Government unlocks new funds for social enterprise

Co-operatives UK has also welcomed changes to rules around liquidation to give small businesses more chance to survive cashflow problems during lockdown

The government has announced the unlocking of £150m from dormant bank and building society accounts to help charities, social enterprises and vulnerable individuals during the coronavirus outbreak.

A government release says this includes accelerating the release of £71m of new funds from dormant accounts alongside £79m already unlocked that will be repurposed to help charities with their coronavirus response and recovery.

It says the funding will support urgent work to tackle youth unemployment, expand access to emergency loans for civil society organisations and help improve the availability of fair, affordable credit to people in vulnerable circumstances.

Culture secretary Oliver Dowden said: “Charities and social enterprises are playing a vital role in our national effort against coronavirus.

“This funding will support organisations that are at the heart of their communities, building on our unprecedented package of financial support for the voluntary sector.

“Through our proposals to further expand the dormant assets scheme, we want to unlock hundreds of millions more pounds for good causes, while keeping customer protection at the heart of the programme.”

Of the £150 million:

  • £10 million will be brought forward for the Youth Futures Foundation to help organisations who support unemployed, disadvantaged young people across the country into jobs
  • £45m will be deployed by Big Society Capital to allow better access to investment including emergency loans for charities, social enterprises and some small businesses facing cash-flow problems. This section of the package has been highlighted as relevant to the co-op sector by Co-operatives UK.
  • Fair4All Finance – which has already been working with UK credit unions on the crisis – will use £65m to help affordable credit providers to increase access to fair, appropriate products and services for those struggling financially, providing them with an alternative to high cost loans. This includes an expanded Affordable Credit Scale-up Programme and other initiatives for those in financially vulnerable circumstances.
  • £30m will go to Access – The Foundation for Social Investment who will support social enterprises helping people in vulnerable circumstances. They will make up to £10m available for emergency support through social lenders while also developing a wider programme of recovery finance for the social sector.

There are 30 participating firms in the dormant assets scheme, including HSBC Bank plc, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland, and the Co-op Bank.

The definition of a dormant bank or building society account is in the Dormant Bank and Building Society Accounts Act 2008: an account is ‘dormant’ at a particular time if the account has been open throughout the period of 15 years ending at that time, but during that period no transactions have been carried out in relation to the account by or on the instructions of the holder of the account.

The announcement came a day after co-ops joined social enterprises to co-sign a letter calling on the government to help the sector. This warned that many social economy organisations were failing eligibility criteria for some of the measures in chancellor Rishi Sunak’s rescue packages – and this potentially puts thousands of jobs at risk.

Responding to the new announcement, sector body Co-operatives UK said: “£45m will be deployed by Big Society Capital to allow better access to investment including emergency loans for charities, social enterprises and some small businesses facing cash-flow problems and disruption to their trading following the coronavirus outbreak.”

It is still analysing the new package but calls on the government to provide:

  • Targeted emergency grants, particularly for businesses that have missed out on the rates-based schemes
  • Patient, ultra-low interest loans tailored to social business models 

“This latest funding release by government shows that it is listening to our concerns and demonstrates the power of focused collective action,” it said.

Co-operatives UK has also welcomed new insolvency legislation to give businesses in distress more opportunities to turn things around, which will applies to co-operative and community benefit societies as well as companies. 

The changes include:

  • A new moratorium period for financially distressed businesses, during which time directors remain in control and creditors cannot take action against them​
  • A new restructuring procedure, which would allow a business to bind all creditors, including junior classes of creditors, even if they vote against the plan
  • A prohibition of ‘ipso facto’ termination clauses in business supply contracts, whereby suppliers terminate supply contracts on the grounds that their customer has entered a formal insolvency procedure. This is intended as a means of enabling businesses in distress to trade out of their difficulties
  • A temporary relaxation of wrongful trading rules from 1 March 2020 for 4 months, removing the threat of personal liability for directors who continue to trade a business through the pandemic where its uncertain that they can avoid insolvency in the future

These measures will increase the chances that co-ops in financial distress survive, says Co-operatives UK, adding that its team worked closely with the government to ensure the sector was covered by the legislation.

“With invaluable input from experts, we have worked closely with government and officials to ensure measures originally designed for companies are carefully modified for societies, where necessary. In this, we have prioritised the preservation of co-operative and community purpose and democratic member control. ”

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