In November 2022, the Government published the General Scheme of the Co-Operative Societies Bill 2022 (the "General Scheme"), which aims, amongst other things, to place the co-operative model on a comparable legal basis as the company law model.
The new legislation will seek to consolidate and modernise the existing provisions, much of which come from the Industrial and Provident Societies Acts 1893-2021 which will largely be replaced under the new legislative framework. The new legislation proposes, amongst other things, modern provisions relating to corporate governance, shares, raising of funds, charges and debentures and will reflect the approach adopted in the Companies Act 2014 (the "2014 Act"). This is expected to make co-operatives more investor-friendly. Existing industrial and provident societies will have a transitional period in which to register as a co-operative society, adopt an alternative corporate structure, or wind up and be dissolved.
In this article, we will look at the provisions relating to raising finance, providing security and registration of security.
Under the existing legislation, except where financing is from bank loans, public bodies or share subscriptions of less than €30,000 in any period of six months, co-operative societies seeking financing from other sources require the permission of the Registrar of Co-Operative Societies and Trade Unions (the "Registrar"). It is proposed to remove the role of the Registrar in approving applications to raise funds.
Registration of Security
Head 171 governs the registration of co-operative society charges and is based on section 409 of the 2014 Act. It provides that charges created by a co-operative society must be registered under either the one-stage procedure or two-stage procedure, which operate the same way as under the 2014 Act. Failure to register the charge renders the charge void against the liquidator and any creditor of the co-operative society. The head also clarifies that failure to provide particulars in respect of property covered by a charge renders that charge void insofar as it relates to that property.
Head 170 of the General Scheme sets out a definition of "charge" which is based on section 408 of the 2014 Act. As in the 2014 Act, the General Scheme states that “charge” includes a mortgage or charge over an interest in the co-operative society's property (which includes any assets or undertaking of the co-operative society), including a judgment mortgage, but expressly excludes mortgages and charges over interests in:
(b) money credited to accounts in financial institutions, or any other deposits;
(c) shares (including shares in a body corporate, bonds or debt instruments);
(d) units in collective investment undertakings or money market instruments; or
(e) claims and rights in respect of any of (b) to (d) above.
The General Scheme also proposes to exempt co-operative societies from the provisions of the Bills of Sale (Ireland) Acts 1879 to 1883 and to allow for co-operative societies to issue debentures secured on floating charges.
The General Scheme is currently undergoing pre-legislative scrutiny by the Joint Committee on Enterprise, Trade and Employment (the "Committee"). Once this stage is complete, the Committee will produce a report and lay it before the Houses of the Oireachtas. The report will make recommendations on the bill based on the Committee's scrutiny. We will keep you updated on the proposed General Scheme as it passes through the legislative process.