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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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

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Hear the 2013 Co-op Fortnight Lecture and Discussion

Here is a recording of the Co-op Fortnight Law Lecture and Discussion in mp3 form for you to download if you have an hour to spare or trouble sleeping.....If you look at the slides while listening, it may make more sense.
Thanks to the UK Society for Co-operative Studies, DWF LLP and Co-operatives UK for the support and to the audience for good questions and a vigorous discussion in the finest traditions of Co-op Debate.
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Protect the "Co-operative" Name - contact BIS by 22.05.13

It is vital that everyone supports Co-operatives UK's campaign on the Government's proposal to remove the current protection for the use of the word “Co-operative” in the name of a company, LLP, sole trader, limited partnership, or unregistered general partnership. Do that by sending your opinion BY 22^nd May 2013 to catherine.crowsley@bis.gsi.gov.uk

It may be helpful to give some of the technical legal background to the proposal here and to explain its importance to UK co-operatives.

Co-operatives UK's excellent response  to the consultation provides practical evidence and coherent and convincing arguments against the change mooted by the government. I support that 100%. This short post elaborates the background and some of the arguments to complement the Co-operatives UK response.

Why Is Protection Needed?

In the UK legal system there is no requirement for co-operatives to use any particular business structure. Many co-ops use a society registered under the Industrial and Provident Societies Acts 1965 to 2003 (IPSA's) - soon to be renamed Co-operative or Community Benefit Societies Acts. But many co-ops use registered companies and limited liability partnerships because they find them more convenient. It is also possible for co-ops to use a limited partnership registered under the Limited Partnerships Act 1907 or an unregistered general partnership governed by the Partnership Act 1890 for a co-operative, although this is less common due to problems with liability in those cases. While a co-op cannot, by definition, be a sole trader, protection of the name against abuse by sole traders is important.

This freedom to choose any business structure arises from our liberal tradition of business law and has advantages. It allows flexibility and the development of new co-op businesses and initiatives without the constraint of one rigid legal straitjacket. On the other hand, as the whole concept of a co-operative is based on values and principles, some protection of their identity is needed.

The FCA Mutual Registrations team require that any society registered as a co-op under the IPSA's, meets the ICA definition. In the case of other business structures, protection against misuse of the name “co-operative” depends on the legislation now being reviewed by the Department for Business Innovation and Skills (BIS).

These protections are vital to ensure that the public are not misled into believing that they are dealing with a co-operative when they are not. They also prevent the co-operative idea from being tarnished by fraud and abuse.

How Does the Current Protection Work?

The regulation of words used in business names is governed by the Companies Act 2006 and regulations made under it. However, the protection extends to all business structures and not just to companies. How does this work?

Section 55  and Part 41  of the 2006 Act set the system up.

Section 55 requires permission from the Secretary of State (in practice Companies House) for the use of certain words in company or LLP names- See reg 2 of SI 2009/2615  for the application of this to LLP's.

Sections 1192 and 1194 require the same permission for any of those words to be used to carry on business in an unregistered or limited partnership or as a sole trader. They make it a criminal offence for anyone to do that in the UK.

Under The Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009 SI 2009/2615the word “co-operative” is protected from use in a company name, an LLP name, or to carry on business using any unregistered structure.

What Change is Proposed?

The current consultation by the Department for Business Innovation and Skills (BIS) questions whether any of the names on the list in those regulations should remain protected.

It does this by asking whether regulations are necessary at all and, if so, whether they can be “reduced, simplified or improved”.

Why Does it Matter?

In paragraph 39 of the consultation document the rationale for the protection is set out:

“39. All the words specified as “sensitive” and listed in Schedule 1 of SI 2009/2615 (see Annex A) were included to protect the public from being misled by a business’ name as to either its status or the nature of its businesses activities (e.g. charity, co-operative, Institute). However, as language evolves words, which may have been considered worthy of protection at the time, may no longer be considered such a risk”

In paragraph 52 certain names are suggested as being particularly in need of protection:

“52. Those which appear to be particularly important to protect include: Accredited, Bank, Charity, Institute, Insurance, Police and University. Misuse of these words poses a high risk to the general public.”

The internationally accepted ICA Statement of Co-operative Values and Identity  gives a clear focus for the meaning of the word “co-operative” and clear criteria against which to judge a business or person seeking to use the name.

The misuse of the word “co-operative” leads to similar risks to the misuse of the words listed in paragraph 52 (above) of the BIS document.

People may well wish to trade with a firm because it is a co-operative and because the name implies certain standards of behaviour and an ownership structure which protects and facilitates that. For legal structures other than industrial and provident societies, there is no other agency or government body that provides that assurance so the preservation of this protection is essential.

The use of the name is not restricted in the IPSA's because the flexibility to use a range of business structures for co-operatives is beneficial. In addition, to impose such a restriction, primary legislation would be required. Such a change would not amount to a consolidation so it could be achieved as part of the current Law Commission and HMT project.

If the regulations are to be removed or reduced radically, it is essential that protection is retained for the word “co-operative – and extension to the words “coop” and “co-op” is desirable.

Maybe the function could be removed from BIS to the FCA which carries out the same role for societies, or to Co-operatives UK as the custodian of co-operative values in the UK.  However, that would be unlikely to reduce red tape as a different government body would be involved in the process on the registration of a company or LLP and in prosecuting for violations by sole traders or unlimited and limited partnerships.

It makes sense for the function of approving the name to remain with the body involved in company and LLP registrations and for the prosecuting function to stay with the same body.

UK International Obligations

The International labour Organisation in its Recommendation 193 of 2002 makes clear the expectation that states who have signed up to the ILO Convention will promote co-operatives. That applies to the UK.

Paragraph 7(2) of the recommendation provides that:

"Cooperatives should be treated in accordance with national law and practice and on terms no less favourable than those accorded to other forms of enterprise and social organization."

To fail to protect the identity of co-operatives taking advantage of the flexible system of business structures in the UK would fail to meet that requirement.

Under paragraph 10 states are to adopt  legislation and regulations on cooperatives guided by the cooperative values and principles. The removal of the protection afforded by the UK Business Names rules would fail to do that.

Given that governments are also urged in paragraph 10 "to consult cooperative organizations in the formulation and revision of legislation, policies and regulations applicable to cooperatives", the submission of Co-operatives UK should carry particular weight.

As a member state of the European Union, the UK should also have regard to the European Commission's Communication of 23rd  23.02.2004 (COM(2004)18) on the Promotion of Co-operative Societies in Europe. In paragraph 3.2.4. the Commission emphasises the importance of  the co-operative definition, values and principles set out by the International Cooperative Alliance (ICA) in 1995, and refers to their endorsement by the UN and the ILO. It goes on the state:

"Consequently national legislators should be based on the co-operative definition, values and principles when drafting new laws governing co-operatives. In this context however Member States  are required also to be sufficiently flexible in order to enable co-operatives to compete effectively in their markets and on equal terms with other forms of enterprise."

That Communication has been endorsed and applied by the European Court of Justice.

This all shows that the removal of the protection of the word "co-operative" would be a violation of the principles expressed by the EU, the ILO and the UN. This adds weight to the campaign on this issue.

What To Do

You can help :

• Check out the Co-operatives UK draft response  and
• email your own to catherine.crowsley@bis.gsi.gov.uk 
• Write to your MP

BY 22^nd MAY 2013

© Ian Snaith 2013 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit http://creativecommons.org/licenses/by-nc-nd/2.0/uk/ or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA

UK Co-operative Law Proposal of 1995 now Online

UKCC Legal Working Group 1995 Proposal for a Co-operatives Act for the UK:

Part I: UKCC Co-op Law Proposal pp1-25 &
Part II: UKCC Co-op Law Proposal pp26-53

After the Thatcher Government abolished the UK's national Co-operative Development Agency in 1990, some of the money from it was used to finance the UK Co-operative Council. That was an apex co-operative body including the Co-operative Union (consumer co-ops), ICOM (worker co-ops) and the main agricultural co-op and housing co-op bodies. Co-operatives UK is now the equivalent body and, before developing as such, contracted to administer UKCC's affairs.

I was the co-ordinator of the UKCC Legal Working Group. The members were Charlie Cattell for ICOM (now part of Co-operatives UK), Roger Jones (then CWS Secretary) for the consumer movement and Michael Finch from NFU representing agricultural co-ops.

The Proposal represented the fruit of many years' work by that group in attempting to develop a modern Co-operative Law for the UK that would accommodate and meet the needs of all the sectors. By 1997 it was turned into a voluminous Parliamentary Bill which was presented to the incoming Blair Government early in May 1997.

From then on, despite the sterling efforts of Lord Dennis Carter and Ted Graham (Lord Graham of Edmonton), and the work of Sir Graham Melmoth   ("the man who saved the co-op") and the late John Tilley as CWS Parliamentary Officer, lack of Parliamentary time prevented the development of a Government Bill. However, some but not all of its proposals became law through a series of private members' bills and pieces of secondary legislation between 2002 and 2011.

Why Theory Matters - even to lawyers

A thoughtful analysis of the effect of the history of co-operative law in the UK on the way co-operatives see themselves and function has recently been published by Tara Mulqueen of Birkbeck College London:
Tara Mulqueen, "When a business isn't a business: law and the political in the history of the United Kingdom's co-operative movement" Onati Socio-Legal Series v 2 n. 2 (2012)

Tara argues, essentially, that the corporate status of co-operatives in law has tended to move them away from the possibility of social transformation. Over the nineteenth and twentieth century, the emphasis moved to their role as businesses in a capitalist market place. Their potential to reshape the social interaction between people by operating on the basis of community and showing what could exist if the economy were organised differently was underemphsised. They were, she argues, depoliticised by being defined "primarily in commercial terms as corporate bodies" (p40).

The paper looks at the idea of community from a theoretical point of view and highlights the writers who argue the emptiness of its modern use in the phrases such as "the business community" or the "national community". Co-operative history is based in the early nineteenth century sense of community as a distinct grouping depending on mutuality. Robert Owen's Co-operative Communities and the idea of mutuality as a vision of "fully liberated humanity" contrasted with the competitive market system was critical and subversive. Retail and the divi were less subversive.

The corporate status of societies as singular legal entities, the paper argues, tended to marginalise the idea of co-operatives as a group of individuals who came together for mutual aid. The example of the changing position on the taxation of societies from the period of the Ritchie Committee in 1905 to the 1980's is an interesting example explored in the paper. Are co-operatives to be seen as business structures or "as alternative forms of association which have the potential to open our thinking about the very organisation of the economy and to merge the economic, the political and the social"? that is the point posed in the conclusion of the paper and it goes to the core of one of the dilemmas faced by co-operatives.

Reading Tara's paper brought home to me the importance of the history of the legal developments. That is especially true in areas such as tax, where the pressure from other businesses to deprive co-operatives of what were seen as "unfair" advantages was important - and maybe still is. Maybe this is what our continental legal colleagues mean when they refer to the double identity of the owning group as an association and operating it as a business. Common lawyers tend to ignore such theoretical issues but that has its dangers. The Law affects and influences the way we all see things. It contributes to the radicalisation or de-radicalisation of people. It forms society and ways of thinking as well as regulating activities. Our legal assumptions can blind us to other ways of seeing things and, especially in the Common Law tradition, make pragmatists and formalists of us.

We are, as Keynes said of theory in the economic context:

"ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air,are distilling their frenzy from some academic scribbler of a few years back." 

J. M Keynes, General Theory (1947 ed.) Ch 24 from Angela Partington (ed.) Oxford Dictionary of Quotations 4th Ed 1992 p395

So "academic scribbling" has its value after all. It can take us outside our usual way of thinking and remind us of the ideals that lie behind co-operatives and the possibility of social change that they demonstrate.
© Ian Snaith 2012 This work is licensed under the Creative Commons Attribution-NonCommercial-Noderivs 2.0 England and Wales Licence. To view a copy of this licence visit http://creativecommons.org/licenses/by-nc-nd/2.0/uk/ or send a letter to Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA