As the Co-operative and Community Benefit Societies Act 2014 ( the Act) regulates all but a small number of Scottish RSLs the Law Commission Consultation on its reform is important.
Key issues that have been raised on behalf of the sector are:
Definitions of (a) Co-operative and (b) Community Benefit Society
A community benefit society (CBS) is defined as a society carrying on any business for the sole benefit of the community with voluntary membership open to all on a one member one vote basis whilst a co-operative is similarly defined save that it carries on business “mainly for the benefit of its members” through “transactions with its members.”
The following issues arise:
- RSL Co-operative membership is generally only open to tenants for whom membership is a condition of their tenancy
- RSL CBS membership is only open to those who meet its membership policy and may in some cases be limited to board members or those approved by a parent
- A parent RSL can appoint and replace a majority of the board and may have other special voting rights
- The term “business” may not capture all RSL activities
Shares
Chapter 5 covers the extent to which shares may be withdrawable and/or transferable and is of little relevance to the RSL sector where a share is effectively a £1 “membership ticket”. Currently however there is a lack of clarity on how shares are to be dealt with on death or bankruptcy and it has been proposed that future legislation expressly enables RSLs to cancel shares and retain the “ticket price” should either event occur.
This Section also contains provisions for paying dividends and interest on shares and loans which should be of little significance to the sector provided future legislation makes clear that these relate solely to loan capital provided by members.
RSL Officers
Key issues are:
Company law obligations
Board members of a CBS to have the same obligations as company directors under Sections 170-180 of the Companies Act. As these are similar to existing obligations imposed on RSL board members and already apply to companies limited by guarantee and company subsidiaries there should accordingly be little problem in extending these to Co-operative and CBS board members. Although it has been suggested that duties to foster business relationships with, in particular, suppliers may be different from that of commercial companies.
Registration of Officers details in Mutuals Register
As board members of charitable RSLs will shortly be obliged to provide similar details to OSCR this is unlikely to be contentious although clarity is required on who will be covered. The Consultation refers to “officers” as defined in the Act which includes all employees other than those appointed by the society’s governing body which is unlikely to be what is intended.
Other Reforms
Chapter 7 of the Consultation proposes a number of other reforms primarily in relation to providing greater powers to FCA as registrar which if implemented may lead to proposals that they enter into a Memorandum of Understanding with SHR and other UK social housing Regulators in order to avoid duplication of Regulations.
The Consultation closed last month and responses – including those made on behalf of the RSL sector – are currently being analysed. The Commission will publish their recommendations sometime this year with legislation likely to follow probably in 2026.
It is essential that each stage in this process be fully scrutinised to ensure that the distinctive needs of the sector are properly taken into account.
If you have any queries please don’t hesitate to contact our team.
