Collection of Information on Co-op and Bencom Law Reform 2013-2014

Yesterday the full text of the Bill to consolidate the law was published for consultation in draft form. Go here to see all the material for consultation.

To bring it all together I've done a dedicated Law Reform Page at www.iansnaith.com .

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New Submission on Detail of Applying Insolvency to Co-ops

I have just sent HM Treasury this extra response to detailed questions they raised about applying the administration procedure to IPS's.

The main issues concerned credit unions and other societies (if any) operating as deposit takers. I argue that only shareholder depositors in those societies should have the status of creditors in an administration. Other society members should not be treated as creditors but as owner-members as would be the case in a company.

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Co-op Bank: Playing Poker on a Slippery Slope?

Next month, the Co-op Bank and Co-op Group will announce details of the rescue plan announced back in June 2013 . Essentially the idea is to increase the Bank's capital by extra Co-op Group investment in bank shares and a "haircut" for various bond holders  who would get varying amounts of shares worth less than their bonds. Maybe the Bank would give up 25% of its ownership stake?

However,  US "vulture funds"  have bought up significant numbers of bonds and are now trying to start negotiations with the Co-op Group to increase the value they will get from any deal to raise capital.

They have done that by suggesting a "Plan B" under which the whole ownership of the Co-op Bank would be held by stock market investors. They have said, however, that what they want is negotiations. Presumably the aim is to increase the return holders of the bonds will get. Their aim will be to threaten that they can gather enough support to block the Co-op's own plan so as to increase the value those bondholders get.

This Financial Times Blog Post indicates how high up the agenda demutualisation is. You may wish to register with the FT to be able to read it for free.

We must hope the Co-op Group and Co-op Bank Board and Executives are well advised and skilled at poker. Only if they are, is the Movement likely to keep any meaningful degree of control of the Bank on an ongoing basis after any deal is done.

Seventy five percent (75%) of the ordinary shares allows the Co-op group to amend the articles of the Co-op Bank. If investors have more than 25% they can block that. The lower the Group's stake under 75% the more they depend on the agreement of other shareholders to get anything through. Any one minority investor with a substantial minority stake will be able to cause problems. Five percent allows you to influence meeting agendas and 10% allows you to call a Bank general meeting. The minority will have to be kept sweet. Stock market rules require shareholder votes for many decisions and a high level of public disclosure. A brave new world for the Co-op......

The bank is also more likely to be seen as "in play" for a takeover in those circumstances and, from the point of view of bank executives, once any shares are listed, issuing more to raise capital will always be tempting.

How steep is the slippery slope here?

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Draft SI to Implement Insolvency Changes for IPS's

Hot off the press is a new draft Statutory Instrument to implement the changes proposed in "Growth through Co-operation" .

I haven't had time to look through it or comment on it yet and I'm not sure if I'll be able to, but here it is if anyone else can manage it. Comments are welcome. Send them to: 

Responses needed to ipsconsultation@hmtreasury.gsi.gov.uk by 20th September 2013

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Submission on IPS Consultation: A Debate on Democratic Control?

My detailed personal submission on the HMT Consultation "Growth Through Co-operation" went in today. It's  about WSC holding limits, insolvency procedures for IPS's and credit unions, inspections and investigations for societies, access to the register of members and electronic information filing. I managed to comment on the draft SI's published last month as well. I have tried to do a thorough job. Here's the full Text to download if you like:

Consultn IS submission 08.13

The main points can be found in this summary answers to questions:

HMT Summary Q & A 04.09.13

Essentially, most of this is very welcome.

However, I have strong reservations about the plan to allow societies to charge their members to inspect the Register of Members (which companies are not allowed to do) and even to allow them to charge for providing copies (which companies are permitted to do). This seems inappropriate when democratic member control is at the centre of co-operation.

The right for societies to apply to court to prevent members from gaining this information at all is also unhelpful. That could mean imposing costs on ordinary members who just want that information. They would always have to give detailed information including reasons for wanting the information and details of everyone to whom it might be passed. That will make it harder for members to get information as of right.

Neither the fee nor the possible court application will affect members who just want to look at their own entry. Other members are already prevented from seeing the financial information about a member's account but these changes would make it harder for members to find out who else is also a member. In a small workers' co-op members may know everyone else but they won't in a big consumer co-op.

In co-operatives with thousands, or millions, of members, how can people organise or get the numbers needed e.g. to call a special general meeting, alter the agenda, or just to form a coalition to change things if they are not allowed, or cannot afford, to find the contact details of other members? Even if there is a legal right, as now, the cost and effort involved may be prohibitive. Complicating that legal right will make matters worse. We need more accountability by boards and executives - not less.

The planned measures, apart from charging members to inspect the register, reflect the position for companies. They were introduced because of the perceived threat by animal rights activists to shareholders in Huntingdon Life Sciences.

However, for societies I think just applying this without a careful review of statutory rules about relations between members and their society and fuller consideration of the statutory duties societies should have to their members would be wrong. For example, the clear duty to provide information, enforceable by court order and a daily fine, that applies to companies would not be carried over but the criminal offence by a member who provides misleading information when applying to see the register would. That is unfair on members of societies.

I am sure these problems are inadvertent and can see why societies want this reviewed. But there should be a full two sided review and not just the application of a Companies Act rule to internal co-op democracy.

What do you think?

Responses needed to ipsconsultation@hmtreasury.gsi.gov.uk by 20th September 2013

© Ian Snaith 2013 This work is licensed under the 
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