Northern Ireland reforms

The Northern Ireland Assembly has passed a package of reforms to co-op law we’ve long lobbied for. 

These reforms essentially replicate similar  measures already introduced in Great Britain in 2011 and 2014. These changes come in the form of the Credit Unions Co-operative and Community Benefit Societies Bill, which now only requires Royal Assent to become law.

What’s changing?

Co-operative capital

There is a fivefold increase to the limit an individual member can invest in a society’s withdrawable share capital, from £20,000 to £100,000.  The old limit has been in place for twenty years, having been updated sporadically before then, and no longer reflects economic reality. Our analysis shows this has become particularly restrictive for societies where it’s appropriate for members to contribute significant amounts of capital, such agricultural co-operatives. Research tells us that for every £1 farmers contribute in capital £9 is generated through the co-operative to improve productivity and efficiency in agriculture, but the current investment limit is holding back this increasingly important sector. The same research tells us that before the limit was raised to £100,000 in Great Britain, it was costing co-operatives between £1.5 million and £2.5 million a year through additional borrowing, with over-reliance on debt finance a significant risk. You can download our modeling here.

Secondly the law removes any limit on a member’s holdings in ‘non-withdrawable share capital’. This permanent capital is currently less well used but experts believe it could be instrumental in future innovations for financing co-operatives.

Financial reporting

While reporting requirements for companies are updated regularly to reflect economic reality, changes for co-operatives tend to lag far behind. Over time this results in significant disadvantages that come with real business costs for our members. Two new measures now level the playing field in this regard. Industrial and provident societies are free to choose their own year-end, introducing crucial flexibility already enjoyed by companies. And they can now also publish unaudited interim reports at a significantly reduced cost, just as companies can.

Dissolution

There is now a more straightforward means for a dormant industrial and provident society to be dissolved.

Co-operative identity

Lawmakers have introduced new clearer legal names for industrial and provident societies, with that wording becoming redundant. Rather than being an industrial and provident society, theses business will now either be a ‘co-operative society’ or a ‘community benefit society’.

Note these changes will come into force upon the granting of Royal Assent, which is expected by the end of April 2016.

Regulation

Similar reforms in Great Britain prompted the registrar of societies, the FCA, to thoroughly review and codify its regulatory policy. Unfortunately this resulted in unexpected challenges. The FCA proposed a messy restrictive definition of a co-op which on some readings excluded retail societies, worker co-operatives and many community enterprises. It also offered an outdated characterisation of community benefit societies which seriously damaged this legal form's credibility in a modern social economy. And there was an attempt to impose burdensome restrictions on society finance: downplaying the role of member capital, curtailing borrowing options, and imposing simplistic blanket caps on share interest rates. All this caused damaging confusion and concern for our members, and real disruption to business activity.  After more than a year of consultation and collective lobbying we delighted to report the FCA published much improved policy in November 2015. For more details see here.

During the passage of this Bill we’ve made MLAs and DETI aware of the need to avoid similar problems in Northern Ireland. DETI has assured MLAs and Co-operatives UK that it will learn from developments in Great Britain as it codifies its own regulatory policy. We expect DETI to kick this off formally once the Bill becomes law. We’ll write to DETI requesting they fully consult societies in Northern Ireland.

Looking further ahead

We’ve used the passage of this Bill as an opportunity to open up discussions with DETI and MLAs about further reforms to co-op law we think could be beneficial.  These include:

  • An optional asset lock for bona fide co-operative societies. We’re consulting members on this right now, see here
  • Provision for bona fide co-operative societies to register and entrench a social or community purpose
  • Insolvency procedures for societies similar to those for companies. This was introduced in Great Britain in 2014 and has the added benefit of ensuring employees of larger co-ops are guaranteed coverage under the rules of the Pension Protection Fund
  • Updated account reporting and audit requirements for societies in line with those for companies
  • Applying company director disqualification rules to societies 

Our suggestions were explicitly noted during the committee stage of the Bill and DETI officials told MLAs that when this legislation is reviewed in two years’ time there will be scope for further improvements.  Following this the Enterprise Minister told the Assembly his department would “continue to review the legislative framework underpinning the mutuals sector.”

In a public statement following the passing of the Bill the Minister said: "It is important credit unions and registered societies can carry on growing and work will continue to ensure both sectors operate within a legislative framework that supports this."

It’s vital we make the most or this opportunity. We will be working closely with our members in Northern Ireland, DETI and MLAs to ensure the ground work is done between now and 2018.

To help shape this work contact our policy officer James Wright.