Co-operatives Bill: Cameron’s Consolidation Plan for Co-op Law in Great Britain

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On Thursday 19th January UK Prime Minister David Cameron said that he intends to introduce legislation “to consolidate more than a dozen outdated pieces of legislation governing co-operatives and mutuals into a single statute”. He said that the new statute would be “put before Parliament before the next election”.

Ed Mayo, General Secretary of Co-operatives UK welcomed the proposal as a “historic decision”.

What Does Consolidation Mean?

A consolidation Bill brings existing legislation together into one consolidated piece of legislation, without any significant change. That is what the Prime Minister has promised. Such a Bill can pass through Parliament by a special fast track procedure under the Consolidation of Enactments (Procedure) Act 1949

Under the 1949 Act, the process starts with a memorandum from the Minister of Justice. The memorandum is considered by a joint Consolidation Committee of both Houses of Parliament. A Bill is then proposed in the House of Lords, where the only debate takes place. The Bill must reflect precisely the memorandum approved by the joint committee. Only “corrections and minor improvements” are permitted and they must be proposed in the memorandum in advance of the Bill.

Who Does It?

In modern times consolidation has only been carried out after referral to the Law Commission which drafts the Consolidation Bill and a report on any necessary amendments. That is pointed out in the Cabinet Office Guide to Making Legislation.

The Law Commissions for England and Wales and Scotland operate under the Law Commissions Act 1965 and as amended by the Law Commission Act 2009.

Under section 3 of the 1965 Act the Law Commissions each have the function of

“the repeal of obsolete and unnecessary enactments, the reduction of the number of separate enactments and generally the simplification and modernisation of the law”

and can receive tasks from the Minister of Justice. It is on that basis that they will look at the co-operative and community benefit society law consolidation proposal.

Because the Industrial and Provident Societies Acts 1965 to 2003 (to be renamed the Co-operatives, Community Benefit Societies and Credit Unions Acts 1965 to 2010) apply to Scotland as well as England and Wales, this will be a joint project by both the English and Scottish Law Commissions. The changes will not directly affect Northern Ireland, the Isle of Man or the Channel Islands.

What Will The Law Commissions look at?

The list of legislation on co-operatives and community benefit societies is long. There are nineteen separate pieces of legislation of which eighteen are in force and one (the Co-operatives, Community Benefit Societies and Credit Unions Act 2010) is waiting for a decision to bring it into force. Nine of the nineteen are Acts of Parliament and the others are secondary legislation (statutory instruments). However, of the ten statutory instruments, five amend the Acts of Parliament and so are directly relevant to the consolidation. This total does not include the Credit Unions Act 1979 or any secondary legislation made under it. The Co-operatives Community Benefit Societies and Credit Unions Act 2010 deals with Credit Unions as well so the 1979 Act should probably be part of the consolidation process.

Any Benefits from Consolidation?

The main benefits are:

  • A Government supported Bill in Parliament
  • Limited Simplification of the Law

  • Raising the Co-op Profile
  • Cheaper, More Efficient Legal and Secretarial Work

Lets’ see why:

A Government supported Bill in Parliament From the point of view of the Co-operative Movement, getting a new Act of Parliament in the form of a Government Bill is important both to improve the legislation and to raise the profile of the co-operative business structure.

Since the early 1990′s, first the United Kingdom Co-operative Council and then Co-operatives UK have been seeking law reform for co-operatives. The obstacle has always been pressure on the Parliamentary timetable. The consolidation route avoids that problem as the Ministry of Justice “does not need to bid for legislative slot for a Consolidation Bill as with other Government Bills” (Cabinet Office Guidance para 4.3.7.)

Limited Simplification of the Law The law on societies is complicated – mainly because private member’s Bills and secondary legislation have been used to make changes to Acts of Parliament between 1980 and 2010. With the co-operation of Government, there have been deregulation orders for societies in 1996 and 2011, successful private member’s bills in 2002, 2003, 2007 and 2010, two further pieces of secondary legislation permitted by those Bills in 2006 and 2009 and, in 2011, regulations under the Electronic Communications Act 2000. Many important reforms have been achieved but the cost has been byzantine complexity. That does not encourage use of the co-op structure

Raising the Co-op Profile Co-operatives and other mutuals will also gain something from the process of passing the consolidated Bill. Despite the limited amount of Parliamentary debate, the announcements at the various stages (Law Commission reference, Law Commission Report, joint committee, House of Lords Debate, and the final passing and coming into force of the new Act) will be opportunities to shout about the benefits of co-operative and mutual business structures.

Cheaper, More Efficient Legal and Secretarial Work With one Act in place of nine (or ten if the Credit Unions Act 1979 is included) and five sets of regulations, legal work should take less time and so cost less. The work of society secretaries should also be easier. Anyone dealing with societies should need to look in fewer places.

Limits of Consolidation?

There are some benefits that will not flow from the consolidation process.

  • No Full Review of Co-op and Mutual Law
  • No Reforms
  • No Simplification or Modernisation of the Acts

No Full Review of Co-op and Mutual Law The Companies Act 2006 and the Charities Act 2006 did not just consolidate law for companies or charities. They also came out of a thorough and careful review of what was needed for those sectors and how the law should be changed and developed to meet modern needs. There has been no such review for co-operatives and mutuals since the nineteenth century. The consolidation will not lead to one.

No Reforms Even after the changes of the period 1996 to 2010, a number of reforms are needed. Insolvent societies do not get the benefit of corporate rescue procedures such as administration and voluntary arrangements with creditors that companies have. Since 2002 the Government has had power to change that by regulations. It has not done so. The duties of company directors are now codified in the Companies Act 2006. For societies the old common law cases still apply. The rules around company shares and capital are governed by the Companies Act. Societies are subject to the old common law case law. So, for example, societies cannot buy back non-withdrawable shares from their members. That limits the use of the removal, from January 8th 2012, of the £20,000 limit on holdings of such shares in societies as people may not be able to get their money out easily.

No Simplification or Modernisation of the Acts The consolidated Act of 2013, (….or 2014 or 2015…..?) will still use the 1876 and 1893 consolidations of the Industrial and Provident Societies Acts. (The 1965 Act was itself passed by use of the 1949 Act consolidation procedure.) That is because the process of consolidating under the 1949 Act procedure does not allow for the redrafting of the wording of the legislation to simplify and modernise it. That has to be done using the normal Parliamentary process. So the legislation will not be as clear and modern in its language as the Companies Act 2006. It will just all be in one place.

Useful But More Still Needed

The consolidation is useful but more changes are still needed. Insolvency reforms are very urgent but changes to the rules on capital are also vital if co-ops and mutuals are to reach their full potential. A full overhaul of this area of law would be even more helpful.

© Ian Snaith 2012 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit http://creativecommons.org/licenses/by-nc-nd/2.0/uk/ or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

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