Seán Sherlock (Cork East, Labour) | Oireachtas source

I am pleased to have this opportunity to address the House on the occasion of Second Stage of the Friendly Societies and Industrial and Provident Societies (Miscellaneous Provisions) Bill 2013.

Publication of the Bill represents a partial response to the commitment we made in the programme for Government regarding co-operatives, when we said we would "work to promote a greater appreciation of the co-operative model as a distinct form of organisation, ensure a level playing field between co-operatives and the other legal options for structuring enterprise activities, and provide a conducive framework for the full potential of the co-operative model to be realised”.

We began this process of levelling the playing field with the introduction of a statutory instrument in late 2012 which reduced the fees charged by the Registrar of Friendly Societies to co-operative societies by between 33% and 80%, bringing them into line in so far as possible with those charged to companies. The commitment was also encompassed in the Action Plan for Jobs for 2013, when we promised to publish legislation aimed at easing the regulatory burden on co-operative societies and making it easier to run a co-operative as an alternative form of enterprise organisation. The Bill is the crystallisation of this promise, and I am happy to commend it to the House today. The Bill also proposes a number of modifications to the Friendly Societies Acts.

Before I get into the detail of what is contained in the Bill I would like to elaborate a little on the background to its development and the legislative regime under which friendly societies and co-operative societies operate. Friendly societies and industrial and provident societies developed as part of the mutual self-help movement of the 19th century, which included co-operatives, building societies, savings banks, credit unions and trade unions. Given Ireland’s rural economy, the emphasis was on farming co-operatives and agricultural banks, with friendly societies largely being an urban phenomenon, many offering an insurance-type service, making payments and offering support at times of death, illness or inability to work. In the intervening years many of these sectors have become regulated as they developed - for example, insurance and credit unions - or were replaced by State-provided welfare systems. The modernisation of this legislation for the remaining groups has lagged behind.

Friendly and co-operative societies operate under the Registrar of Friendly Societies, who is responsible for carrying out the statutory functions and duties conferred on the Registrar of Friendly Societies under their respective separate and independent systems of legislation, namely, the Friendly Societies Acts 1896 to 1977 and the Industrial and Provident Societies Acts 1893 to 2005. The subject matter of these Acts is broadly comparable to that of the Companies Acts. They deal, albeit in a rudimentary and less detailed manner, with topics such as registration, liability, accounts and audit, public enforcement, rules, inspection and dissolution. They provide a type of company law for co-operative societies and friendly societies. There is already some direct linkage between the two bodies of legislation dealing with company law and co-operative societies, particularly on winding up, auditors and the conversion of societies into companies and vice versa, and a number of company law provisions are cross-applied to co-operative societies.

While it may be argued that the legislation has stood the test of time well in many respects, there is no doubt or argument that the legislation is outdated, and in other respects is in need of a fundamental overhaul. A simple example of this is that while co-operatives generally operate under the Industrial and Provident Societies Act, although some register as companies, the term "co-operative society" itself does not exist in law.

On the friendly societies side, it is less clear that there is a need to maintain this category of society. Only three new societies have been registered in the past nine years, and certain limitations have already been placed on the activities and functioning of friendly societies by other legislation, such as the Health Insurance (Miscellaneous Provisions) Act 2009, which introduced restrictions on new bodies registering for the purpose of the provision of health insurance. No new bodies may register as restricted membership undertakings. The Charities Act 2009 introduced a new Charities Regulatory Authority and registration requirements, to which a number of the benevolent-type societies will be subject when they are commenced. The Consumer Credit Act brings a small number of societies under the supervision of the Central Bank for loan purposes.

The question of why we are tabling an amending Act rather than a complete overhaul of the legislation can be posed. When the Government decided in June 2011 to proceed with an interim Bill to make a number of amendments to existing legislation, the reasons for the decision were twofold. These were to avoid diverting effort and resources away from work on the Companies Bill, which is the priority in this area, and because when the Companies Bill is enacted it will, to a certain extent, have an impact on how related issues in the co-operatives area will operate. There is no principled reason the approach taken by that Bill on matters such as registration and financial reporting should not also apply to friendly societies and co-operatives in due course.

The interim Bill is aimed primarily at easing the regulatory burden on co-operative societies and making it easier to start up and run a co-operative as an alternative form of enterprise organisation. It will address particular problems that have been identified in the co-operative sector and help ensure this model can thrive and grow to its potential in line with the commitment in the programme for Government to promote appreciation of the co-operative as a form of enterprise organisation. The Bill will also deal with certain issues regarding friendly societies which the Minister, Deputy Bruton, thinks it is timely to address. It is the Minister’s intention, when the Companies Bill is enacted, to prepare new modern legislation to cater for the co-operative sector and for existing friendly societies.

I will elaborate on the policy considerations of the measures proposed in some detail in the individual sections. The Bill is set out in four parts. Part 1 deals with preliminary and general matters, such as the short title, collective citation, construction, commencement, definitions and expenses. Part 2 provides for various amendments to the Friendly Societies Act 1896, principally the cessation of registration of new societies under the Act and a prohibition on existing societies from establishing a loan fund. Part 3 provides for a number of amendments to the Industrial and Provident Societies Act 1893, including providing for the removal of limits on individual shareholdings, increasing the amount a society may raise in funds without the written permission of the Registrar of Friendly Societies, providing for appeals against a decision of the registrar to be made to the Circuit Court rather than the High Court as at present, and allowing greater flexibility to societies regarding their financial year for the purpose of submission of annual returns. Part 4 provides for the application of the existing law on examinership as applied by the Companies Acts to industrial and provident societies which at present cannot avail of the examinership process.

Sections 1 to 3 of the Bill, which make up Part 1, are general sections only, dealing with citations, construction and commencement, definitions and providing that any expenses incurred by the Minister in the administration of the Act may be paid out of moneys provided by the Oireachtas.

Sections 4 to 8, which make up Part 2 of the Bill, relate to the operation of the friendly societies legislation. Section 5 provides for a significant change to that Act regarding the cessation of registration of any new societies under this legislation.

Only a relatively small number of societies remain in existence - just 47 - and, as I stated earlier, there have been just three new entrants in the past nine years, giving a clear indication that the friendly society model is no longer favoured by newly establishing organisations. This change will mean, in effect, that the friendly society model will continue only as a closed group of societies - that is, the existing societies will continue in operation but no new societies will be permitted to be established. The current legislation does not provide for prudential supervision of friendly societies by any public authority, which is a source of some concern in that there is some potential risk to the interests of certain members of the public, and the Minister considers that it is in the public interest to restrict the operation of new entities in this area.

Section 6 places a restriction on existing societies establishing a loan fund as provided for in section 46 of the principal Friendly Societies Act of 1896 where they do not already have such a fund in place. This change will not affect existing societies that currently have a fund in place. As I mentioned earlier, such activity is not subject to prudential supervision by any public authority, and while the European Communities (Consumer Credit Agreements) Regulations 2010, in amending the Consumer Credit Act 1995, bring a small number of societies under the supervision of the Central Bank for loan purposes, the Minister is of the opinion that societies not already active in this field should not be permitted to extend their remit.

Sections 7 and 8 are two technical amendments which will facilitate the operation of the Friendly Societies Acts. Section 7 removes the role of the Minister in cancellations of friendly societies. Under the current legislation the Registrar must receive the prior approval of the Minister - formerly the Treasury - before cancelling societies on certain grounds. Such a role for a political authority is something of an anachronism in modern times; for example, the Minister has no role in company strike-off. It is proposed to remove this role with regard to friendly societies, and also, in section 10 of the Bill, to industrial and provident societies. Section 8 removes the restriction in the current Act providing that the Registrar must be absent for the powers, functions and duties to be exercised and performed by such other person as the Minister may authorise, and allows another person to act alongside the Registrar. This change is necessary as for the past number of years the role of Registrar of Friendly Societies has not been a dedicated role but has been fulfilled by the Registrar of Companies in addition to her existing duties.

Sections 9 to 12, inclusive, which make up Part 3 of the Bill, relate to the operation of the industrial and provident societies legislation. Section 10 sets out a number of amendments to the principal Act, relating to issues identified through a consultation process as being practical and immediate difficulties being experienced by co-operative societies in relation to the current legislation. The Minister considers that the proposed amendments would ease the administrative burden for the co-operative sector.

Subsection (a) provides for the removal of the upper limit on the interest in a society that an individual society member may hold, where a society so specifies in its rules. The existing upper limit - that is, €150,000, or 1% of the total assets of the society, which was inserted in 2005, remains specified so that societies which wish to retain this limit may do so without having to change their existing rules. This limit is generally suitable for all categories of society at present. There is, however, some risk that it may deter the formation of new societies with small memberships but high capital requirements - for example, in the wind farming sector.

The original rationale for having a statutory limit on individual shareholdings - a limit has been in place since the earliest Act in 1852 - is believed to be connected with the notion of equal participation by the members of a co-operative enterprise. This objective, however, can be fully achieved by co-operatives themselves through the medium of their own rules without the need for legislative intervention. All of the submissions received in the course of the consultation process that addressed this issue have called for the removal of the limit. Accordingly, it is proposed to avail of the present legislative opportunity to remove the statutory limit altogether as an unnecessary regulatory restriction serving no useful purpose. The number of societies likely to raise equity funds from an individual shareholder in excess of the current statutory limit is not expected to be many.

Subsection (b) provides that an appeal of a refusal by the Registrar to register a society, or to register any rules or amendments of rules, may be made to the Circuit Court. Under the current legislation, where a society whose registration has been cancelled by the Registrar - for example, for non-submission of returns - wishes to be restored to the register the society must apply to the High Court. It is proposed to amend the relevant provisions to permit such applications to be dealt with by the Circuit Court. This should reduce costs for societies.

Subsection (c) makes two technical amendments, providing for the cancellation of registration of a society to be "in writing" rather than "under his hand or seal", and as I explained in the case of the similar provision in relation to friendly societies, provides for the removal of the requirement for the Registrar to have the approval of the Minister for the cancellation.

Subsection (d) restricts the requirement on societies to provide a copy of its rules to members only, on payment of such a fee as the society may set in its rules. This will not disempower the general public, as the rules of a society are required to be submitted to the Registrar and so remain accessible to the general public on demand to the Registrar on payment of the appropriate fee. This will reduce the administrative burden on individual co-operative societies to provide copies of their rules to those without a direct interest in the society.

Subsection (e) provides that annual returns to the Registrar may be submitted on one of two dates during the year, depending on the date of a society's financial year - that is, the date to which its balance sheet is made up. This allows societies freedom regarding their choice of year end and extends the timeframe for the submission of the return. The current system is quite restrictive in that returns must be made up to a date falling within the five-month period from September to January and all annual returns must be submitted by the following 31 March to the Registrar of Friendly Societies. These statutory timing requirements, introduced in 1893 and 1913, cause difficulties for societies whose annual business cycles do not accord with those requirements, such as dairy societies, which wish to bring their reporting year into line with the dairy production year ending March or April, depending on what part of the country one is from. There is no principled reason, in any event, for not providing greater freedom to societies to determine their financial year-end, as is the case with companies.

Subsection (f) extends the right of members or persons having an interest in the funds of the society to inspect the books containing the names of members to include their holdings in the society, whether in shares or loans. I understand that this is already the practice among many co-operative societies. This adjustment is being made to facilitate the removal of the requirement for societies to submit a triennial return where this information is currently available, which is being abolished. I will provide details on this issue when I outline the provisions in section 11.

Subsection (g) provides for a right for non-members to inspect the books containing the names of members and their holdings in shares at reasonable hours at the registered office of the society. The section is modelled on the similar section in the Companies Acts. Without this amendment, non-members would have no ability to access the membership or holding details of a society in the absence of the triennial return, the requirement for which is, as I have just mentioned, being abolished.

Subsection (h) is purely a technical amendment providing for a minor rewording of the requirement in the rules to provide for the determination of the amount of interest in a society a member may hold. The amendment is required consequent to the removal of the upper limit which is currently in place.

Section 11 abolishes a requirement introduced by the Industrial and Provident Societies (Amendment) Act 1913 which required societies to submit at least once in every three years a return of the members and their holdings to the Registrar.

The co-operative sector has sought the abolition of this requirement and argued that the information is out of date too quickly to be useful and imposes an unnecessary administrative burden on societies. There is general agreement that this return serves no useful purpose and accordingly, it is proposed to remove the requirement. As mentioned earlier, section 10(g) provides that both members and non-members will now be able to access information relating to members and their shareholdings directly through the co-operative society.

Section 12 provides for a number of amendments to the Industrial and Provident Societies (Amendment) Act 1978. It provides for an increase in the amount that a society may raise by way of subscription for shares without the written permission of the registrar from €12,697 - that is, £10,000 - to €30,000. It also extends the provision whereby certain funding sources are excluded from the requirement to obtain the written permission of the registrar to include moneys advanced by a public body to a registered society. This will remove the need for societies to seek the prior permission of the registrar before they can accept funds from a public body or where the amount of share capital raised in any period of six months does not exceed €30,000. The change meets the concerns of some societies affected, particularly building co-operatives, that the present restrictions are excessive. The section also defines "public body" for this purpose.

Sections 13 to 24 make up the fourth and final Part of the Bill, which provides for the examinership provisions of the Companies (Amendment) Act 1990, as amended, to be made available to co-operative societies. Examinership is a mechanism used to enable companies that are in financial difficulties to be put back on a sound footing and avoid liquidation. Currently, this mechanism is not available to industrial and provident societies. The practical effect of this is to limit the restructuring options that are available to a co-operative society in the event of its getting into financial difficulties. While the Minister is not aware of any particular instances in which the examinership mechanism may be required by co-operative societies, he considers it desirable, particularly in the present economic climate, that this mechanism should be available for use by any society that might need it. The co-operative movement also has signalled that it considers this matter should be addressed as a priority. The intention is that the law on examinership, as it applies to companies through the 1990 Companies (Amendment) Act, will apply in the same manner to industrial and provident societies. Sections 13 to 23 of the Bill provide for such necessary definitions, changes and modifications as are needed to apply the legislation to industrial and provident societies. The amendments are effectively technical amendments necessary for the understanding and effective operation of the Act in its application to co-operative societies.

Section 14 provides that the provisions of the Companies (Amendment) Act 1990, as amended, as well as any other provision of the Companies Acts referred to in that Act, will apply to industrial and provident societies in the same manner as they apply to companies, subject to necessary modifications. Two of the sections of the Act are disapplied for the purpose of its application to industrial and provident societies. First, section 6A is disapplied, as the provisions of the Companies Acts regarding receivers do not apply to industrial and provident societies. Moreover, section 36A, which relates to the bringing of proceedings by the registrar in the case of an offence, is disapplied as it is restated in the new section 24 of this Bill dealing with offences for clarity and ease of reading. Section 15 construes phrases in the 1990 Act that apply specifically to companies to the nearest equivalent definition or meaning for industrial and provident societies.

Section 16 applies section 3 of the 1990 Act, which deals with who may petition for protection of the court, with certain modifications needed with regard to industrial and provident societies. Subsection (a) lists the persons who may apply for the protection of the court, particularly the number of members of the society required to present a petition. The number proposed here equates to the existing proportion of members who are permitted by the Industrial and Provident Societies Act 1893 to request that the registrar investigate a society. For ease of reference, this subsection also restates and updates the references to the list of societies comprehended by section 3(2)(c) of the 1990 Act. Although section 3(2)(c) refers to the societies, they are, in fact, listed elsewhere in the Companies Acts. By restating the list in this Act, it avoids the necessity of referring to Acts other than the 1990 Act. Members should hang in there.

Additionally, as the list is not all directly applicable to industrial and provident societies, the Minister has taken the opportunity to exclude non-relevant aspects. Subsection (b) expands the definition of director to include the "committee of management or other directing body of an industrial and provident society". It also disapplies the requirement for the report of the independent accountant to include his or her opinion as to whether further inquiries are needed with a view to proceedings under certain provisions of the principal Companies Act 1963, which do not apply to an industrial and provident society.

Section 17 applies section 3C of the 1990 Act, which deals with the independent accountant’s report. Subsection (4) of that section is simply restated with a modification to indicate that the reference to section 3(2)(c) is a reference to that section as modified by this Bill. Section 18 applies section 5 of the 1990 Act, which deals with the effect on creditors and others of a petition to appoint an examiner. This section disapplies provisions of the 1990 Act that apply certain sections relating to orders for relief under section 205 of the principal Companies Act 1963, which does not apply to industrial and provident societies. Section 19 substitutes a reference to "the Industrial and Provident Society Acts" for the reference to "the Companies Acts" in each of sections 7, 18 and 24 to reflect the fact that the Industrial and Provident Societies Acts provide the governing legislation for societies, rather than the Companies Acts. Section 20 removes the reference to “shadow director”, which is not a term that has an equivalent meaning in the context of an industrial and provident society. Section 21 disapplies subsection 7, relating to offences under the 1990 Act, which, as I have mentioned earlier, are restated in section 24 of this Bill.

Section 22 is a technical amendment providing for clarification in the case of a society in examinership that it is the Companies (Amendment) Act 1990, as applied by this Bill, which is applicable. It also provides for the disapplication of subsection (5), which relates to offences under the 1990 Act. Section 23 amends sections 28 and 30 of the 1990 Act, again disapplying references to offences that are restated in section 24. Section 24 restates the offences in the 1990 Act and has been updated to equate with the provisions in the Companies Bill 2012. Subsection (2), which is new, provides that a court may make an order to rectify any breach of this Act for which any person is convicted. Subsection (3) provides that summary proceedings regarding an offence under this section may be brought by the Registrar of Friendly Societies. This is a restatement of the disapplied section 36A, which, as I mentioned earlier, has been brought into section 24, which pertains to offences.

That concludes my presentation of the Bill on behalf of the Minister. I wish only to mention that in light of the passage of the Companies (Miscellaneous Provisions) Act 2013 through the Houses just before Christmas, it is intended to bring forward an amendment to the Bill on Committee Stage to reflect the change to the examinership process brought about by that Act - that is, provision for access to the process through the Circuit Court rather than the High Court in certain instances. I look forward to listening to Members' views both today and in their future consideration of the Bill as it progresses through this House. I commend the Bill to the House.