Co-ops UK consultation on co-op law, Nov 2018


The 1st item in the latest Co-ops UK newsletter is a consultation, deadline 30th Nov 2018

There’s a LOT to read, but I’d like to ask if it is OK if we give the following responses, not least to empower Co-ops UK with input from our co-op? My suggestions for response are in CAPITALS:-

In “Background”

“registry and tax filing processes for societies can be overly complicated, costly and time-consuming.” AGREED (Eg. the FSA only offers Annual Return via a paper form to be printed/filled out and emailed … hardly digital by default!)

In “Part 1: Common wealth reforms for co-operative societies”

Question One: Do you agree that it would be good to develop a system of common wealth creation in our co-operative economy? If you do not agree, please explain your answer. YES

Question Two: Which of the following options do you support?
(The reading above the questions explains this)

a) Making no new statutory provisions in this area
b) Providing co-operative societies with the option of adopting a wider statutory asset lock only (which would also create a kind of statutory indivisible reserve)
c) Providing co-operative societies with the option of adopting a statutory indivisible reserve only
d) Providing co-operative societies with the option of adopting either a statutory indivisible reserve or a wider statutory asset lock, or both

Question Three: Would you support giving co-operative societies the option of adopting a statutory asset lock as set out above?

Question Four: Should such an asset lock allow holders of non-withdrawable share capital to get their money back at par value at dissolution, or should this share capital be subject to disinterested distribution? Please explain your answer.

Question Five: Should any separate indivisible reserve be indivisible even for the purposes of funding share withdrawals? Please explain your answer. PROBABLY NOT?

(NOTING it says “Indivisible reserves are cash reserves built up over time through the allocation of surplus that are subject to disinterested distribution, both over the life time of a co-operative and at the end of its life. Principle Three of the ICA Statement specifically highlights indivisible reserves as in keeping with co-operative practice, though it does not say they are a fundamental feature of all co-operatives.
As seen elsewhere in the world, statutory indivisible reserves can be instrumental in driving long-term internal investment and autonomous capital growth in co-operatives. They can become a powerful resource which members can use but never acquire.”)

(NOTE it also says “Conceivably, indivisible reserves could be indivisible even as a source of revenue to fund withdrawals of share capital. Or conversely such reserves could be indivisible except for this purpose” <-- THIS IS WHAT I’M THINKING OF WITH THIS SUGGESTED ANSWER

Question Six: What are the drawbacks and risks of this statutory approach and how can these be minimised and mitigated?

  • DUNNO ??

Part 2: Other important reforms

Question Seven: Would you support legislative action to remove dysfunctions that prevent asset locked community benefit societies from adopting a stronger charitable asset lock?

Question Eight: Do you think legislative action is needed to improve clarity around ‘use or dealing’ of assets ‘directly or indirectly’ for community benefit? YES
Or could this be better dealt with through non-legislative means, such as improved guidance? NO

Question Nine: Which of the above options would best ensure co-operative practice is followed?
(This requires reading the section … I’d suggest option:
“the law could be changed to require all co-operative societies to adopt a rule that clearly sets out how non-asset locked residual assets will be distributed”

Question Ten: Would you support changing the law to allow co-operative societies the option of adopting a statutory ‘purpose lock’? How should such a lock operate?
YES (as it says “the law could be changed to provide co-operative societies with the option of adopting a statutory ‘purpose lock’. This would create a clear legal barrier to demutualisation”) SOUNDS OK?

Question Eleven: Would you support changing the law to allow co-operative societies to apply for regulatory recognition of social purpose alongside co-operative purpose? How would this work? Please explain your answer.

(Based on their words, I’m quoting: “since 2014, a hard legal distinction between a co-operative society and a community benefit society…between altruistic, socially purposed community benefit and the mutual self-interest of co-operatives
Community benefit societies are … eligible for Social Investment Tax Relief and a lot of other financial and non-financial support government provides to the social economy.
Co-operative societies on the other hand are … not considered as regulatory recognition of social purpose in and of itself … excluding co-operative societies from Social Investment Tax Relief. But in many cases, co-operative purposes – meeting members’ needs and aspirations – also include strong social purposes. Multi-stakeholder social co-operatives are one great example … Too often this combination of co-operative and social purpose goes unrecognised.
What is more, the often impractical distinction between co-operative and social purposes in regulatory policy can force suboptimal choices onto founders.”

Question Twelve: Do you believe it would be beneficial to develop a form of equity that is redeemable/refundable at the option of societies, rather than withdrawable at the option of members?
POSSIBLY - see next question

Question Thirteen: What risks and challenges do you see in adapting company share redemption to society law? How can these be mitigated and overcome?
AS STATED: “Redeemable shares must not provide outside investors with a route to ownership and control of the underlying assets of a society.
We believe careful research and consultation would allow us to mitigate the risks and manage the complexities involved in any attempt at adapting company share redemption to society law. But this should happen before any legislative action is pursued.”

Part 3: Non-legislative improvements

Question Fourteen: Are there any other non-legislative issues for societies we have missed off this list?
NO I DON’T KNOW OF ANY (You need to read the list, obviously)

Question Fifteen: Have we listed something above that you do not believe to be an issue? If so, please explain your answer.
NO I DON’T KNOW OF ANY (You need to read the list, obviously)

Any discussion welcome !