Insolvent registered societies – what can be done?

A “registered society” under the Co-operative and Community Benefit Societies Act 2014 (“CCBSA 2014”) is a society:

• Registered under CCBSA 2014 on or after 1 August 2014, this being the date that CCBSA 2014 came into force, as a co-operative or a community benefit society (CCBSA 2014, sections 1(1) and 2), or
• Registered or treated as registered under the Industrial and Provident Societies Act 1965 immediately before 1 August 2014 (CCBSA 2014, sections 1(1) and 150). These “pre-commencement societies” were previously known as “industrial and provident societies”.

Examples of registered societies include consumer co-operative societies, such as the Co-operative Group Limited, social clubs, such as “working men’s clubs”, clubs which are members of the Rugby Football Union and the Rugby Football Union itself.

Like companies, registered societies are bodies corporate which constitute legal persons and have limited liability. Societies are governed by a set of registered rules, which represent the constitution of the society, and are run by a governing body which some societies describe as a “board” made up of “directors”. However, this body can also be called a “committee” consisting of “committee members”; the words used do not alter the legal position. Registered societies are listed on the Mutuals Public Register and the Financial Conduct Authority (“FCA”) is the registrar.

Registered societies, like companies, can become insolvent. Following the Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014 (“ARA Order”), which came into force on 6 April 2014, the procedures available to insolvent companies are generally also available to insolvent registered societies, subject to certain modifications and exceptions. In particular, there are significant exceptions regarding the availability of these procedures to societies operating as private registered providers of social housing or registered as social landlords. These exceptions are outside the scope of this article.

Administration, company voluntary arrangements (“CVA”), schemes of arrangement and restructuring plans will now be explored in regard to their availability to most insolvent registered societies.

Administration

Pursuant to the ARA Order, the rules of administration in Schedule B1 of the Insolvency Act 1986 (“IA 1986”) apply to registered societies in largely the same way as they do to companies, subject to certain modifications set out in Schedule 1 of the ARA Order (ARA Order, article 2(2)).

An administrator may be appointed either:

• By court order, on the application of the society, its directors, its creditors or any of its members who would be entitled to petition for its winding up, or
• Out of court, by a floating charge holder, the society or its directors. (IA 1986, Schedule B1, para. 12 and para. 22 applied by ARA Order, article 2(2)).

It is important to note in relation to appointments by floating charge holders that, if the charge was created before 6 April 2014, then the charge holder can appoint either an administrator or a receiver but, if the charge was created on or after that date, the charge holder can only appoint an administrator. (CCBSA 2014, section 65).

As to the ARA Order’s modifications to the administration rules, some points to note are that:

• The FCA, as registrar, can apply to court for an administration order. Further, anyone applying for an administration order in relation to a registered society must notify the FCA (ARA Order, Schedule 1, para. 12).
• In relation to the administration procedure, the members’ meeting has parity with the creditors’ meeting in relation to approving, varying or rejecting proposals made by the administrator (ARA Order, Schedule 1, paras 19-20).

Creditors’ voluntary arrangements

Again, due to the ARA Order, the procedures for a CVA under Part 1 of IA 1986 apply to societies in a similar way to how they apply to companies (ARA Order, article 2(1)). As such, a society’s directors or, if it is in administration, its administrator or, if is being wound up, its liquidator, may make a proposal to launch a CVA.

The main points of difference to note in relation to the modification of the rules as they apply to societies (see Parts 1 and 2 of ARA Order, Schedule 1) are that a CVA proposal for a society should:

• Be framed so as to enable the society to comply with its rules and the provisions of CCBSA 2014 and, so far as applicable, the Credit Unions Act 1979 (ARA Order, Schedule 1, para. 3(a)).
• Include as debts any amount owed by the society in respect of a member’s share where the society is an authorised deposit-taker and the amount concerned is owed in respect of a deposit (ARA Order, Schedule 1, para. 3(b)).

Schemes of arrangement and restructuring plans

Schemes of arrangement under Part 26 of the Companies Act 2006 (“CA 2006”) and restructuring plans under Part 26A CA 2006 are also available to societies, subject to the modifications set out in Schedule 2 and Schedule 2A to the ARA Order respectively (ARA Order, articles 2(3) and 2(4)).

A modification to note is that, where the relevant compromise or arrangement includes provision for amending the society’s rules, the court may only make an order sanctioning it if the FCA has issued a statement to the effect that it would register an amendment in the terms proposed if copies were given to it for registration in accordance with section 16 of CCBSA 2014 (ARA Order, Schedule 2, para. 6 and Schedule 2A, para. 8).

Liquidation and dissolution

The winding up procedure for companies applies to registered societies with adaptations, such that a society can be wound up either by a winding up order made by a court or by a voluntary liquidation (CCBSA 2014, section 123). Notably, any documents which a company is required by IA 1986 to file at Companies House should instead be filed with the FCA.

For a society to be dissolved, a certificate under section 126 CCBSA 2014, which certifies that all property vested in the society has been duly conveyed or transferred by the society to the persons entitled, must be submitted to the FCA, unless dissolution is occurring after an administration (FCA Guidance 2015, para. 8.144).

Law Commission consultation

It should be noted that the Law Commission published a consultation paper in September 2024, seeking views on its provisional proposals to reform the CCBSA 2014. It is possible therefore that the above may be subject to (some) change in the future.

This article was authored by Olivia Tolson Barrister, Erskine Chambers.