Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 (the Order).]
Recently the UK Government have been keen to highlight how Industrial and Provident Societies (IPSs), as a business structure, exhibit the diversity of our economy. This focus is emphasised by the proposed introduction of the above Order, which will provide IPSs with a package of legislative reform. It is due to come into force on 6 April of this year.
The IPS business model, regulated by the Financial Conduct Authority (the FCA), remains a popular structure in the UK; examples include the Co-op Group, FC United of Manchester and Great Places Housing Group. There are over 7,600 currently active with a membership of more than 15 million people. IPSs originate as a legal form from the 19th Century, but for almost 50 years their operation has been governed by the Industrial Provident Societies Act 1965 (the 1965 Act). Under the 1965 Act, there are two types of IPS: first, those businesses that are owned and run by and for their own members (co-operatives), second, those that operate for the benefit of their community. These function in a large cross-section of industries, from football clubs and wind farms to mutual investment companies and agricultural suppliers.
Despite their diversity, historically these societies have been provided with limited legislative options in financially challenging times. This has long been regarded as unfair by many in the IPS sector who believe they should have the same such options as companies. The 1965 Act does provide for winding up registered societies (as an unregistered company under the Insolvency Act 1986 (the 1986 Act)), but no less drastic provisions have existed that would enable IPSs to tackle their financial difficulties by more constructive means: until now.
The Order extends aspects of company insolvency rescue measures, which are predominately contained in the 1986 Act and Companies Act 2006 (the 2006 Act) to IPSs (apart from those that provide social housing). The most notable of the reforms are contained within Article 2 of the Order which incorporates Parts 1 and 2 of the 1986 Act. First, this enables IPSs to enter into company voluntary arrangements (CVAs). Second, it enables IPSs to benefit from administration provisions. Both of these rescue procedures were previously unavailable. Further they will be able to enter into schemes of arrangement under the 2006 Act. So what does this mean for IPSs today?
CVAs can be very flexible, low-cost procedures that create a binding agreement between an organisation and its creditors by rescheduling the debts in a variety of ways. This, in many instances, will provide IPSs with the same ability to continue trading, with control remaining with the directors, which has been available to companies. All relevant societies, other than credit unions authorised as deposit takers entering into a CVA will benefit from a moratorium providing them with protection against action for debt enforcement and allowing an opportunity to rearrange their affairs free from creditors’ pressure.
Appointing an administrator will give an independent insolvency practitioner the power to run, reorganise and possibly sell as a going concern any insolvent IPS. Adminstration, although potentially a more costly measure, will provide an IPS with a protective moratorium for the duration of the administration, keeping creditors at bay. Both procedures are designed to achieve a better result for creditors as a whole than would be likely if the company, or in this case the IPS, was wound up completely.
These measures form part of a package of legislative reform for registered societies with a view to commencement on 6 April 2014. The 1965 Act itself is disappearing into a consolidation act that will collect all IPS legislation in the same place for the first time. The Order is a move to strengthen and support further growth in the IPS and mutuals sector by providing rescue opportunities previously not afforded to this economic sector.
If you have any questions or would like more information please contact, Julie Agnew, Associate, Corporate Recovery or Gavin Jones, Head of Corporate Recovery.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.