Joint Committee on Enterprise, Trade and Employment debate -
Wednesday, 14 Dec 2022

General Scheme of the Co-operative Societies Bill 2022: Department of Enterprise, Trade and Employment

Chairman

I remind all those present in the committee room that they are asked to exercise personal responsibility to protect themselves and others from the risk of contracting Covid-19. Members who are participating in the meeting remotely are required, as they are well aware, to participate from within the Leinster House complex only.

We have received apologies from Deputy Matt Shanahan.

Today we will look at the pre-legislative scrutiny of the co-operative societies Bill 2022. Co-operatives were established to serve the interests of their members who range from consumers, producers and workers, to the wider community. A co-operative is an association or a body which is organised and which operates on the basis of co-operative principles. Currently, the Industrial and Provident Societies Acts 1893 to 2021 provide a statutory basis for the formation and general operation of industrial and provident societies and form the primary legislation within which co-operatives operate. The general scheme of the co-operative societies Bill 2022 proposes to consolidate and modernise the statutory regime that operates in respect of co-operative societies.

I am pleased we have an opportunity to consider these matters further with the following representatives. I welcome, from the Department of Enterprise, Trade and Employment, Mr. John Shine, principal officer, Ms Teodora Corcoran, assistant principal officer, and Ms Caroline Kiernan, higher executive officer.

Before we start, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected, pursuant to both the Constitution and statute, by absolute privilege. Witnesses are again reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

The opening statements have been circulated to all the members. To commence our consideration of the matter, I now invite Mr. Shine to make his opening remarks.

Mr. John Shine

I thank the members of the committee for the opportunity to discuss the general scheme of the co-operative societies Bill 2022. I am accompanied here this morning by my colleagues Ms Teodora Corcoran and Ms Caroline Kiernan. We welcome the opportunity to contribute to the committee’s scrutiny of the scheme and to assist in any way we can.

Reform in this area is long overdue. The existing industrial and provident societies legislation governing co-operatives is very outdated, with the principal Act dating back to 1893. The legislation is also fragmented and not fit for purpose in many areas. Reform of the legislation relating to the co-operative sector has been a long-standing aim of the Department in the context of its regulatory reform and modernisation agenda and has been supported by a wide range of stakeholders, including the co-operative movement itself, legal and accounting practitioners and academia.

The general scheme of the co-operative societies Bill 2022 provides for the first time for a specific legislative framework for co-operative societies, with societies registering under the legislation being required to adhere to the co-operative ethos. It consolidates and modernises existing provisions and introduces modern corporate governance, financial reporting and compliance requirements, thereby making co-operatives more attractive to investors. The scheme has been informed by extensive consultation and engagement with key stakeholders over the years, including public consultation exercises in 2009 and 2016 and a more focused public consultation in early 2022. The report of the previous Joint Committee on Business, Enterprise and Innovation on the Private Members’ Industrial and Provident Societies (Amendment) Bill 2018 has also been taken into account.

The Department is very conscious of the proud history of the co-operative sector since the 1880s and the invaluable role it has played in this country. We want to build on this important legacy and provide a modern legislative framework to help the sector grow. We are particularly mindful of the diverse nature of the co-operative sector, which ranges from the sophisticated and very large to the very small and localised, from those with a successful commercial focus to others with a focus on community, culture and social enterprise, and from those comprised of producer, consumer, retail or worker members to those who provide services to members in areas such as advice, education, housing, water supply etc. As a result, the scheme seeks to provide as much flexibility as possible, thereby empowering individual co-operative societies to reflect in their rules what best suits their own particular circumstances.

Experience internationally suggests the potential of co-operatives in Ireland has not been fully exploited and there is scope for the co-operative model to play a greater role across a wider range of activities. The scheme introduces a modern legal framework that will place the co-operative model on a more favourable and clear legal basis. It will create a level playing field with the situation applying to companies and encourage the consideration of the co-operative model as an attractive formation option for entrepreneurs and for social and community activities. A modern legislative basis, including strong corporate governance requirements, will also provide confidence to stakeholders and help to encourage investment in co-operatives.

The scheme itself is a substantial legislative initiative and represents significant reform of the legislation governing the co-operative sector. It is comprised of 271 heads, divided into 15 Parts. In light of time constraints, I will now provide a brief summary of the main aspects of the general scheme. A more detailed overview of the provisions was provided when the scheme was referred to the committee for scrutiny.

The industrial and provident societies legislation, under which most existing co-operatives operate, will largely be repealed. Existing industrial and provident societies will be provided with a transition period in which to register as a co-operative society, adopt an alternative corporate structure or wind up and be dissolved.

The scheme sets out to consolidate and modernise the existing provisions across a range of areas, including the functions and powers of the registrar; matters relating to registration, amalgamation, transfer of engagements and conversions, strike-off and restoration; shares and share capital and raising of funds, including charges and debentures. While co-operatives are by nature very distinct from companies, they are a body corporate and there are many aspects of good practice set out in company law that are applicable to co-operatives, either directly or with adaptation. As a result, the legislation will reflect the approach adopted in the Companies Act 2014 and will introduce modern corporate governance, financial reporting and compliance requirements. For consistency needs and ease of understanding, these provisions are generally similar in approach to the provisions of the Companies Act 2014, but amended as appropriate, recognising the distinctive characteristics of co-operatives.

The legislation will introduce provisions to make it easier to set up and operate a co-operative society by reducing the minimum number of founding members from seven to three, by expanding the categories of founding members to include bodies corporate, by providing for audit exemptions for smaller co-operatives, and by providing for virtual and hybrid participation at general meetings. The legislation will also repeal the existing outdated provisions on raising funds, which will make it easier to access various sources of finance. In recognition of the significant diversity across the co-operative sector, the legislation seeks to provide as much flexibility as possible, thereby empowering co-operative societies to reflect in their rules what best suits their own particular circumstances.

My colleagues and I are happy to discuss the scheme in more detail with the committee.

Deputy Louise O'Reilly

I thank the witnesses for being here and for the information they have provided. I am a massive fan of co-ops, specifically workers' co-ops. I have some small experience in working with, though not in, a workers' co-op. They are the foundation for and a fundamental part of a functioning economy that gives back to society and delivers for the workers. Co-ops can be a real force for good in challenging inequality. We all know about the 1% and "for the many, not the few" and all of that. This is welcome legislation and I look forward to the debates we will have in the future. Will this legislation specifically recognise and protect workers' co-ops? All co-ops have some similarities, and while it could be said we all have a vested interest in our jobs, in a workers' co-op, everyone in the job has a real and serious vested interest in how the co-op functions. In my experience, a workers' co-op is a democratically run company. Unfortunately, we tend to see workers' co-ops more in the service industry, in cafés and that kind of thing, but if we get this Bill right, we could see workers' co-ops take off in a serious way. Will workers' co-ops be specifically recognised and protected under this Bill?

Mr. John Shine

Our intention and motivation are to provide a legislative framework for the variety of entities that want to espouse the co-operative model, whether they be, as I mentioned in my opening statement, the very large or very successful, those with a commercial focus, those with thousands of employees and possibly billions of turnover, or the very small, run by volunteers, which are very minimal and may only have a handful of people at a local farmers' market or whatever. The motivation is a broad church to cater for all of those groups. What we have done enables that without getting into specifics in any particular area. To answer the Deputy's question, we are not explicitly providing for workers' co-operatives or explicitly providing, for instance, for social enterprises; it is for co-ops in general. I am mindful of the motivation of many people who have particular needs and aspirations for what they do. They can do that in their rules. The way we see it, there are certain things that we say must be in the rules, but how co-ops actually address them is a matter for themselves. It is to empower to co-ops to go as far as they want to. For those who want to identify as workers' co-ops and reflect that in their operation, they can do that in their rules. It is a question of providing the enabling legislation and then allowing those who want to, whether it be a social enterprise or whatever, to go further. They can do so in their rules.

Deputy Louise O'Reilly

I thank Mr. Shine for his response. Being mindful of that and that not all co-ops are equal, as it were, there will be some social enterprises, workers' co-ops specifically, that may need extra help to get going. I am mindful that the co-operative development unit, CDU, which was established, no longer exists according to my information. I had some engagement with it and was impressed with the work it did. Does the scope exist within this legislation to re-establish the CDU or potentially establish a workers' co-operative development unit or a unit that would specifically recognise that social enterprises, smaller workers' co-ops and those kinds of entities are not the same as massive co-ops that have thousands of workers and billions of turnover? They will not have a big back-office operation and will need some kind of help and support, not just to get going, which is important, but also to advise them. In my experience, the CDU was helpful to people setting up a workers' co-op who did not have much experience in business etc. but who were eager, enthusiastic and willing to put the hours in. They needed that support and the CDU was there. Is there scope within the legislation to incorporate a workers' co-operative development unit or a social enterprise co-operative development unit, recognising that there are big ones and ones that might need more help?

Mr. John Shine

There are a few aspects to that. The current legislation is difficult and fragmented. It is not a welcoming place. That is evidenced by the fact that relatively few new co-operatives are actually set up. The numbers are quite stable. There are maybe ten or 15 joining every year. It is not a very dynamic area. It is poorly understood by those in the area and by many advisers. If individuals go to an adviser and are minded to set up, they may be advised to set up under the company law model rather than the industrial and provident society legislation. It is not a particularly comfortable legislative space at the moment. It is poorly understood. That is the fundamental issue.

There are a number of active representative bodies already in this space in various areas such as group water schemes, housing, the dairy and agricultural sector and so on. They are very proactive in assisting their members. There are already supports in place. This is groundbreaking legislation, so we are keen to ensure it is well understood, promoted and that people understand the potential for it over the next few years as we proceed through the drafting process, enactment and the transition phase. We will be engaging with all of the relevant stakeholders. We have already started that process. We have engaged with colleagues elsewhere in the Department on the enterprise side, with Enterprise Ireland, with the local enterprise offices, LEOs, and so on to ensure there is good awareness of this and support for it. That is something we will continue to work through.

On setting up a co-operative development unit, we are not considering that at the moment. We are aware of the work done by the co-operative development unit, CDU, over a period of 14 or 15 years until it was disbanded in 2002. We do not see a particular need for it at the moment. We certainly do not consider that there is a case to set up a dedicated unit. However, we do see the importance of support in general, awareness raising, working with representative bodies and ensuring there is a good appreciation of the potential of the legislation.

Deputy Louise O'Reilly

I think that is highly regrettable and as this Bill progresses, I intend to table amendments to facilitate this. Can we get information in relation how many co-ops were supported by the CDU and how that worked when they came through? I have some personal experience of the CDU. I understood it to be both supportive and important in getting these co-ops started. This legislation is incredibly important and we absolutely need to get it right. I think we will be getting it right if it includes workers' co-ops, social enterprises, including smaller ones, as well as the thousands of workers in building the turnover.

Regarding point 7 and the annexe that references the principles, is there scope there to include a clause upholding workers' rights to ensure that the third party machinery of the State is respected? If there is a mechanism, where within that annexe could one incorporate a proviso on workers' rights?

Mr. John Shine

Before I answer that, I will come back to the Deputy's point about the co-operative development unit in terms of statistics. My understanding is that the unit assisted somewhere in the region of 80 to 100 co-operatives during its existence. Not all of those were set up under the industrial and provident societies legislation as some were set up under company law but the co-op ethos was reflected in their constitutions. From a review of the register, it would appear that ten to 15 of those remain. Over the years, the majority of them have been wound up and are no longer in operation.

Deputy Louise O'Reilly

You have to wonder whether the winding up of the CDU and the winding up of those co-operatives might somehow be related. We will have a chance to explore that at a later stage. Can Mr. Shine answer the workers' rights question?

Mr. John Shine

The annexe reflects the co-operative principles, which are the principles set up by the International Cooperative Alliance, ICA. It is simply reflecting what the ICA itself recognises as being the key elements of the co-operative ethos. I will hand over to Ms Corcoran on that point.

Ms Teodora Corcoran

The principles are enshrined and are the result of negotiations between all the countries that are members of the ICA. The principles cannot be changed. This can only happen by a decision of the organisation.

Deputy Louise O'Reilly

Could they be added to?

Ms Teodora Corcoran

No

Deputy Louise O'Reilly

They can not, so there can be no change to that.

Ms Teodora Corcoran

More than 100 countries have participated in the negotiation of these principles. They were last changed in the 1980s

Deputy Louise O'Reilly

Do they specifically reference workers' rights ?

Ms Teodora Corcoran

No, they do not.

Deputy Louise O'Reilly

We are going to have to do a bit of work on that. Will issues around succession planning, liquidation, administration and the sale of companies be dealt with? In 2014, the French Government introduced measures to facilitate workers requesting a buy-out as part of their succession planning through a workers' co-operative buy-out model. Is it intended that we will have anything similar? From talking to business owners, I know that one of the big challenges they face is succession planning. Is there scope within the legislation to take the co-operative through to its next phase, which could be a worker buy-out or could be some form of succession? There can be issues there in that a lot of businesses fear that they may have to wind up because they do not have sufficient scope to do succession planning and they do not have anyone to take over.

Mr. John Shine

Our sense is that succession through the generations is not necessarily something that actually happens a lot. There are various issues to balance here such as property rights of the business owners and so on. We are not explicitly proposing to provide for it but we are providing a more supportive environment that might facilitate it. It will be easier to set up, run and get finance for co-ops because of the modern legislation, the additional corporate governance and so on.

Deputy Louise O'Reilly

Will it be easier to do the transfer in terms of a workers' buy-out? Will that be facilitated as part of it?

Mr. John Shine

No, because we are not proposing to specifically legislate for any particular type of co-operative. We are proposing a broad church approach.

Deputy Louise O'Reilly

I have to leave for a few minutes but hopefully I will get back. I think we are missing a trick here if we do not support the smaller social enterprises and workers' co-ops. I think the scope exists within the legislation for us to expand it a little bit and improve on it. I thank the witnesses and I look forward to working with them and the officials in the Department.

Deputy David Stanton

I commend the witnesses on the huge amount of work gone into this. It is an enormous heads of Bill. In 2019, the Irish Co-operative Organisation Society, ICOS, had an issue with lowering the number down to three. They said there was never an issue with seven. Others have said that three is fine. Can the witnesses address that? It seems that three is quite low but what is the thinking behind lowering it from seven to three?

Mr. John Shine

This is something that has arisen many times over the years. The principal motivation is to make it easier to set up a co-operative. There has been quite a lot of feedback from stakeholders on this issue, much of it looking for the number to be reduced from seven down to three because they consider that seven is simply too high a bar for smaller social enterprises, farmers' markets and so on. The main motivation is to make it easier to operate a co-op. That said, there is absolutely nothing to stop a co-operative from having as many founding members as it wants to. For certain sectors and certain representative bodies, having that as a requirement of membership can apply. The Deputy mentioned ICOS and historically, their members would have been larger co-operatives in the dairy and wider agricultural area. If ICOS or any other umbrella organisation wants a higher threshold and decides that seven is appropriate, then it can put that into its model rules for its members to adopt. We are saying that the minimum is three but if the nature of the activity or the sector is such that more might make sense, then they are fully entitled to do that. It is this notion of enabling co-ops to reflect in their own rules whatever their own circumstances are. One of the arguments for the seven was to provide economies of scale, in a sense, that one would get more people who would bring heft to the running of the co-op. Equally, however, there are those who maintain that it is too high a bar. We are also conscious that across Europe, the norm is three.

In some situations, it is even fewer than that. We consider three to be a co-op friendly number but for those who are not comfortable with it or who want more, they are fully entitled to do that if they wish.

Deputy David Stanton

There is a subsection in head 10 which states that a co-operative society should not carry on the activity of a credit institution or an insurance undertaking. Will the witnesses expand on that a little please?

Mr. John Shine

I will hand over to Ms Corcoran on that.

Deputy David Stanton

Credit unions come to mind for instance.

Ms Teodora Corcoran

In the 1970s, co-operatives were prohibited from engaging in deposit taking, apart from agricultural or fishing co-operatives that could do it, albeit not as their main activity. We are repealing the 1978 legislation but this is what we are putting in the new legislation. The idea is that they cannot engage in deposit taking. They cannot act as a bank. They must be using the services and should not be engaging in the financial sphere. There is more regulation nowadays. The Central Bank is in this space and companies are heavily regulated when they are acting in this space. We do not believe there is scope for co-operatives to work in this area.

Mr. John Shine

I will add to that. Credit unions are co-operatives but since the 1960s they have operated under their own legislation. Our legislation does not have anything to do with credit unions and will not impact on their operation in any way. This is just to ensure that this is copper-fastened and there is no ambiguity in this area. This legislation has no impact on credit unions.

Deputy David Stanton

It is does not say that here. I could not find that stated explicitly in the heads so it might be something to consider down the road in order to ensure there is no conflict between the two pieces of legislation.

Mr. John Shine

As the Deputy may be aware, there is a whole bank of specific credit union legislation.

Deputy David Stanton

I realise that but this legislation states they "shall not carry on". It is clear. It does not exclude them. That is just a point.

The other issue is the use of terms like "plc", "limited", "teoranta" and so on, in the legislation. I understand some co-operatives are not using those at the moment. Perhaps I am wrong. Will the witnesses talk me through that? It is at the end of the main section.

Ms Teodora Corcoran

Currently co-operatives have to have "limited" in their name. The word "co-operative" does not feature because there is no legislation for co-operatives. There is for industrial and providence societies. Therefore we are providing that the word "co-operative" or abbreviations in Irish or co-op in English will be reserved for societies that are registered under this legislation. This comes from the concern of some stakeholders that companies might have co-op in their name but they would be cosmetic co-ops, in that it would be in the name and people would have the feel-good factor that they are dealing with a co-op but in reality it would be a company. In the future, the name "co-op" would be reserved for entities under this legislation and they would have to have either the word "co-operative" or one of its abbreviations in the name.

Deputy David Stanton

That is good. I thank Ms Corcoran. I like that. Does that mean some entities will have to change their names if they are not really co-operatives?

Ms Teodora Corcoran

We did not go as far as that because in reality, some entities registered under the Companies Act might be co-ops because there is no limit on the minimum number of members. If they needed to set up a co-op with fewer than seven members, they might have used the corporate model. We did not go as far as that because some of them are co-operatives in nature.

Deputy David Stanton

Okay.

Head 257 is entitled "Conversion of industrial and providence society to co-operative society" and there is something similar further on. Will Ms Corcoran talk me through how that would work and why it is there? Conversion of industrial and providence society to company is another interesting section. They can become either co-operative societies or companies.

Ms Teodora Corcoran

The Deputy is talking about the transition provisions. Mr. Shine mentioned that at the end of the transition period, the old legislation will be largely repealed. Any entity that has registered as an industrial and providence society - we think most of those registered are co-operative in nature but because the legislation does not specifically state they must be co-ops, some other entities have registered over the years - will have a choice to convert to a co-operative or to another corporate model, such as the companies model, by the end of the transition period if they do not intend to subscribe to the co-operative ethos and principles. They will also have the option to wind up or if they do not do any of those things they will be dissolved at the end of the transition period.

Deputy David Stanton

Was consideration give to something else happening, in other words, to companies becoming co-operatives? Is that possible under this legislation?

Mr. John Shine

Yes, transition happens at the moment but at a low level. It is a handful per year. An unknown number of companies espouse the co-operative model. It is difficult to determine how many. There are approximately 260,000 companies on the Companies Register. A small, though possibly not insignificant, number of those reflect the co-operative ethos in their constitutions. Why have they been operating under company law? Probably because they did not consider the existing legislation to be attractive. There are advantages under company law that are not available at the moment, such as audit exemption for the smaller players, the stronger corporate governance regime and so on. A cohort has been operating under company law and can comfortably operate under company law. There is no issue with that and some may decide they want to continue to operate under company law. However, we hope they will move under the co-operative legislation, which is designed specifically for co-operatives and which will have many of the advantages of company law, such as audit exemption, the stronger corporate governance regime and so on. We expect quite a number of companies to convert to co-operatives under this legislation. The number would be purely speculative because as I said, we do not know how many are on the register, but we certainly envisage a flow in that direction.

Deputy David Stanton

I am aware of a number of companies that would be far more comfortable under this model but they will probably need to be informed and educated about the transition, the possibility and the advantages when it comes about. That brings me to another question, which perhaps is related to what Deputy O'Reilly was speaking about. Who will be responsible for informing the public and promoting the idea of co-operatives and their advantages at all levels in order that companies that are now companies and can convert and people who wish to establish other entities can do so and be assisted in doing so?

Mr. John Shine

Certainly we see the Department having a key role in that. We have had ongoing dialogue with some of the key stakeholders. We will continue that dialogue. As I said earlier, we are keen to ensure the legislation is well understood and that people have sufficient time to make decisions on the best route for themselves. We will engage with the development agencies, representative bodies and directly with the co-op movement, the co-operative industrial and providence societies. We can communicate through the channels the registrar has to get that information out. We see this as ground-breaking legislation and we are keen to ensure it is well understood, people recognise its potential and that they are aware of the timeframes because the status quo is not an option. For those on the register at the moment, keeping their heads down and hoping it goes away is not a tenable solution. They will have to make decisions. We can appreciate that people will be comfortable in the space and change will be a challenge for them.

We would be keen to ensure they are aware that there will be a transition period and that they will have choices to make as whether to register as a co-operative under the new legislation or convert to a company. They may also decide to wind up their operations. If they choose not to do anything, however, after a process, they will be dissolved from the register.

Deputy David Stanton

I want to go back to my question about companies becoming co-ops. Where in the heads is that provided for?

Mr. John Shine

It is head 199.

Deputy David Stanton

Can Mr. Shine comment on charitable status and co-ops in the context of the Charities Regulator?

Mr. John Shine

We have had engagement with our colleagues in the Department of Rural and Community Development on both the charities aspect and social enterprise. The corporate models that charities use can vary. Some of them are co-operatives. There is a subset of co-operatives that are charities. They adhere to the co-operative requirements. In addition there are specific requirements relating to the Charities Regulator.

Deputy David Stanton

This is my final question, and I thank Mr. Shine for his time. In Schedule 2, the final co-operative principle listed is concern for community. The relevant head states: "Cooperatives work for the sustainable development of their communities through policies approved by their members." I am really interested in that because I see major potential there. I wonder whether all co-ops are taking heed of that particular principle. Could Mr. Shine comment on that and outline how the Department views it?

Mr. John Shine

I agree with the Deputy. There is a lot of potential in that area. It is fair to say that most co-operatives would like to think they are in this space to a greater or lesser extent. For some of them, it may simply be that they are a channel for what is produced, but even that is supportive of the community in the context of providing jobs and employment, funds circulating and whatever. It can go much further in the context of social enterprises, community development, home help services, meals on wheels and a variety of issues like that. The key element, as the Deputy touched on, is that every co-op needs to be aware of this. It is one of the principles of which they need to be reminded. Most would argue that they are in this space to a greater or lesser extent.

Deputy David Stanton

Would he agree with me that it should probably be up in lights? They should be emphasising this particular aspect of their role, and making it proactive and visible rather than just having it down as an aspiration.

Mr. John Shine

There is a huge variety of co-operatives. Some of them are more commercially focused. It is not that they would not have an interest in the community but they would be different from those that are purely community focused and run by volunteers.

Deputy David Stanton

This covers all co-ops - big or small, commercial or otherwise.

Mr. John Shine

Yes, but some of the requirements they will adhere to as far as is practicable. It is a broad church. What we are trying to do is cover the variety of those in this space.

Chairman

The next speaker is Senator Gavan. The Senator has a major interest in this matter and introduced his own Bill in respect of it in the previous Oireachtas.

Senator Paul Gavan

I also have a Bill before the Seanad currently. Along with a couple of colleagues, I played a key role in developing our policy document Worker Co-operatives- Ownership Matters.

I welcome both the general scheme and the opening statement from Mr. Shine. However, I have a number of key concerns. I want to try to be constructive about this. First, there is an awful lot of best practice across Europe we can look to. Where did the Department look to for best practice and what were the key learnings in that regard?

Mr. John Shine

We took a broad view. We looked at the UK, Germany, Spain and France. We looked at what is happening in general at European level. We are keen to ensure that what we are legislating for is as good as we can make it, bearing in mind the diversity of the sector. We have looked at a lot of models.

Senator Paul Gavan

Did the Department look at the Scottish model?

Mr. John Shine

Yes.

Senator Paul Gavan

One of the key learnings of the Scottish model - this goes back to a point Deputy Stanton made - relates to the key role information and education play. What the Scottish Government discovered was that it was lovely to have the idea of growing the co-operative movements, but the reality was that even the professional services involved in supporting businesses did not understand how co-operatives work. That is why the Scottish authorities came to see a co-operative development unit as being absolutely essential. The evidence was that once they set up such a unit and reached out to the professional classes supporting the relevant businesses, there was a 300% increase in the growth of co-operatives. That is why I was asking about best practice. At the heart of best practice in the Scottish model is the setting up of a development unit. Mr. Shine stated that he sees the Department having a key role. I agree with him. That key role cannot be delivered without a dedicated unit. Can it?

Mr. John Shine

That is debatable. I agree with the Senator about the importance of educational awareness across all stakeholders, including advisers. This is something on which we will also be engaging with professional bodies. Many of them would not necessarily be aware of the co-operative model. Nor would it occur to them to offer it, and people would be directed on the basis of company law. It is important, when we get to the stage of enactment, that legal advisers, accountants or whatever will be aware of the legislation and of the advantages of the co-op model. They can then advise people accordingly.

Senator Paul Gavan

It is a distinctive model and that is why it deserves a distinctive unit. I want to quote from the head of the relevant Scottish organisation. He said:

We have a choice: to be passive and allow the development of a supportive environment for [worker co-op] companies to happen without industry input, or to take a proactive approach and seek to actively influence how that environment evolves. We believe the proactive approach creates the prospect of making Scotland the best country in the world to establish and grow [a worker co-operative] business.

He is absolutely right. I do not see how you can do that without a dedicated unit. We have waited 100 years for legislation in this area, and what is proposed is very welcome. Why can the Department not be more ambitious and put that development unit at the heart of it, particularly when the best practice from Scotland tells us that it is absolutely necessary? A study carried out by Ekosgen shows that the developments in Scotland would not have happened without a dedicated unit to recognise the distinctive types of companies co-operatives are.

Mr. John Shine

Again, I do not disagree about the importance of getting communication out. The question is whether a dedicated unit is needed. We do not see the necessity for such a unit, particularly being mindful of the fact that there is already a supportive network out there for business in terms of Enterprise Ireland and the local enterprise offices. We would certainly look to leverage the existing network. Rather than focusing on creating a new unit, the important thing is to use whatever channels are available to get the information out there.

Senator Paul Gavan

I imagine the committee will have a report to feed into this. I hope that colleagues across parties will see the fact that best practice dictates that we do need such a unit. We will probably agree to disagree on that at this point.

I want to ask about an asset lock. One of the things that has been crucial to the development of successful co-operatives is making sure that they are not subject to management capture and management buy-out. An asset lock, as Mr. Shine knows, has already been in place for the credit union movement. It is not a particularly radical concept. The British Tory Government has brought in an asset lock which, in fairness, works quite well. Does the Department plan to introduce an asset lock as part of this proposed legislation?

Mr. John Shine

We are aware of the situation relating to asset locks. We are aware that some areas of the co-operative sector are very keen on having asset locks. That is facilitated by their being able to provide for that in their rules, if they so wish. There are some co-ops that simply have no interest in an asset lock and that would consider it to be as a considerable fetter on their activity. For those co-ops that want to have an asset lock in order to try to future-proof themselves, they can absolutely do that within their rules. It is a democratic decision of the members to provide for an asset lock, if they so wish, and to provide whatever protections they want around that.

Senator Paul Gavan

I mean this respectfully, but all I would say is that to me it points to a lack of ambition in getting the proposed legislation right after 100 years. As asset lock is absolutely essential if we are serious about developing a co-operative sector.

Otherwise, what happens over time, as in any capitalist society, is that co-ops tend to change their status. We have seen that in our own country, and very much so.

I am running out of time, and I apologise for that. On the issue about succession and maybe putting in place a pathway, again, it comes back to best practice. France has a worker buy-out model. I am sure the Department has looked at the laws in Italy, which very supportive and distinctive in terms of co-operatives. Why will it not look at developing a succession model - a supportive model - that would allow workers to buy out their companies? I go back to the quote I gave from the Scottish CEO. This is the opportunity to do it and to put in place legislative supports to make it much easier for workers to buy out their companies, particularly at times of succession. I would have thought that should be part of the proposed Bill.

Mr. John Shine

That is something we have looked at. As Senator Gavan mentioned, there are examples of that elsewhere across Europe and we looked at those. We are trying to provide for a broad church here; we are not legislating specifically for any particular sector or type of co-operative activity, whether it be worker co-operatives, social enterprises or whatever. The proposed legislation is broad and enabling in nature. It is also designed to offer particular advantages in the future. This is because it will modernise matters and make the running of co-operatives so much easier. There are a lot of advantages coming from the proposed legislation.

Senator Paul Gavan

I am out of time, but want to make a final point. If you look at best practice and at the countries, like Italy, where co-operatives really thrive, you will see that thrive because of the legislative supports that are in place. It would seem to be a missed opportunity if we do not use the proposed Bill to put similar legislative supports in place in respect of issues like succession and that reflect laws like the Basevi Law and the Marcora Law which provide specific supports to enable co-operatives to not just survive but thrive in more challenging economic circumstances.

Mr. John Shine

Historically in Ireland, co-operatives have been very successful, primarily in the agrifood space, going back to the time of Horace Plunkett. In general, the sector is not nearly as developed-----

Senator Paul Gavan

I agree.

Mr. John Shine

-----as is the case in many other European countries. There is a long history of co-operatives involved in industry and all sorts of activities in many member states. While we have some very successful co-operatives in the agrifood sector, we do not have them to anywhere near the same extent in other sectors and industries. It is not just about worker co-operatives. We see potential for co-operatives in the social enterprise, entrepreneurial and business areas. There is a lot of potential and a lot of scope. We see the proposed legislation as being able to facilitate that development across the piece.

Senator Paul Gavan

I agree, but let us maximise the possibilities while we are doing this. There are key best practices in France, Italy, and, in particular, Scotland. Scotland's economy very much mirrors our economy in many respects. In the heads of the Bill as they currently stand, we do not seem to be taking advantage of those best practices. Setting up a co-operative development unit is the most important element. We know these units work. It seems strange that Scotland has such a unit but that the Department is of the view that we do not need one.

Deputy Richard Bruton

I have a few questions. How many co-operatives does the proposed legislation provide for? What sort of aggregate turnover do they have and what is the prospect of growth in the sector? I am just looking for a rough picture of what we are dealing with here.

Mr. John Shine

That is a very difficult question. Statistics and information on the sector are not readily available, other than by means of going into the actual returns of the industrial and provident societies. There are around 960 industrial and provident societies on the register. The number has been trending upwards slightly over the past few years. There was a high of something over 1,000 in the past ten to 15 years. The sector is relatively moribund. My understanding is that in 1910 there were 950 or so industrial and provident societies in the country. More than a century later, we have effectively the same number.

Not all of those industrial and provident societies are co-operatives and not all of them espouse the co-operative ethos. The majority would, and this would have necessitated examination of the rules of the co-operatives that are on the register. Having analysed those, our sense is that somewhere in the region of 800 industrial and provident societies would consider themselves to be co-operatives. The remainder operate under the legislation but do not espouse the co-operative ethos. There is also an unknown number of co-operatives operating under company law. As stated earlier, there are approximately 206,000 on the companies register. There are certain number of those that operate as co-operatives but we do not have a sense of the overall figure. Looking to see if they have the word "co-operative" in their names does not really give a great sense of whether they are co-operatives. As a result, we do not have hard data in that regard

We have some information on turnover and employment in the dairy sector in particular. The three main areas in which there are co-operatives are agricultural and dairy, housing and group water schemes. They are the three largest. Then there is a mix of others, some of which are very small and do not really have a commercial focus. The latter are run by volunteers, very much with a view to breaking even in the context of whatever service they provide, be it home help, a local community arts project or whatever. That is at one end of the spectrum. At the other end, we have the large-----

Deputy Richard Bruton

I am limited as regards time. Who will be the regulator of these entities?

Mr. John Shine

There will not be a regulator; it will be a registrar. We currently have the Registrar of Friendly Societies.

Deputy Richard Bruton

Will the registrar will have all the similar sort of powers of company law enforcement as-----

Mr. John Shine

The registrar of co-operatives will have similar powers to the Companies Registration Office, but it will come within the remit of the Corporate Enforcement Authority from a compliance and enforcement perspective.

Deputy Richard Bruton

In terms of something like the small company administrative rescue process, SCARP, will there be access to it?

Mr. John Shine

Yes.

Deputy Richard Bruton

I am interested in whether the local enterprise offices are well equipped to promote this. If we are talking about group water schemes and housing co-ops, we can see that a local enterprise office is going to be a more accessible point of contact. What sort of capacity will the local enterprise offices have to deal with the sort of issues that make co-operatives unique? Unlike Deputy Stanton, I have not read all of the information relating to what makes co-operatives so different from companies. What new challenges will be presented to local enterprise offices if it ends up that they will be responsible for interfacing with co-ops? What new capacities do we need to see built into the local enterprise office network if they are to facilitate the growth of co-operatives?

Mr. John Shine

Upskilling will be required across the piece, not just in terms of the enterprise development agencies but also among professional advisers, whether they be accountants, lawyers or whomever. We have had engagement with colleagues in the Department of Rural and Community Development, which has policy responsibility in respect of social enterprise. That model will also be available. There will be a variety of supports, including soft advice, in place.

Deputy Richard Bruton

It sounds as if we may have to consider if there should be a centralised unit developed versus opting for the more dispersed LEADER model. When Mr. Shine looked at other countries, do they have these sort of networks? Some of these networks we have developed would be relatively strong in Ireland compared with those in some other countries. It appears that the Department is holding out against the establishment of a centralised unit. I accept that having one in Dublin might not make huge sense, but has the Department looked, as Senator Gavan mentioned, at the experience in other countries in order to see how our network will be capable of responding?

Mr. John Shine

In terms of the comparison with other member states, a significant variety of supports and arrangements are in place. There are also federal models and so on. Considering the size and nature of the situation in Ireland, I do not think there is a particular model that necessarily springs to mind.

We cannot say what is the best way of doing it.

To touch on a point I made earlier, one of the issues, with the exception of the agricultural space and, for example, group water schemes and housing, is that to a large extent the culture has not really been there to consider and develop co-ops in other areas. For instance, there are some huge industrial conglomerates in Europe that operate under the co-op model. That simply does not exist in Ireland. There is a very different culture that is very well established across the piece in many European countries. That is not necessarily the case in Ireland.

Chairman

Does Deputy Bruton wish to continue?

Deputy Richard Bruton

It would be useful if Mr. Shine could provide us with a little information. It looks like less than 0.5% of such businesses are in operation. We are not talking about something massive as regards the existing base but, if we are to set up a unit of some sort, it is presumably with the prospect that this figure will grow dramatically from 800 to something much more substantial. I am interested to know where that growth has come from in these other countries. Where is that growth likely to be in Ireland? I am not a great fan of setting up a unit, or a new agency, just because we have a problem. We need to feel out the territory to know what the challenge is, what the scale of it is, and what we need to do to respond to the need. Will Mr. Shine help us by giving us a little information about where the potential growth is, what the spheres might be, and what challenges those sectors might have?

Mr. John Shine

We will see what we can do. Certainly, in the context of models throughout Europe, it is very disparate, as I said. I am not sure what we could come up with that would be particularly useful. In the context of potential for the sector, there is significant potential but it is ultimately a question of providing the facilitative and supportive environment and then ensuring that it is well understood. It is ultimately a matter for entrepreneurs or those in the social enterprise space to decide. There will be a certain element of displacement. There will be those who might have been attracted or, in the past, went down the company law model route, who will now decide to operate under co-operatives legislation. That, in itself, is important because it is a more supportive environment for them but whether it would necessarily result in a net addition to employment, for instance, is very difficult to determine.

Deputy Richard Bruton

For a layman, will Mr. Shine give us ten key differences between a company and a co-op in terms of oversight, regulation and legal framework?

Chairman

A couple of them will do.

Mr. John Shine

Does the Deputy want us to list those differences now?

Deputy Richard Bruton

No, just send them to us.

Chairman

It is fine to send them to us.

Mr. John Shine

No, we are happy to do that now.

Ms Teodora Corcoran

We can do that now. A co-operative is basically a group of people who work together and aspire to a goal. They have to use the services and are very often employees. They do not always distribute the profit they make. They might just put it back in the co-operative, lock it, or put it in a legal reserve. Co-operatives usually operate on the basis of one member, one vote. This changes if, for example, the geographical spread is different - let us say 100 people are from one area and 1,000 are from another - while companies are run based on the number of shares people hold. We talked about the asset lock. In our case, we are providing for a legal reserve to show that people have a commitment to this co-operative, they want to put money into developing the co-operative, or have the money as a rainy day fund rather than immediately distributing it as profit. Those are the main differences.

In addition, co-operatives are based on the seven co-operative principles that exist. There is open membership. Limited companies are limited to 149 people but a co-operative has no limit. A co-operative has to be open and if it is said to somebody that he or she cannot be a member, there has to be a rationale why this person cannot be a member of the co-operative.

Deputy David Stanton

A thread coming from a number of us is about recognising the huge potential here, welcoming this proposed legislation, and the possible need for people to be informed about what can happen through this legislation. For example, I met people recently who set up a group to assist those with mental health issues who had suicide ideation. They had to form a company with a guarantee to protect it, along with directors. They then had to get charitable status, which is taking forever. If the Charities Regulator is listening, I ask it to move quickly on this one. All that is going on and, of course, they have to ensure that directors are protected by taking out insurance. It is quite cumbersome. It seems to me that the area of co-operatives could be far easier and better.

Will the officials talk me through what such a group, if it wants to establish a co-operative, has to do, practically speaking, in order to set one up? Who do they have to contact? What do they have to know? What kind of supports will be there for them? What do they have to learn? What are the pitfalls?

Mr. John Shine

Fundamentally, a co-operative is a body corporate with limited liability. That comes with significant obligations on the directors. A director of a co-operative will have very similar responsibilities, including fiduciary responsibilities, as a director of a company. This is not a corporate-light environment because, as I said, limited liability is a privilege that comes with obligations.

On the process, and without getting into the specifics and the nitty-gritty, in general, the process is somewhat similar to setting up a company in the context of making an application to register. In a company context, that application is made to the Companies Registration Office, CRO, while in the context of a co-operative, it is registered as a co-operative. There is a unitary office with separate statutory functions. At present, the CRO and the Registry of Friendly Societies are headed by the same individual but they are two statutory offices. They share office staff, IT and so on and so forth, but the process in both cases is an application to the registrar. The applicant needs to satisfy the registrar that the co-operative ethos is being fulfilled. The applicant submits its rules to the registrar, who then registers the co-operative, which then operates on that basis. In a general sense, the registration process, the filing process, the annual filings, the changing of directors, etc., are somewhat similar to company law.

Deputy David Stanton

Obviously, AGMs have to be held. Is there a provision in the heads of Bill whereby anybody can become a member of a co-operative? Can people come to the AGM, say they want to be members and present their couple of bob to become a member? Is that possible?

Mr. John Shine

The whole idea of co-operatives is like-minded people getting together, whether they are producers in the context of, for instance, a dairy co-operative, or organic producers in the context of a farmers' market or whatever. Again, it is like-minded individuals. I will hand over to Ms Corcoran on the specifics.

Ms Teodora Corcoran

We have extended the type of founding members of a co-operative. Under current legislation, companies can become a member of a co-operative, just not from the get-go. We are now giving a company the opportunity to become a member from the get-go.

We are aware, however, that there is always the danger that a company, particularly an investor, might want to call the shots, so we are providing in the rules that if a company has an investor member, it will have to provide specific rules about that investor member. This is now allowed throughout Europe. The purists would not allow it, but we know that co-operatives generally have issues attracting finance, so we thought we would not curtail them by not making provision for them to have investor members.

Deputy David Stanton

Every member, no matter how big or small, would have one vote. Is that part of the principle?

Ms Teodora Corcoran

Again, we cannot be hugely prescriptive. We are encouraging in the legislation that they have one member, one vote, unless the rules provide otherwise. In our case, however, the concern is that with, geographically, a widely spread co-op, there will be only a few members coming from one area and many from another, so they would have to have a better representation at the co-op. That was expressed by umbrella organisations. We are, therefore, encouraging that everybody has one vote but allowing, where the activity requires it, for divergence from that.

Mr. John Shine

I emphasise the point about the rules. Going back to the Deputy's example and his question as to what would happen if somebody were to rock up to an AGM, the answer is that it is ultimately a matter for the members and their rules as to who they want to allow to join. A co-operative of organic producers would be expected to have in its rules that members be organic producers and so on. Again, it is a matter of trying to facilitate and to empower the co-ops themselves.

Deputy David Stanton

I am sorry to be pedantic about this, but if an organic producer rocks up to one of these meetings of organic producer co-ops and says, "I want to be a member", has he or she the right to become a member there and then or will it be solely down to the rules?

Mr. John Shine

It is down to the rules. The fact is that it is up to the members to be as prescriptive or not as they want to be in respect of a lot of matters. They may want to be very prescriptive, in which case they will put it into their rules; in other situations they may be completely silent on a matter. It depends how far they want to go.

Deputy David Stanton

My question comes from the risk of a group taking over a co-op - for instance, coming en masse to a meeting and joining. I have heard anecdotal evidence of that happening with companies and so on.

May I ask about the registrar? I think Mr. Shine said earlier that this would be a completely separate office, outside of the CRO. Will he tell me about the structure-----

Mr. John Shine

I apologise if I was not clear. What I was trying to say was that the relevant registrar at the moment is the Registry of Friendly Societies. Into the future the registrar of co-operatives will be similar in that it will be a separate statutory office but will be a sibling of the CRO in the sense that it will be the same physical building and the same individual will be the registrar, similar to the way it is at the moment. There will be a separate registrar function, but the individual will be the same.

Deputy David Stanton

If Deputy Bruton's vision comes true and we have a massive number of people wanting co-ops and someone following this legislation across the country, does Mr. Shine see this office being augmented, enlarged, getting a bigger budget and so on? With some other offices we have established, their budgets are not big enough and they have problems dealing with the business coming their way. Will Mr. Shine talk us through that?

Mr. John Shine

The Department will have to look at that in the context of resourcing. At the moment the vast bulk of the activity and the resources in that area is on the company side simply because there are 250,000 companies and approximately 600,000 filings a year on the company side and, therefore, the bulk of the staff are in that area and there are a relatively small number of staff in the Registry of Friendly Societies area. That simply reflects the fact that there are only 950-odd industrial and provident societies. There are not a whole lot of new societies registering. They all make their annual returns, but there is not a whole lot happening in that area. Clearly, if the activity in that area is significant increased, that would need to be looked at in the context of ensuring appropriate resources.

Deputy David Stanton

One final question, if I may.

Chairman

Very briefly.

Deputy David Stanton

What is in the heads to prevent money laundering?

Mr. John Shine

In general terms, at the moment, companies and industrial and provident societies are required to provide information on beneficial ownership, so there is actually a third office within this area. There is the CRO, the Registry of Friendly Societies and the register of beneficial ownership. The register of beneficial ownership has registration information on any company and any industrial and provident society and there is a requirement to file ownership details, so that is in place and that will continue into the future.

Senator Paul Gavan

I thank the witnesses for their patience. I am interested in this topic. I wish to tease it out a little more because the Department has ruled out for the moment the idea of setting up a dedicated CDU. Once this legislation is passed, where will the supports be in place to help people to set up co-operatives? If I live in Limerick, which I do, where in Limerick will I go to talk about how I can go about setting up a co-operative?

Mr. John Shine

I think there will be a network of supports in place-----

Senator Paul Gavan

Where? Through whom?

Mr. John Shine

We will certainly be keen to ensure that professional advisers are aware of this legislation and will be sufficiently comfortable with it to suggest it as an option. Our sense anecdotally is that this is not necessarily the case at the moment and that many would not be particularly comfortable with the legislation. It is old, fragmented and not fit for purpose, and they are not likely to offer it as a feasible option. There is that professional adviser area. There is the network of enterprise supports we discussed with Deputy Bruton earlier in the context of the LEOs and Enterprise Ireland-----

Senator Paul Gavan

To be clear, Enterprise Ireland deals with companies that are going to export. Is that correct?

Mr. John Shine

Yes.

Senator Paul Gavan

Most co-ops that are start-ups will not be involved in exporting. Many of them, in my experience, are much services sector-oriented. That rules out Enterprise Ireland.

Mr. John Shine

I mention Enterprise Ireland just in the context that there are co-operatives that do export.

Senator Paul Gavan

I am aware of that.

Mr. John Shine

I am just trying to be-----

Senator Paul Gavan

With respect, what I am getting from the Department at the moment is that after this legislation is passed, it will be easier to have this as an option, and that is true. What I want, however, is a plan to actively promote co-operatives, and I am not hearing that. I am flabbergasted if the Department has looked at best practice, which was my opening question, and the Scottish example in particular, at how it could then decide a CDU is not needed? I ask Mr. Shine to tell me the reasoning behind that decision.

Mr. John Shine

There is certainly a need to promote this legislation and to ensure that those who need to know about it. In addition to supports, there are very active representative bodies in this area, and I expect there will be more of them-----

Senator Paul Gavan

They are crying out for a CDU. I have spoken to them. They say they need to see a unit re-established.

Mr. John Shine

We are aware that some areas are crying out for it, but in other areas the representative bodies feel that they are doing a very good job and that they are promoting the co-operative model.

Senator Paul Gavan

Those areas would be the traditional co-operative areas, particularly agriculture, which is where they are doing well, but Mr. Shine and I both agree that we need to do much more outside of agriculture. Yes, the Department has accounted for those people, but the people crying out for a CDU will be bitterly disappointed that it is not part of this legislation.

Mr. John Shine

In a general sense, in respect of enterprise development, the Department does not favour or distinguish between corporate models. The Department does not intend necessarily to favour co-operatives over companies. What we want to do is ensure there is a modern facilitative and legislative basis for co-operatives. Then it is a matter of ensuring that the enterprise channels, if we talk about just our Department, equally are aware of that and are in a position to provide that information to those who come looking for advice. Then, however, it is absolutely a matter for the individuals to decide which model suits them. The Department does not actively promote co-operatives over companies or vice versa.

Senator Paul Gavan

Again, that is where we disagree with each other, respectfully. The best practice from Scotland shows there will only be significant growth in co-operatives when there is a dedicated department or unit promoting them. Otherwise one is being Jesuitical about it, telling people they can go this route for companies or this route for co-operatives and it is up to them. Successful models in France, Scotland, Italy and Spain show that where there is an active unit and specific legislation, not this broad church, that makes it happen. We are missing an opportunity.

Chairman

That concludes our consideration of the matter today. I thank all the representatives for coming here and assisting the committee in its consideration of this important matter. The committee will further consider this Bill as soon as possible.

The joint committee went into private session at 10.51 a.m. and adjourned at 11.18 a.m. sine die.