Damien English (Meath West, Fine Gael) | Oireachtas source

I thank the Members for introducing this Bill and affording me the opportunity, in the absence of the Minister for Business, Enterprise and Innovation, Deputy Humphreys, to speak to it. The Minister is sorry that she is unable to attend the debate and I will outline her views for the Deputies. However, she will be happy to engage with Members at a later stage as we bring forward changes in this area.

The Minister; the Minister of State, Deputy Breen, and the Department are acutely aware of the continuing importance of the co-operative movement throughout Ireland, particularly to local and rural communities. Anybody who has been involved in politics or with a community will be aware of the benefit it brings. I was previously Chairman of the Oireachtas committee which brought forward the changes to the Companies Act and even at that stage we had a discussion on the importance of co-operatives. However, while the Minister is sympathetic to the well intended objectives of the Bill, she cannot support it in its current form and I will outline why.

Following the drafting and passage of the Companies Act 2014 which had been a priority for the Government and which now forms the basis of Ireland’s business regulatory environment, the Department of Business, Enterprise and Innovation has turned its attention to the review of the industrial and provident societies legislation. The Industrial and Provident Societies Acts 1893 to 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, most recently in 2018, the Minister believes it is time to conduct a wholehearted review of what is a largely Victorian statutory code. Deputy Connolly voiced a similar desire. The purpose of the comprehensive review is not only to consolidate and modernise the existing legislation but also to ensure an effective legislative framework suitable for the diverse range of organisations using the co-operative model in Ireland.

As part of the root and branch review, the Department has conducted a public consultation process on the operation and implementation of the Industrial and Provident Societies Acts 1893 to 2014. Deputy Connolly referred to it and said it was a worthwhile review. The results of the consultation process were published on the Department's website in April 2018. The submissions highlighted the need for consideration of a wide range of issues, including providing co-operative societies with a distinct legislative identity, reflecting the co-operative ethos, reducing the minimum number of members, facilitating electronic filing and introducing audit exemptions in line with the approach taken in the Companies Act 2014.

Section 2 of the Bill proposes to reduce the number of members as a condition of the registration of industrial and provident societies. While a number of submissions to the Department have suggested a reduction in the minimum number of members, there was no consensus on what the minimum number should be. The Minister fully recognises the importance of creating favourable conditions for encouraging a range of start-ups, including co-operatives. However, she is of the view that this issue requires careful consideration and that further analysis is needed to ensure any proposed change does not have unintended consequences. For example, one of the issues that must be considered is ensuring 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. Different approaches have been taken across Europe to the minimum number of members to form a co-operative, ranging from one in Finland to ten in Poland. As part of the legislative review, the Department will explore the various policy options for the optimum minimum number of members required to form a co-operative.

The Minister is also cognisant of new EU anti-money laundering directives that are due to be implemented shortly in Ireland. Every Irish company, apart from those listed in a regulated market, and industrial and provident society will be legally obliged to file its beneficial owner's details with the new register of beneficial ownership, RBO, within six months of it opening. Failure to file within the six-month period can result in the company or industrial and provident society being fined and prosecuted. Any person who holds or controls 25% 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. Reducing the current minimum membership requirement for co-operatives may have unintended consequences for smaller co-operatives. Again, it is important that we tease this out further and the Minister is happy to engage with Deputies on it.

Section 5 of the Bill provides an enabling provision 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 Minister has serious reservations about this proposal. The existing companies legislative framework does not provide for exemptions from filing annual returns, the exception being investment companies regulated by the Central Bank which must deliver financial statements to the Companies Registration Office, CRO. The only total exemption from including financial statements with the annual return of a company applies to unlimited companies.

The co-operatives that are formed and registered in Ireland are limited liability entities. In return for the advantages of limited liability, the law requires them to disclose their financial statements to the public. This is a very important protection for employees. It is also an important protection for other entities doing business with them. After all, these other entities have employees and suppliers of their own. Without knowing the financial position of a co-operative, employees and others are asked to take a chance that a co-operative can pay wages or its bills. The exemption, as proposed in the Bill, potentially undermines transparency and trust which are essential elements in the effective functioning of co-operative societies and underpin the co-operatives' principles of open membership and members' economic participation. In the interests of co-operative members and the public interest the Minister cannot support this section of the Bill, as it stands.

It should also be noted that no response to the public consultation process requested exemptions from filing annual returns, as proposed in the Bill. Some responses, however, requested the introduction of audit exemptions for co-operatives in line with the approach taken in the Companies Act 2014. This is an area that will be explored further in the comprehensive review.

On the proposed provisions for registration and filing by electronic means which form the third element of the Bill, these are positive proposals with which the Minister agrees, but they have been overtaken by events. As part of modernising the filing environment for the Registry of Friendly Societies, RFS, which includes co-operatives, on 6 December 2018, the Minister launched the RFS online facility. The launch was attended by several co-operative stakeholders, which are now using the new IT system to register new entities online, file annual returns and amendments to the rules of their societies electronically, make online payments for filings and order documents online. The fees for submitting applications to the RFS and filing documents were also reviewed in August 2018 to bring them into line with similar fee types used by the Companies Registration Office. The regulations included a provision for a reduction in fees for documents filed online. I am aware that the Bill was published last July prior to the reduction and that events have moved on since.

The Minister wishes to avoid the introduction of more piecemeal and fragmented legislation in this important area. She is also concerned about the introduction of measures that could reduce transparency. She considers that 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, with which Deputy Connolly would agree. I accept that the Deputy wanted to bring forward a smaller measure at first, but we all share the view that it is important to have consolidation in this area. This will ensure a level playing field between co-operatives and the other legal options for structuring enterprise activities and provide a conducive framework to allow the full potential of the co-operative model to be realised.

For the reasons I have outlined, the Minister cannot support the Bill. She proposes to take account of the wide range of views expressed in the public consultation process that has been undertaken, including what she recognises as genuine and well intended proposals outlined in the Bill, and bring forward comprehensive and reformed legislation in the area of industrial and provident societies later this year. As I said, she is happy to engage with Deputies in the process of developing the new legislation. When we brought forward the companies legislation previously, it benefited greatly from the co-operation and involvement of Members across the House in the committee and beforehand in fully engaging on it. There was a great deal of work involved and it helped that there was that engagement. The Minister will certainly be interested in working with Deputies as we approach the changes to be made in this area in the next year.

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