The Co-operatives, Mutuals and Friendly Societies Bill: A new way to raise and retain capital for Co-operatives?

What does the proposed new legislation mean for co-operatives?

A new Co-operatives, Mutuals and Friendly Societies Bill (Bill) has been introduced in Parliament which proposes a way for co-operatives, friendly societies and mutual insurers to grow and develop their organisations while maintaining their commitment to member ownership and control. This is important as it will enable co-operatives to compete on a more even playing field with their corporate counterparts and increase their impact across all sectors.

The current legislation which governs the raising of capital for co-operatives is somewhat inflexible. The Bill would enable co-operatives to raise more money by issuing equity shares that are repayable at the option of the society, rather than being withdrawable at the option of the members.

By introducing repayable shares, the Bill would enable co-operatives to raise amounts in excess of the current £100,000 holding limit for withdrawable shares. The Bill would also provide legal certainty as to whether co-operatives can choose to repay non-withdrawable shares. These changes have the potential to lead to large capital-driven co-operative societies raising millions of pounds more each year in equity, which could then be used to invest in important initiatives tackling issues such as decarbonisation, technology and the current cost of living crisis. It remains to be seen whether the Companies Act restrictions on a company buying back its own share capital might apply to a co-operative society repaying its repayable share capital.

In addition, the Bill would give co-operative societies the option of adopting a statutory provision guaranteeing that any capital surpluses would be ‘non-distributable’ among members. It is important to note that this would not affect the application of members’ surpluses or interest payments on share capital. Most co-operative societies currently include non-distributable capital surplus provisions in their rules. However, as rules of a co-operative can be amended by its members from time to time, such rules-based provisions are often insufficient to provide the solid legal guarantee sought by many investors. Including a statutory provision may increase opportunities for investment and asset growth in co-operative societies given the increase in legal certainty. The additional available capital surplus could then be re-invested in economically, environmentally and socially productive enterprises.

The Bill would enable co-operatives to secure increased investment whilst retaining their democratic structures and ensuring they work in the interest of their members. Co-operatives UK’s head of policy, James Wright, confirmed that the Bill enjoys “widespread support” throughout the co-operative sector and has encouraged co-operatives to show their support before the Bill’s second reading on Friday 28 October 2022.