CO-OPERATIVES AND COMMUNITY BENEFIT SOCIETIES
Memorandum by HM Treasury
200. This Memorandum relates to the Co-operatives
and Community Benefit Societies Bill as brought from the House
of Commons on 7th April 2003. It identifies the provisions in
the Bill for delegated legislation, explains their purpose and
the particular form of Parliamentary control of delegated legislation
201. The Bill aims to supplement the Industrial
and Provident Societies Acts 1965 to 2002 and in particular to
amend the Industrial and Provident Societies Act 1965. Industrial
and provident societies are an alternative corporate structure
to companies regulated under the Companies Acts - often operating
in the sector considered as 'social enterprise' or 'not-for-profit'
- and in diverse areas of the economy from retail shops to housing
associations. There are two main forms of societies - co-operatives
and community benefit societies.
202. The Bill will update certain aspects of
industrial and provident society legislation, in line with the
relevant aspects of the law relating to companies, in order to
facilitate the ability of societies to enter into contracts and
203. The Bill also contains an enabling clause
which would allow the Treasury to bring forward, through secondary
legislation, provisions to permit industrial and provident societies
whose business is conducted for the benefit of the community to
commit their assets permanently for that purpose (asset 'lock-in'),
subject to appropriate safeguards. Giving community benefit societies
the option of 'protecting their assets in perpetuity for a public
purpose' was a recommendation of the Strategy Unit report "Private
Action, Public Benefit" published in September 2002. Some
aspects of this recommendation are similar to the proposals the
Government is developing for Community Interest Companies.
204. There are four aspects of the Bill which
provide for delegated legislation:
a power to enable the Treasury to bring forward,
in secondary legislation, provisions under which 'community benefit
societies' could prevent any use of or dealing with their assets
except for the benefit of the community (Clause 1);
a power to enable the Treasury to make regulations
adapting and modifying section 346(2) to (8) of the Companies
Act 1985 as applied to industrial and provident societies, for
the purposes of the new section 7E(1) inserted into the 1965 Act
by Clause 3 of this Bill (Clause 3, Section 7F(3)(b))
provision for the Bill to come into force by Treasury
order (Clause 7)
a power to extend the Bill's provisions to the Channel
Islands, by an Order in Council (Clause 8)
205. Clause 1 will confer power on the Treasury
to bring forward, through secondary legislation, provisions under
which community benefit societies could prevent any use of or
dealing with their assets except for the benefit of the community.
Currently it is not possible for investors in a community benefit
society to be certain that its assets will always be used for
the purpose of serving the community. For example, it is possible
for a society to convert into a company and use its assets in
whichever way it wishes. Representative bodies of societies and
responses from the public consultation on the Strategy Unit Report
indicate that there is strong support for the principle of allowing
an asset 'lock-in' regime to be made available as soon as possible
to community benefit societies.
206. The aim of Clause 1 is to address this situation.
It provides a framework under which the Treasury could bring forward
a regime allowing a society to prohibit irrevocably the distribution
of assets other than for the benefit of the community. Further
detail on the provisions that the delegated legislation may make
is provided from paragraph 12 below and also in the commentary
set out in the Explanatory Notes to the Bill as brought from the
House of Commons on 7 April 2003.
207. Mark Todd MP, the Private Member who sponsored
this Bill in the House of Commons, included in the Bill on introduction
an asset 'lock-in' regime which did not require or provide for
any delegated legislation. At Second Reading in the House of Commons,
the Financial Secretary to the Treasury indicated that, following
the analysis of the Strategy Unit's Report "Private Action,
Public Benefit", the Government supported the principle of
making an asset 'lock-in' regime available to community benefit
societies. However, the Financial Secretary also noted that it
would not necessarily be possible to consider all the detailed
substantive provisions that might be necessary for such a regime
within the timescale of this Bill's Parliamentary passage.
208. Some of the key issues that the Treasury
believes need to be worked out in detail before an asset 'lock-in'
regime could be implemented are set out in the annex to this memorandum.
The Government believes that these issues and any subsequent secondary
legislation need to be the subject of consultation with the industrial
and provident society sector and other interested parties before
any such regime could be implemented. Ensuring the sector can
fully comment on the details of the regime is also in keeping
with its tradition of member involvement.
209. Subsequently, the Government supported Mark
Todd MP's amendments made at Committee Stage in the House of Commons,
which provides the policy framework under which the detailed operation
of the regime can be implemented through secondary legislation.
The enabling provision will help ensure that relevant societies
in the sector can enjoy an asset 'lock-in' as soon as possible
while also ensuring that there is proper and full consultation
on the detailed provisions of the regime. The Government also
believes that an appropriate balance has been struck between identifying
as far as possible now in primary legislation the specific types
of provisions that are likely to be needed and the need to allow
flexibility to respond sensitively to responses received during
consultation on the proposals.
210. Any secondary legislation brought forward
under this clause would be subject to the affirmative resolution
procedure and so would require approval by a resolution of each
House of Parliament before the regulations could be made.
211. Subsections (1), (2), and (4) allow the
Treasury to make provision for some of the mechanics of an asset
'lock-in' regime and to deal with certain matters in particular.
Some of these are set out in the annex to this memorandum.
212. Subsection (5) allows for other provisions
which may be necessary in order to appropriately implement an
asset 'lock-in' regime:
213. Paragraph (a) will allow the regulations
to impose criminal liability. The creation of criminal offences
may be necessary to ensure that any asset 'lock-in' regime can
be properly enforced. Industrial and provident society legislation
includes a number of criminal offences to help ensure that provisions
in the legislation are complied with. The exact nature of any
new offences will depend on the detail of the regime and views
received in further consultation.
214. Paragraph (b), (c), (d) and (e) allow for
provisions which: confer functions on a prescribed person; confer
jurisdiction on any court; authorise a prescribed person to make
and enforce binding rules and charge fees sufficient to meet the
costs of any functions carried out under the regulations. These
provisions are intended to relate to the supervision of the regime,
for example, to ensure mergers or dissolutions of societies, which
have adopted the lock on their assets, are undertaken appropriately.
It may be possible to leave all enforcement to the jurisdiction
of the courts. Alternatively, it may be more appropriate to confer
supervisory functions on a body. It would then be necessary for
the supervisory body to make and enforce rules and to fund its
215. Paragraph (f) allows for the regulations
to modify or exclude other enactments. We can foresee certain
circumstances where such a provision might be necessary. For example,
if a supervisory body is deemed appropriate and a statutory organisation
which already exists is given these supervisory functions it will
probably be necessary to modify the statute governing it to allow
it to undertake these new responsibilities. If prescribed societies
are permitted to convert to other corporate forms, it may be necessary
to modify the legislation which applies to those corporate forms
to ensure that the asset 'lock-in' can operate effectively on
the converted body.
216. Clause 3 brings certain aspects of industrial
and provident society legislation into line with existing provisions
of the Companies Act 1985. Subsection (3) of the new section 7F
inserted by this clause into the Industrial and Provident Societies
Act 1965 applies section 346(2) to (8) of the 1985 Act for the
purposes of references in new section 7E(1) to a person's being
"connected" with a committee member or to a committee
member's being "associated with" a company. Section
7F(3)(b) also allows the Treasury to make regulations adapting
and modifying section 346(2) to (8) as so applied to industrial
and provident societies. This power is considered advisable because
it is unclear that, in particular, subsections (4) and (5) of
section 346 and Part I of Schedule 13 as applied by subsection
(7) of that section can be simply applied to industrial and provident
societies as they stand. For example, the references to "equity
share capital" and to shares having a nominal value may require
modification if section 346 is to apply meaningfully to societies.
Any regulations made under this power would be subject to the
negative resolution procedure, and so could be annulled by a resolution
of either House of Parliament.
217. This clause provides for the Act's commencement
by one or more statutory instrument(s), and the making of any
appropriate transitional provisions. This provision enables the
Treasury to specify dates for commencement of the Bill's provisions
in such a way as to cause minimum disruption to the planning of
societies and those dealing with them.
218. This enables Her Majesty to direct by Order
in Council that any provision of the Bill or any instrument made
under it apply to any of the Channel Islands. The Channel Islands
authorities were consulted about how this Bill should apply to
their jurisdictions. Those authorities agreed that it would be
appropriate for provision made by or under the Bill to be capable
of being extended to their jurisdictions, subject to any necessary
modifications, by Order in Council.