New clause 5
Power to modify, etc. to assimilate to company law
'(1) If at any time, whether or not on any modification of the statutory provisions in force in Great Britain relating to companies it appears to the Treasury to be expedient to modify the relevant statutory provisions for the purpose of assimilating the law relating to companies and the law relating to industrial and provident societies, the Treasury may, by order, make such modifications of the relevant statutory provisions as they think appropriate for that purpose.
(2) If, on any modification of the statutory provisions in force in Great Britain relating to companies, it appears to the Treasury to be expedient to modify any provisions of the Industrial and Provident Societies Act 1965 to 1978 for the time being in force for the purpose of assimilating the law relating to companies and the law relating to industrial and provident societies, the Treasury may, by order, make such modifications of those Acts for the time being in force as they think appropriate for that purpose.
(3) The ''relevant statutory provisions'' are the following provisions of the Industrial and Provident Societies Act 1978 as for the time being in force:
(a) the following sections of the Industrial and Provident Societies Act 1965: Section 1(1)(b) and Schedule 1 paragraphs 2 and 6 and section 14 so far as necessary to assimilate the law as to: limitations on the society's capacity; the power of its board of directors, officers or committee to bind the society or authorise others to do so; and remove any duty on parties to transactions with the society to enquire as to its capacity or those powers of the board of directors or committee; Section 3 in so far as it refers to a common seal, section 1(1)(b) and schedule 1
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paragraph 13 (custody and use of seal); Section 5 (name of society); Section 29 (contracts); Section 39 (annual returns); Sections 41, 42 and 43 so far as necessary to assimilate the law as to the accountability of, and fair dealing by, directors, committee members and officers of societies with the equivalent provisions applicable to company directors and officers; Sections 47, 48 and 49 inspection of books by the Authority, production of documents and provisions of information, the appointment of inspectors, and the calling of special meetings; Paragraph (a) of section 55 (application of Insolvency Act 1986 to socieites) to apply to societies of any provisions of that Act or of the Company Directors' Disqualification Act 1986 applicable to companies whether on or involving the dissolution of a society or not; Section 61, 62, 63, 64 and 65 (General offences by societies, officers, members or others); Sections 66, 67, 68 and 69 (Proceedings and costs); Section 74 (Interpretation);
(b) any section of the Industrial and Provident Societies Act 1967 (borrowing by registered societies and registration of charges); and
(c) any section of the Friendly and Industrial and Provident Societies Act 1968 (society accounts, audit and group accounts).
(4) The powers conferred by subsections (1) and (2) of this section include the power to modify the relevant statutory provisions or any provision of the Industrial and Provident Societies Acts 1965 to 1978 as the case may be so as to
(a) confer power to make orders, regulations, rules or other subordinate legislation;
(b) create criminal offences; or
(c) provide for the charging of fees but not any charge in the nature of taxation.
(5) An order under this section may
(a) make consequential amendments of or repeals in any provisions of the Industrial and Provident Societies Acts 1965 to 1978; or
(b) make such transitional or saving provisions as appear to the Treasury to be necessary or expedient.
(6) The power to make an order under this section shall be exercisable by statutory instrument and no order shall be made unless a draft of it has been laid before and approved by resolution of each House of Parliament.
(7) In this section
''modification'' includes any additions and, as regards modifications of the statutory provisions relating to companies, any modification whether effected by any future Act or by an instrument made after the passing of this Act under an Act whenever passed; and
''statutory provisions'' except in the expression ''relevant statutory provisions'' includes the provisions of any instrument made under an Act.'.[Mr. Gareth R. Thomas.]
Brought up, read the First and Second time, and added to the Bill.
New Clause 1
Application of Company Accounts and Audit Provisions to Societies
'Part VII of the Companies Act 1985 as for the time being in force shall apply to any society registered under the Industrial and Provident Societies Act 1965 as if that society were a company.'.[Mr. Love.]
Brought up, and read the First time.
Mr. Andrew Love (Edmonton): I beg to move, That the clause be read a Second time.
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The Chairman: With this it will be convenient to take the following: New clause 2Formalities of Carrying on Societies' Business and Pre-incorporation Contracts
'Sections 36, 36A, 36B, 36C, 37, 38, 39 and 41 of the Companies Act 1985 as for the time being in force shall apply to any society registered under the Industrial and Provident Societies Act 1965 as if that society were a company.'.
New clause 3A Society's Capacity
'Sections 35, 35A, 35B and 322A of the Companies Act 1985 as for the time being in force shall apply to any society registered under the Industrial and Provident Societies Act 1965 as if that society were a company.'.
Mr. Love: I understand that new clause 4, which has been printed on the amendment paper, has not been selected. I admit to some drafting inadequacies.
New clauses 1, 2 and 3 are probing measures which underpin why the Bill is long overdue. They illustrate just how out of date and out of line with modern practice industrial and provident society law has become. Indeed, there are now major differences between it and company law.
Although company law has developed over the past 20 to 30 years and, as the Minister suggested, will develop following the company law review, there has been little material change during that period in industrial and provident society law. There is a distinctly unlevel playing field between the two types of organisation, which is important for two reasons. First, when an organisation or business wants to incorporate and must decide whether to use company law or industrial and provident society law, industrial and provident society law has a significant disadvantage. Secondly, the two types of organisations must compete with each other, and, as I hope to show through the three new clauses, it is becoming increasingly difficult for industrial and provident societies to compete on a level playing field with companies.
New clause 1 deals with the accounts that must be produced, which are covered in the Friendly and Industrial and Provident Societies Act 1968, whereas the Companies Acts have been significantly and radically changed since that time in two particular ways. First, part VII of the Companies Act 1985, the provisions of which, including all its associated schedules, were amended by the Companies Act 1989, ensures that larger, public limited companies must provide a high level of public transparency, in order to protect investors and other stakeholders in the company. We need only look at the shenanigans on the other side of the pond, in the United States, to understand the importance of transparency and company accounts. That transparency is specifically intended to establish trust and confidence in the marketplace.
Secondly, at the other end of the scale, there are two types of generous exemptions for smaller firms. Small companies must comply with two of the three criteria of a turnover of up to £2.8 million, a balance sheet total of up to £1.4 million, and up to 50 employees. They face minimum requirements in the detail that they must provide in their returns. Companies are defined as medium sized if they comply with two of the three
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criteria of a turnover of up to £11.2 million, a balance sheet total of up to £5.6 million, and up to 250 employees. They can substantially consolidate the accounts that they file with Companies House. Indeed, a further change was introduced last year that allows companies with a turnover of up to £1 million not to have their accounts audited if their members so agree.
That those important relaxations are provided for companies but not for industrial and provident societies gives companies a significant advantage. Industrial and provident societies must continue to provide a true and fair view, and set up accounts. Naturally, that true and fair view is interpreted by their advisers who have a specific interest in producing comprehensive accounts. Industrial and provident societies are exempted from producing accounts only if their total is up to £90,000. With a limit of up to £350,000, they can produce a less expensive set of accounts, and if they are over that limit they can produce a fully audited set of accounts.
Those limits are seriously out of date and completely inadequate in current circumstances. It is a serious injustice in the marketplace between companies and industrial and provident societies. I shall cite an example. Many small housing associations provide a detailed service to particular groups within our society. They face many pressures of consolidation, rent restructuring and harmonisation. Such limits seriously disadvantage them. The changes under new clause 1 would go some way towards ensuring a continuation of that specialist housing association market.
New clause 2 would reduce the current legal burdens on industrial and provident societies in respect of the use of the company seal. When companies are undertaking the usual formalities of Companies House of pre-incorporation contracts, under the Companies Acts they do not need to use the company seal or the legal requirements that surround that, but can simply require a director and the company secretary to sign the documents. However, industrial and provident societies have to continue to undergo the legal requirements that previously existed.People may say that that is not an onerous responsibility, but it adds to the red tape and burdens placed on industrial and provident societies. Given that such a change has been undertaken for companies, it is sensible that the same change is be made to the rules governing industrial and provident societies.
New clause 3 deals with the capacity of organisations. It would protect those outside the organisation who deal with the stakeholders from ultra vires activities of an industrial and provident society. Under the Companies Act 1989, that protection has been provided to those who deal with companies. Prior to that, if a person wanted to undertake a contract with a company, he had to decide whether or not that company had the legal capacity to undertake the contract. That took two different forms: whether that activity was included in the objects clause of the company, or whether the board of directors had the powers to undertake it. That was somewhat of a lottery, and the change in the Companies Act 1989 was
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introduced to provide protection to those who had entered into contracts in the normal way. That still does not exist for industrial and provident societies, and if we want to increase confidence, trust and activity in the marketplace, industrial provident societies should have the same procedures and protections for those who enter contracts with them as companies.
We could examine the housing association movement. Primarily, the groups are community benefit societies that undertake specifically housing activities. However, we know that housing associations are moving into social and economic regeneration, working with communities and developing credit unions. Whether all those activities are undertaken according to the objects or powers of the board of trustees has not yet been resolved. The change under new clause 3 would give protection to those who deal with housing associations so that there would be no requirement for them to justify whatever activities they are undertaking.
New clauses 1, 2 and 3 illustrate clearly why we need the changes to allow a level playing field to develop between industrial and provident societies and companies.