Mr. Gary Martin:

I thank the committee for the invitation to make a presentation on the Industrial and Provident Societies (Amendment) Bill 2018. The Department made a previous detailed submission on this Private Members' Bill on 10 May in which we addressed the issues raised by the joint committee. I will therefore confine my remarks today to the main provisions of the Bill. This submission will deal with the framing of the Bill as an amendment to the Industrial and Provident Societies Acts 1893 to 2018; its scope as determined by the proposed reduction in the number of members as a condition to form industrial and provident societies in section 2; the proposal in section 5 regarding exemptions by regulations for specified classes of societies from the requirement to file annual returns or certain specified classes of documents that would otherwise be required to be included as part of an annual return; and the proposed registration of industrial and provident societies and filing by electronic means as set out in section 6 of the Bill. My submission will draw, among other things, on stakeholder submissions to the public consultation on the operation and implementation of the Industrial and Provident Societies Acts 1893 to 2014, recent submissions to the Department on the issues raised by the Private Members' Bill by the Irish Co-operative Organisation Society, or ICOS, and the National Federation of Group Water Schemes, or NFGWS, as well as on examples of the way these issues have been addressed in co-operative legislative frameworks across Europe.

The Department understands that the Bill aims to make the process of establishing and registering a co-operative much easier. The Department recognises fully the continuing importance of the co-operative movement throughout Ireland and is undertaking a root and branch review of the legislation with a view to consolidating and modernising it to make it easier to understand and navigate. The committee will be aware that the Department has conducted a public consultation on the operation and implementation of industrial and provident societies legislation. The ten submissions received on foot of that consultation highlighted the need for a consideration of a wide range of issues, including providing co-operative societies with a distinct legislative identity which reflects the co-operative ethos, revising the provisions on debentures, the need to provide for a consolidated rule book, registration and electronic attendance and voting. Issues raised by the Private Members' Bill also featured in some of the submissions.

The Department is considering other issues, including modernising the language, removing references to other jurisdictions, governance and the powers of the Registrar of Friendly Societies, RFS. Following the completion of the comprehensive review of the legislative framework, it is proposed that a general scheme of modernised and consolidated legislation will be brought forward later this year. This will consolidate into one statute and modernise all existing legislation relating to industrial and provident societies in order to ensure a level playing field across co-operatives and the other legal options for structuring enterprise activities. It will also provide a conducive framework for realising the full potential of the diverse range of organisations that use the co-operative model.

I refer to the proposal to reduce the minimum number of members of a co-operative. Section 2 proposes to reduce from seven to three the minimum number of members required as a condition of registration of industrial and provident societies. The sponsors of the Bill indicate that the rationale for reducing the membership criterion to three is based on the average number of employees in SMEs, which they put currently at 3.87 per business. The sponsors also noted that the proposed minimum membership criterion prevails across other European countries and that the reduction in the minimum number of members has not resulted in any unintended consequences. As part of its review of industrial and provident societies legislation, the Department has analysed the submissions received, conducted research on practices across Europe and is engaging in bilateral discussions with stakeholders to explore the various policy options relating to this issue. While three of the ten submissions to the public consultation have suggested a reduction in the minimum number of members, there was no consensus on what this minimum number should be. For example, the Centre for Co-operative Studies at UCC suggested a reduction to three members, Co-operation Works proposed a minimum of two members and Co-operative Housing Ireland requested a reduction to either two or three members. In addition, recent submissions to the Department from two of the co-operative umbrella organisations, ICOS and National Federation of Group Water Schemes, NFGWS, do not indicate support for reducing the minimum number of members to three. While the NFGWS, which has over 400 affiliate group water scheme members, had no difficulty with reducing the minimum number of members, it considered three to be a low number given the community nature of these societies and the vital importance of proportional representation, in particular when a society is being established. ICOS, which represents 130 co-operative societies, was strongly of the view that the current requirement of seven members had never acted as an impediment to the establishment of a sustainable co-operative.

Different approaches have been taken across Europe in respect of the minimum number of members required to form a co-operative, ranging from one in Finland to ten in Poland. Research on co-operative legislation indicates a trend in co-operative law to reduce this minimum number, which, according to the International Handbook of Co-operative Law 2013, is three on average across European jurisdictions. The Statute for a European Co-operative Society requires five or more members for a co-operative straddling more than one EU member state. In considering the proposal to reduce the minimum number of members required to form a co-operative from seven to three, regard must be had to the need to ensure that the reduction in the minimum number of members does not act as an impediment to the establishment of viable and sustainable co-operatives with members who have the necessary skills to run these entities. While the Department fully recognises the importance of creating favourable conditions for encouraging a range of start-ups, including co-operatives, and is open to reducing the minimum number of members, the optimum number of members required to establish a sustainable co-operative will need to be carefully examined to ensure it meets the needs of Irish co-operatives. As part of its review process, the Department is engaging bilaterally with stakeholders in order to establish, among other things, the optimum minimum number of members.

I move now to the proposals relating to certain filing exemptions. Section 5 provides for the Minister to exempt, by means of regulation, specified classes of societies from the requirement to file annual returns or certain specified classes of documents that would otherwise be required to be included as part of an annual return.

Section 5 provides for the Minister to exempt by regulations specified classes of societies to file annual returns or certain specified classes of documents that would otherwise be required to be included as part of an annual return. The Bill provides that these exemptions may correspond to exemption provisions applying to companies.

None of the responses to the public consultation requested exemptions from filing annual returns, as the Bill proposes. However, five out of ten responses requested the introduction of audit exemptions for co-operatives in line with the approach taken in the Companies Act 2014.

The concept of an audit exemption applicable to companies derives from EU law. The threshold criteria which apply are set down by the EU. Private companies which satisfy certain conditions can be exempted from the requirement to have their financial statements audited. There is no similar regime on audit exemptions at EU level in respect of co-operatives. The available information indicates that member states provide audit exemptions which could be based on the exemption thresholds applying in EU company law or nationally set thresholds.

We note that at the meeting of the committee on 11 June, the sponsors of the Bill indicated that their intention was to seek audit exemptions rather than exemptions from filing annual returns. In light of that, I have not gone into any detail about the provisions on exempting co-operatives from filing annual returns as drafted in the Bill. The issue of introducing audit exemptions for co-operatives is being considered under the current comprehensive review. The Department is supportive of introducing audit exemptions for co-operatives and is working with stakeholders to establish the appropriate criteria for exempting co-operatives from having to have their accounts audited.

Section 6 of the Industrial and Provident Societies (Amendment) Bill 2018 provides for the registration of industrial and provident societies and filing by electronic means. While these are clearly worthwhile provisions, they have been overtaken by events. The Industrial and Provident Societies (Forms) Regulations 2018, which provide for the introduction of electronic filing for the most frequently filed Registry of Friendly Societies, RFS, forms came into effect on 13 September 2018. The RFS online facility was launched on 6 December 2018. It allows for the registration of new entities online and filing by electronic means of annual returns, amendments, including partial and full rule amendments, making online payments for filings and ordering documents online. The electronic forms are available on an optional basis. The fees for the RFS submissions were also changed in August 2018 to bring them in line with similar fee types used by the Companies Registration Office, CRO. The new regulations included a provision for the reduction in fees for documents filed online.

The Department recognises the important role of the co-operative model. It is clear there is support from stakeholders of the goal to modernise the legislation and align it with the realities of the 21st century business and regulatory environment.