Root and branch overhaul of laws governing co-operatives on the way

Business Minister Heather Humphreys. Photo: Steve Humphreys
Business Minister Heather Humphreys. Photo: Steve Humphreys
Message: Heather Humphreys, Minister for Business. Photo: Colin O'Riordan
Ciaran Moran

Ciaran Moran

The rules governing co-ops will be overhauled this year, as the Minister for Business, Enterprise and Innovation Heather Humphreys brings forward legislation to bring them into the 21st century.

The Industrial and Provident Societies Acts 1893-2014 provide the statutory regulatory basis in Ireland for the formation and general operation of industrial and provident societies, which are primarily co-operatives.

After various piecemeal amendments introduced over more than 120 years the Department of Business, Enterprise and Innovation initiated a root and branch review of what is a largely Victorian statutory code.

Most members of the Oireachtas agree that the current legislation is outdated with many of the provisions within the legislation pre-dating the birth of the Irish State and thus no longer relevant.

Some of the provisions in the 1893 Act refer, for example, to how the law is to apply in Scotland and the Channel Islands. Other sections refer to feudal tenure while others refer to how to deal with insane and lunatic members, with some submissions calling for the words ‘lunatic’ and ‘insane’ to be removed completely.

The review to consolidate into one statute all existing industrial and provident societies legislation and modernise it, the Department says, will ensure a level playing field between co-operatives and the other legal options for structuring enterprise activities.

As part of the root and branch review, the Department has conducted a public consultation on the operation and implementation of the current law and a number of submissions have been submitted, including one from ICOS.

Membership

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Among the more contentious issues in the review is the minimum membership requirement which currently stands at seven. The Government has said that reducing the current minimum membership requirement for co-operatives may have unintended consequences for smaller co-operatives.

Under new EU anti-money laundering directives that are due to be implemented shortly in Ireland will mean that Irish companies, including co-ops, will be legally obliged to file its beneficial owner's details with the new register of beneficial ownership (RBO). Any person who holds or controls 25pc or more of the shares or voting rights of a company or industrial and provident society, whether directly or indirectly, is a beneficial owner and required to be registered with the RBO.

The Irish Co-operative Society (ICOS) favours retaining the seven-member minimum because it believes that a lower number might bring visibility and sustainability into question.

Audit

In its submission on the review ICOS, whose member co-operatives and their associated companies collectively have over 150,000 individual members, employ over 12,000 people in Ireland also emphasised the importance of annual returns for transparency purposes.

It said solid financial management and reporting are critical to members’ interests – both in the sense of securing their initial funding contribution and the continued existence of an organisation that guarantees them access to a vital service or market.

In short, it said the requirement for an audit should be retained in the New Act. However, co-operatives should be given the option to of an audit exemption provided that certain conditions are satisfied (i.e. as is the case for a company).

Transparency

Under the current Act, any individual (whether a member of the co-operative or not) is allowed to inspect the books of a registered society containing the names of the members, and their holdings in shares.

While ICOS said it "appreciates the need for transparency in respect of share ownership in corporate entities" it said this current requirement presents problems for the democratic functioning of co-operatives.

ICOS said that it is its experience, that to permit the release of information so detailed as to itemise the breakdown of respective shareholdings provides no benefit to the members vis-à-vis their relationship with their co-operative, and the disclosure of such information can lead to internal division and dilute the egalitarian ideal fundamental to co-operative ethos.

It also says it is requesting there be a requirement for the committee/board to hold and maintain a record of both members and their respective shareholdings, but that there be no requirement for that latter information (i.e. shareholding) to be disclosed to any person other than to the Registrar.

In its submission, ICOS also said the where there exists suspicion of either illegality or fraud, it is essential that avenues exist for co-operative members to be able to raise their concerns and take steps to address the situation.

Opposition

Meanwhile, a bill amending the current legislation is moving through the Oireachtas. The bill has been drafted by Independents 4 Change, who say their bill amends the current laws in a very practical and sensible way so as to ease the formation and the functioning of co-operatives on the ground.

One of the TDs behind the bill Catherine Connolly has hit out at the Government's review stating that nothing appears to have happened in the intervening period since its public consultation and no review report has been published to date.

"Given that vacuum and given the real obstacles posed by the existing, outdated legislation on the formation of co-operatives and-or their operation on the ground, Independents 4 Change has brought this very short Bill before the House.”

The Government has opposed the bill, however most opposition parties support it.

In essence, the Independent's bill seeks to make the process of registering and running a co-operative much easier, in the first instance, by reducing the membership requirement which currently stands at seven to three members.

The Bill also allows for audit exemptions in certain situations and provides for the use of electronic communication concerning the registration of co-operatives and also for specified other documents which are required to be lodged with the Registry of Friendly Societies.

"What we are seeking here is simple, namely a basic parity with what exists for small companies such as the exemptions for audits, the electronic filing and the ability to function with one director. We are simply looking for some parity on that practical stuff," Connolly said.

Minister Humphreys says she wants to avoid the introduction of more piecemeal and fragmented legislation in this important area and that she is also concerned about the introduction of measures that could reduce transparency.

According to the Minister, a more appropriate course of action is to consolidate in one statute all existing industrial and provident societies legislation, modernise it to eliminate outdated provisions and align it with the realities of the 21st century business and regulatory environment.

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