effect of the Act or on the governance of your registered society, please contact:

Gemma Bell on 0121 214 3596 or at gemma.bell@anthonycollins.com; or

David Alcock on 0121 214 3652 or at david.alcock@anthonycollins.com.