An asset lock for co-operative societies

Asset locks are a means of ensuring co-operative capital is used to further the common interests of members rather than being appropriated for private gain.

They can be very effective in supporting investment while also providing a basis for full common ownership and indivisible reserves, often seen as fundamental features to many types of co-op.

Around the world co-op asset locks are underpinned by specific laws and regulations. In the UK statutory asset locks already exist for community benefit societies, community interest companies and charities but not for co-operative societies. While many co-operative societies do include an asset lock in their rules, these have no legal force beyond what is agreed by members. 

Through primary legislation in Westminster and Stormont co-operative societies could be given the option of adopting a statutory asset lock.

We anticipate strong and broad demand for a statutory asset lock in the co-op sector. But we also know an asset lock may not be appropriate for every co-op. And we also anticipate some strong opposition to a statutory approach as well.  

Consultation

In the first quarter of 2016 we ran a focused technical consultation to gather expert views and understand where support and opposition to a statutory asset lock could come from and what forms these could take. 

We specifically asked partner members, federal members, the worker co-op council and co-op development bodies to respond. 

We received 11 separate responses to this consultation and thank everyone who took the time to respond. Your participation strengthens our policy work and our co-op. Click below to download the full consultation outcome paper. We also summarise our response below.

Consultation outcome: download the full paper

You can also download the initial consultation paper here.

Our response

Support and opposition:

  • We anticipate broad and strong demand for a statutory asset lock - specifically from co-ops with appreciable assets, social objectives or common wealth creation 
  • We anticipate some strong opposition to a statutory asset lock - specifically on grounds that this would be undemocratic and unnecessary 
  • Any statutory asset lock would need to be optional
  • We need to understand better the nature, use and utility of rule-based asset locks

What an asset lock should cover:

  • Retained profits and reserves recorded in a given year
  • Residual assets upon dissolution or wind-up, following all repayment of debts and withdrawals of share capital

Other key features:

  • Adoption at registration or afterwards through a democratic process
  • Democratic decisions over distribution of residual assets 
  • Careful drafting to avoid unintended impacts on other aspects of co-op finance and capital 

Our case should focus on:

  • Meeting the needs or users and potential users of the legal form 
  • Prevention of demutualisation and failure
  • Facilitation of growth, common ownership and common wealth creation
  • Facilitation of all possible aspects of co-operative identity

Next steps

There is still considerable work to do to develop our thinking and refine our positions in this area. We are not in a position to draft legislation and present government or Parliament with a reform package.

What is more, Brexit will further reduce government's already limited scope to serve our policy needs. It is very unlikely that we will get the primary legislation required from government before 2020. 

Instead we will focus on improving our understanding of the nature, use and utility of rule-based asset locks in co-operative societies. Research is required. We are considering whether Freedom of Information requests to the FCA, on rule amendments to undo rule-based asset locks, and wind-ups, mergers and conversions, might be useful first steps. 

We will also look to develop accessible educational briefing materials to help our members understand the possibilities of co-op capital, common wealth creation and the key role an asset lock could play. 

If any member would like to comment on the above or contribute further to this work please contact our Policy Officer: [email protected]