I move: "That the Bill be now read a Second Time."
I am pleased to present the Friendly Societies and Industrial and Provident Societies (Miscellaneous Provisions) Bill 2013 on Second Stage. It addresses two separate bodies of legislation, both of which operate under the Registry of Friendly Societies, namely, the legislation governing friendly societies and the legislation governing industrial and provident societies under which many co-operatives are registered. In this sense, the Bill represents a response to our commitment in the programme for Government to work to ensure a level playing field between co-operatives and the other legal options for structuring enterprise activities and provide a framework for the full potential of the co-operative model to be realised.
The Bill received broad support in its passage through the Seanad, where just one substantive amendment was made. This related to the application of examinerships to co-operative societies. The amendment arose from the introduction late last year of the ability for small private companies to initiate the examinership process in the Circuit Court rather than the High Court.
Both bodies of legislation addressed by the Bill date back to the late 19th century when friendly societies and industrial and provident societies developed as part of a mutual self-help movement that included co-operatives, building societies, savings banks, credit unions and trade unions. Given Ireland's rural economy, the emphasis was mainly on farming co-operatives and agricultural banks on the industrial and provident societies side, whereas friendly societies, many offering insurance-type services, making payments and offering support at times of death, illness or inability to work, were largely an urban phenomenon.
As Deputies well know, co-operatives have played a significant role in our economic and social development during the years, particularly in the agrifood sector through groups such as Kerry Group, Glanbia and Dairygold. People will also know about the work of co-operatives through the livestock marts that operate in nearly every county or even more directly through their group water schemes which account for more than one third of all registered co-operatives. Housing co-operatives also play a significant role in the provision of group and affordable housing for people with modest incomes through a mix of renting and ownership.
Co-operatives are owned and democratically controlled by their members. It is important to recognise the contribution they make and appreciate their real value and worth. They are rooted in the community, offer jobs to local people, can be stable employers because their members live in the community and offer a strong alternative to more investor-driven businesses. The Government is committed to assisting this particular form of enterprise to expand, develop and continue to have a positive impact on business.
The picture is somewhat different nowadays on the friendly societies side. While no one would deny the good that these societies have done in their day and, in the context of the small number that remain, continue to do, it has become clear in recent years that this is not a corporate model of choice in the 21st century. In fact, just three of the existing 47 societies have registered in the past nine years. It could be argued that the friendly society model has been a victim of its own success. As many of the activities carried out under the friendly societies umbrella developed, they became independently regulated sectors, for example, insurance and medical benefits societies, or were replaced by State-provided welfare systems.
The Government is concerned about a prudential supervision gap. While the Central Bank regulates savings, loan and insurance activities carried out by entities involved in the provision of financial services with a view to protecting the financial interests of members of the public doing business with the provider of the financial services, it does not do so where these activities are carried out by friendly societies. This is a source of some concern, given the potential risk to the interests of certain members of the public who may not be aware of their exposure and believe they are protected by the general regulatory activity of the Central Bank. As such, it is in the public interest to restrict the operation of new entities. However, the Registry of Friendly Societies has no expertise in this regard and there is no existing legal basis for such supervision, nor would it be practical, given the number of societies involved, to develop a dedicated supervisory regime within the existing registry. The most realistic institutional option for introducing an appropriate system of supervision is the Central Bank which is at the centre of financial supervision and financial stability oversight and has a responsibility to provide, in a fully integrated and coordinated manner, for the prudential supervision and stability of all types of financial service within the financial system as a whole. To avoid the possibility of other bodies moving into this unregulated space, it has been decided to close registrations to new friendly societies.
Our reasons for amending this fairly ancient legislation instead of introducing a new Act or Acts are twofold. First, we needed to avoid diverting effort and resources away from the work on the Companies Bill, with which all Deputies are familiar from its recent passage through the House and which is the current priority in this area. Second, the Companies Bill, when enacted, will, to a certain extent, impact on how related issues in the co-operatives area will operate. There is no principled reason for the approach taken by that Bill on matters such as registration and financial reporting not to apply to friendly societies and co-operatives in due course also.
This Bill is aimed primarily at easing the regulatory burden on co-operative societies and making it easier to start up and run a co-operative as an alternative form of enterprise organisation. It will address particular problems that have been identified in the co-operative sector and help to ensure this model will thrive and grow to its potential in line with the commitment in the programme for Government to promote appreciation of the co-operative as a form of enterprise organisation. The Bill also recognises the changing environment in which friendly societies operate and the lack of prudential supervision governing activities that, if carried out by other entities, would be subject to regulatory oversight and seeks to address these issues. When the Companies Bill is enacted, the intention is to prepare modern legislation to cater for the co-operative sector and existing friendly societies.
Let me turn now to the Bill which is set out in four Parts to give more detail on some of its main provisions.
Sections 1 to 3, inclusive, which comprise Part 1, are general sections only, dealing with citations, construction and commencement, definitions and provide that expenses incurred by the Minister in the administration of the Bill may be paid out of moneys provided by the Oireachtas.
Sections 4 to 8, inclusive, make up Part 2 of the Bill which relates to the operation of the friendly societies legislation. Section 5 provides for a significant change to that Act, that is, the termination of registration of societies under this legislation. Only 47 societies remain in existence, of which just three are new entrants in the course of the past nine years, giving a clear indication that the friendly society model is no longer favoured by newly establishing organisations. This change will mean, in effect, that the friendly society model will continue only for a closed group of societies.
Section 6 places a restriction on existing societies establishing a loan fund, as provided for in section 46 of the principal Friendly Societies Act 1896, where they do not already have such a fund in place. This has been a little used provision - just three societies have a fund in place and this change will not impact on them.
Sections 7 and 8 are two technical amendments which will facilitate the operation of the Friendly Societies Acts. Section 7 removes the role of the Minister in relation to cancellations of friendly societies. Under the current legislation, the Registrar of Friendly Societies must receive the prior approval of the Minister before cancelling societies. It is proposed to remove this role in relation to friendly societies and also later in the Bill to industrial and provident societies. The Minister has no such role in relation to a company strike-off and such a role for a political authority is inappropriate in modern times.
Section 8 removes the restriction in the current Act providing that the registrar must be physically absent for the powers, functions and duties to be exercised and performed by such other person as the Minister may authorise and allows another person to act alongside the registrar.
Sections 9 to 12, inclusive, make up Part 3 and relate to the operation of the industrial and provident societies legislation. Section 10 sets out a number of amendments to the principal Act of 1893. These relate to issues which were identified through a consultation process as being practical and immediate difficulties being experienced by co-operative societies in relation to the current legislation. It is considered that the proposed amendments will ease the administrative burden for the co-operative sector. I will detail some of the main changes. Paragraph (a) provides for the removal of the upper limit on the interest in a society which an individual society member may hold, where a society so specifies in its rules. The existing upper limit is €150,000, or 1% of the total assets of the society, set in 2005. This limit is generally suitable for all categories of society, although there is a risk that it may deter the formation of new societies having small memberships but high capital requirements, for example, wind farming.
The original rationale for having a statutory limit on individual shareholdings is believed to be connected with the notion of equal participation by the members of a co-operative enterprise. This objective, however, can be fully achieved by co-operatives themselves through the medium of their own rules and without the need for legislative intervention. Paragraph (b) provides that an appeal from a refusal by the registrar to register a society, or to register a society's rules, may be made to the Circuit Court, rather than the High Court as at present. This should reduce costs for societies.
Paragraph (c) makes two technical amendments, including providing for the removal of the requirement for the Minister to approve the cancellation of a society's registration. Paragraph (e) provides that annual returns to the registrar may be submitted on one of two dates during the year, depending on the date of a society's financial year, that is, the date to which their balance sheet is made up. This allows societies freedom regarding their choice of year end and extends the timeframe for the submission of the return. The current system is restrictive and causes difficulties for societies, the annual business cycles of which do not accord with the dates set down in the Acts such as dairy societies which wish to bring their reporting year into line with the dairy production year.
Paragraph (f) extends the right of members or persons having an interest in the funds of the society to inspect the books containing the names of members to include their holdings in the society, whether in shares or loans. I understand this is already the practice among many co-operative societies.
Paragraph (g) provides for a right for non-members to inspect the books containing the names of members and their holdings in shares at reasonable hours at the registered office of the society. The section is modelled on a similar provision in the Companies Acts. Without this amendment, non-members would have no ability to access the membership or holding details of a society, in the absence of the triennial return, the requirement for which is being abolished.
The co-operative sector has sought the abolition of the requirement for societies to submit, at least once in every three years, a return, known as a triennial return, of the members and their holdings to the registrar. The sector has argued that the information is out of date too quickly to be useful and imposes an unnecessary administrative burden on societies. Section 11, therefore, in accordance with what proved to be general agreement that this return served no useful purpose, abolishes this requirement. Section 10(g) provides that both members and non-members will now be able to access information on members and their shareholdings directly through the co-operative society.
Section 12 provides for a number of amendments to the Industrial and Provident Societies (Amendment) Act 1978. It provides for an increase in the amount which a society may raise by way of subscription for shares, without the written permission of the registrar, from €12,697 - £10,000 - to €30,000. It also extends the provision whereby certain funding sources are excluded from the requirement to obtain the written permission of the registrar to include moneys advanced by a public body to a registered society. This will remove the need for societies to seek the prior permission of the registrar before they can accept funds from a public body or where the amount of share capital raised in any period of six months does not exceed €30,000. The change meets the concerns of some societies affected, particularly building co-operatives, that the current restrictions are excessive.
Sections 13 to 25, inclusive, make up the fourth and final Part which provides for the examinership provisions of the Companies (Amendment) Act 1990, as amended, to be made available to co-operative societies. Examinership is a mechanism used to enable companies in financial difficulties to be put back on a sound footing and avoid liquidation. Currently, this mechanism is not available to industrial and provident societies. The practical effect is to limit the restructuring options available to a co-operative society in the event that it gets into financial difficulties. While I am not aware of any particular instance in which the examinership mechanism may be required by co-operative societies, it is considered desirable, particularly in the current economic climate, that the mechanism be available for use by any society which might need it. The co-operative movement has also signalled that this matter should be addressed as a priority. The intention is that the law on examinership, as it applies to companies through the 1990 Companies (Amendment) Act, will apply in the same manner to industrial and provident societies.
Sections 13 to 25, inclusive, provide for such necessary definitions, changes and modifications as are needed to apply the legislation to industrial and provident societies. The amendments are, effectively, technical amendments necessary for the understanding and effective operation of the legislation in its application to co-operative societies.
A small number of sections or parts of sections of the Bill are, for various reasons, disapplied for the purpose of the Bill's application to industrial and provident societies, for example, section 6A is disapplied as the provisions of the Companies Acts in relation to receivers do not apply to industrial and provident societies. Again, I will detail some of the main provisions.
Section 15 construes phrases in the 1990 Act which apply specifically to companies to the nearest equivalent definition or meaning for industrial and provident societies.
Section 16 applies section 2 of the 1990 Act, as amended by the Companies (Miscellaneous Provisions) Act 2013, which allows certain private companies to initiate proceedings in the Circuit Court, rather than the High Court. This section also establishes what is meant by a "small society" which is not an existing concept in terms of co-operative societies. The criteria used to define a "small society" are similar to those used to define a "small private company".
Section 17 deals with the issue of who may petition for protection of the court, with certain modifications needed with regard to industrial and provident societies. It specifies the number of members of the society required to present a petition. The number proposed in this regard equates with the existing proportion of members who are permitted by the 1893 Industrial and Provident Societies Act to request the registrar to investigate a society. For ease of reference, the section also restates and updates the references to the list of societies comprehended by section 3(2)(c) of the 1990 Act. By restating the list in this Bill, the necessity to refer to Acts other than the 1990 Act is avoided. Additionally, as the list is not directly applicable to all industrial and provident societies, non-relevant elements are excluded. The section also expands the definition of "director" to include the committee of management or other directing body of an industrial and provident society.
Section 20 substitutes the reference in sections 7, 18 and 24 to the Companies Acts with the Industrial and Provident Society Acts to reflect the fact that the Industrial and Provident Societies Acts rather than the Companies Acts provide the governing legislation for societies.
Section 21 removes the reference to "shadow director" which is not a term which has an equivalent meaning in the context of an industrial and provident society.
Section 25 restates the offences in the 1990 Act and has been updated to equate with the provisions in the Companies Bill 2012 which is before the Seanad. The section provides that summary proceedings in relation to an offence under this section may be brought by the Registrar of Friendly Societies.
I look forward to hearing Members' views this evening and in our future consideration of the Bill as it progresses through the House. I commend it to the House.