Irish co-ops share views on Co-operative Societies Bill

ICOS leaders warn that new rules around mergers, audits and setting up co-ops could have a negative impact on the sector

The Irish Co-operative Organisation Society (ICOS) is seeking to arrange a meeting with the minister for enterprise, trade and employment, Simon Coveney, to discuss its concerns over the General Scheme of Co-operative Societies Bill.

In a letter to the minister, ICOS said while it supports the department “for its proactive approach to modernising legislation governing co-operatives”, there are a number of issues it wants to address.

“The scheme contains several provisions which would hinder and impede the co-operative model as a unique and credible market solution for producers and service users alike,” said CEO TJ Flanagan.

One area of concern for ICOS relates to the proposed changes around amalgamations. “Mergers between co-operatives would require each co-operative to convene two meetings, with 75% support at the first meeting, coupled with a minimum 50%+ support at a second meeting,” said Flanagan. “This is excessive where a convincing mandate has been secured. ICOS members call for the status quo to be retained.”

With regards to audit exemptions, ICOS said that while it welcomes the right of small co-ops to forego a financial audit, audits play an important role in reassuring members. ICOS believes the scheme falls short in devising a solution that safeguards the unique member stakeholder imperatives in a co-operative.

“The cost of the audit can be unduly burdensome for small and indeed community-based co-operatives,” said Flanagan. “That said, in a co-operative, the members’ needs are paramount, and the sustainability of the co-op is integral to those collective concerns. The financial audit delivers comfort to members in that regard.”

Instead, ICOS suggests introducing some controls as to when a co-op can avail of the audit exemption. But “the safeguards suggested by ICOS in prior consultations do not appear in the General Scheme,” it said.

In an attempt to make it easier to set up a co-op, the Bill also reduces the number of founding members from seven to three, providing audit exemptions for smaller co-ops.

These concerns were also voiced during a meeting Joint Oireachtas committee for Enterprise, Trade and Employment, which Flanagan attended with ICOS’ legal counsel James Doyle on 22 February. During the meeting Flanagan said the scheme would “modernise and consolidate the statutory framework governing co-operative societies in Ireland”, adding that “ICOS wishes to commend this development given the somewhat archaic and piecemeal nature of the existing Industrial and Provident Societies legislation.”

But he warned that replacing ‘special general meeting’ with ‘extraordinary general meeting’, as per the provisions of the bill, would have a negative effect. “Member familiarity and co-operative culture should be enhanced not undermined especially where the gains of this proposed homogenisation are not apparent,” he said. “ICOS calls for retention of these terms per the current law and practice.”

Another big change proposed in the bill is the reduction in the number of people required to establish a co-op, a cut from seven to three. But ICOS argues that “the seven-member minimum has served as a reasonable starting point for collective endeavour and should prevail on the statute.”

“ICOS believes the Scheme has many positives but equally some of the measures would compromise the prevailing autonomy of co-operatives and their members to tailor rights and structures to their specific needs. It is important that the final legislation addresses that key co-operative principle,” said a statement from the apex.

Co-operative Housing Ireland was also represented at the hearing by Pearse O’Shiel, chair of CHI and Pat Moyne, director of corporate services. According to the apex, the proposed legislation places an appropriate focus on preserving the internationally recognised principles and identity of co-operatives. 

Addressing the hearing, they said CHI welcomed that the Department of Enterprise, Trade and Employment attempt to “reduce the many administrative burdens that co-operatives must contend with that are not faced by companies and other bodies corporate.”

CHI sees the proposed reduction of minimum number of members and the introduction of audit exemptions as measures that  “will be of considerable benefit” to its member co-operatives.

Other provisions welcomed by CHI are the requirement for a minimum of three directors, the introduction of a legal reserve for all co-operatives, and the requirement for co-operatives to respect the principle of one member, one vote; and the removal of the restrictions on the ability of co-operatives to raise funds from both their members and the wider community

However, CHI also recommended the committee gives further consideration to some aspects of the legislation with which we have some concern. 

CHI also pointed out that community, social and not-for-profit co-operatives, along with their support organisations, “have strongly advocated for the inclusion of optional provisions for a statutory co-operative asset lock” and recommended “ that the committee seeks submissions from stakeholders, specifically on what other legislative mechanisms could ensure that all co-operatives uphold minimum standards regarding their democratic and co-operative character.”

The committee also heard from Dr Bridget Carroll from University College Cork, who pointed out that “the distinctive nature of co-operatives vis-à-vis other business models requires distinctive legislation.”

She said the drafting of the general scheme of the Bill aligns with international trends on co-operative legislative reform. Dr Carroll said the Centre welcomed the use of the internationally agreed definition of “co-operatives” as adopted by the ILO and the International Co-operative Alliance, ICA along with the provision for co-operative societies to “carry on any activity”.

Furthermore, the centre endorses the proposal to reduce the current minimum number of seven persons to form a co-operative to three whilst allowing co-ops to set the minimum number at a higher level in their rules, if they so choose.

Another positive provision, according to Dr Carroll, is the fact that bodies or individuals not registered as co-operatives may not use the terms “co-operative”, “co-op”, “comharchumann” or comhar” in their registered name or trading name.

“This should apply to all entities, including those registered before the commencement of the Bill,” she said.

The Centre also endorses the concept of the introduction of legal reserve provision and that the manner in which it is operated is determined in the rules of a society.

“The presence of reserves introduces considerations around the use of an asset lock,” she said.

The centre also welcomed the flexibility afforded to the holding of annual general meetings, AGMs, virtually or in person or both and the provision for an audit exemption for smaller co-operatives. 

As to the changes around wounding up co-ops, the centre views these in a positive light. The draft bill requires a special resolution to wind up a co-operative society requiring a 75% majority vote at a first meeting and confirmation of the vote by a simple majority at a second meeting of the co-operative society.

Dr Carroll added that the centre suggested consideration of a co-operative-specific system of classification by the registrar and reporting on a wider range of statistics, including, and not limited to, number of members, number of employees and total assets. This, she said, would help to address the availability and standard of data on co-operatives for the purpose of research and analysis.

Co-operative Alternatives, a co-operative development agency in Northern Ireland that also works with co-ops in the Republic of Ireland, was also asked to prepare a written submission to the Joint Committee of Enterprise, Trade and Employment in the Oireachtas.

In its submission Co-operative Alternatives commended the Department of Enterprise, Trade and Employment for proposing new legislation that aims to support and grow the co-operative economy in Ireland. However, the agency said the draft Bill could be improved “to maximise the legislation’s potential to grow the co-operative economy more broadly, particularly not-for-profit and social co-operatives.”

To achieve this Co-operative Alternatives makes several recommendations, including introducing the right environment for ‘Community Shares’ along with a statutory co-operative asset lock. The agency explains that Community Shares enable co-operatives with a social or community mission to secure investment from the very community they aim to benefit.

“We applaud the decision by the Department of Enterprise, Trade and Employment to remove the prohibition on co-operative societies raising funds through publicly advertised co-operative share offers. We further welcome that General Scheme will permit the reintroduction of withdrawable share capital, which is a key plank of the community shares model in the North, and has been prohibited in the South for a generation. However, we note that the absence of a complementary optional co-operative asset lock means that the specific ‘community share offer’ model of financing for not-for-profit and social co-operatives is unlikely to be replicated in the same fashion as it has in Great Britain and Northern Ireland,” it said in its submission.

Furthermore, Co-operative Alternatives suggests that the legislation be aligned with European co-operative norms in regard to the requirement and maintenance indivisible reserve.

Co-operatives Alternatives also welcomed the exemption from the requirement of auditors for co-operatives within the turnover and asset limits indicated in the General Scheme. In addition, the agency would welcome the abolition of fees currently charged when accessing co-operative public records from the public registry and a reduction of any fee for registration purposes. “At present registering a co-operative is still considerably more expensive than registering a company,” pointed out Co-operatives Alternatives.

Other recommendations made by Co-operatives Alternatives are reducing administrative costs associated with co-operatives; providing an adequate framework for co-operative development including by establishing a Co-operative Development Unit as part of Enterprise Ireland; and considering additional measures required to maximise the growth of employee-owned businesses including via tailored tax provisions.

The General Scheme of Co-operative Societies Bill 2022 aims to modernise and consolidate existing legislation of co-operatives. The Bill will replace the existing Industrial and Provident Societies Acts 1893 to 2021.

This article has been amended to include further comments on the Bill