Parliamentary legislation is proposing an alternative shareholder structure for co-operatives to give greater access to funding.
The Mutuals’ Redeemable Shares Bill will allow individuals and institutions the option to invest in a mutual through redeemable shares without compromising its mutual status. Currently, industrial and provident societies can only accept individual investments of up to £20,000.
A new class of fixed-term shares will allow membership with one vote, but will not allow the holder to transfer, merge or dissolve the mutual. Shares will reward holders with a rate of interest payable under the rules and a repayment of the capital at the end of the term.
The private members' bill has been proposed by Conservative peer Lord Naseby in the House of Lords, which received its first reading on 22 July. Lord Naseby describes himself as a long-standing supporter of mutuals and is currently Vice Chair of the All Party Parliamentary Group for Mutuals and a former Chair of Tunbridge Wells Friendly Society.
Proposals are set to provide the opportunity for the majority of mutuals, including co-operatives, friendly societies and mutual insurers, to adopt this legal framework to issue shares.
The Bill has been drafted by mutuals campaigner Mutuo, with the assistance of co-operative and mutual insurer lawyers Ian Snaith from DWF and John Gilbert of Hogan Lovells.
Mutuo Chief Executive Peter Hunt said: “Mutuals were not designed with capital investors in mind. They exist to serve their members who will be customers, employees or defined communities.”
He added: “The challenge has been to amend the capital regime in mutuals to permit the injection of external capital, whilst safeguarding both the core purpose and mutual integrity of the business.
“Lord Naseby’s Bill offers a radical step for UK mutuals which are keen to take advantage of their high levels of trust among customers and members.”
The Bill, which has drawn on similar legislation in Canada and the Netherlands, was drafted in response to a key recommendation from the Ownership Commission that was published last year.
It said new capital instruments are required for mutuals to allow them to raise external capital otherwise their growth prospects are badly damaged. The Commission, which was chaired by writer and economist Will Hutton, further advised that mutual ownership should be incentivised as much as equity ownership.
The Blueprint for a Co-operative Decade, developed by co-operatives around the world and facilitated by the International Co-operative Alliance, also calls for changes to the way the movement finds capital. The document said a financial proposition must be developed which “provides a return, without destroying co-operative identity”.
Mr Hunt added: “The lack of external capital is sometimes cited as a strength in the process of building patient, risk averse mutual businesses, which can concentrate on the job in hand, rather than the short term needs of capital investors. However, it can also limit their flexibility in adapting to new market conditions, securing maximum investment in the business and their ability to grow through acquisition.”
• Read more about the Bill in an article authored by Peter Hunt.