Cooperative societies in Ireland could soon be required to adapt their operations in order to comply with new rules laid out under a bill being drafted by government.
The General Scheme of the Co-operative Societies Bill 2022 will be the first piece of legislation to deal specifically with co-ops in Ireland, many of which currently operate under legislation developed as far back as the 19th century.
When introduced, co-ops of all sizes including large multi-billion entities and community-based societies will be required to comply.
During the pre-legislative scrutiny of the bill in the Dáil last week, CEO of the Irish Co-operative Organisation Society (ICOS) TJ Flanagan welcomed the bill generally, but called for some adjustments to be made.
Outline of Co-operative Societies Bill
The Department of Enterprise, Trade and Employment (DETE) has outlined that the bill’s approach will be similar to that in the Companies Act 2014 to introduce modern corporate governance, financial reporting and compliance requirements.
However, Flanagan said that a number of the proposals would remove “familiar co-operative concepts” which should not be the case, and he called on behalf of ICOS for the retention of these.
“Member familiarity and co-operative culture should be enhanced, not undermined, especially when the gains of this proposal are not apparent,” he stated.
Among other proposals, the bill suggests reducing the number of founding members required from seven to three, and would also expand the categories of founding members.
However, Flanagan said that the “seven member minimum has served as a reasonable starting point for a collective endeavour” and stated that it “should prevail in the statute”.
ICOS also raised concerns over a number of proposals on the running of a co-operative.
In the draft, it is proposed that a co-op wishing to alter its rules would need agreement from 75% of members. However, it’s currently common practice to require agreement from only two thirds of members. Flanagan stated:
“ICOS calls for the retention of co-operative autonomy to determine the threshold, or alternatively to insert the two thirds threshold in stature as opposed to the 75%.”
The organisation also stated that it “has grave concerns” about the changes that the bill would introduce in relation to amalgamations and transfers of management.
Under the proposals, the procedures for the consolidation of two or more co-ops would require, among other things, two special general meetings with support of 75% and above 50% at each one respectively.
Flanagan said this is a “worrying overhaul of procedures” and added that it “could have serious, unintended consequences in the context of service users and their livelihoods”.
Another concern raised by Flanagan on behalf of ICOS was the compulsory requirement for all co-operative societies to hold a reservation of funds, although the “adequacy” of this reserve would be determined by the society itself.
“The scheme requirement is open to interpretation. It would generate confusion in respect of compliance and could discourage producers or service users from choosing the co-operative model.
“ICOS notes the shift to a compulsory reserve from an optional mechanism [outlined] in the 2022 public consultation,” he added.
The bill also suggests exemptions from audits for smaller co-ops, as well as provisions for virtual participation at general meetings.
The general scheme of the bill intends to implement a transition period of 30 months, which would commence on enactment.
It’s envisaged that this would give existing industrial and provident societies time to decide whether to register as a co-operative and adhere to the bill’s regulations, convert to a company or wind up and be dissolved under the 2014 Companies Act.
Former Minister for Enterprise, Trade and Employment Leo Varadkar secured permission to begin drafting the bill last November stating that the current laws “have not kept up with the times”.
“This new law changes all that, responds to the needs of the cooperative movement and opens a path for a new wave of co-operative societies.
“This is a very substantial legislative initiative and I am committed to bringing this new law into operation at the earliest date, thereby fulfilling another major commitment of this government,” he added.