Select Committee on Delegated Powers and Regulatory Reform Eighteenth Report

Annex 3


Memorandum by HM Treasury


200.  This Memorandum relates to the Co-operatives and Community Benefit Societies Bill as brought from the House of Commons on 7th April 2003. It identifies the provisions in the Bill for delegated legislation, explains their purpose and the particular form of Parliamentary control of delegated legislation selected.


201.  The Bill aims to supplement the Industrial and Provident Societies Acts 1965 to 2002 and in particular to amend the Industrial and Provident Societies Act 1965. Industrial and provident societies are an alternative corporate structure to companies regulated under the Companies Acts - often operating in the sector considered as 'social enterprise' or 'not-for-profit' - and in diverse areas of the economy from retail shops to housing associations. There are two main forms of societies - co-operatives and community benefit societies.

202.  The Bill will update certain aspects of industrial and provident society legislation, in line with the relevant aspects of the law relating to companies, in order to facilitate the ability of societies to enter into contracts and conduct business.

203.  The Bill also contains an enabling clause which would allow the Treasury to bring forward, through secondary legislation, provisions to permit industrial and provident societies whose business is conducted for the benefit of the community to commit their assets permanently for that purpose (asset 'lock-in'), subject to appropriate safeguards. Giving community benefit societies the option of 'protecting their assets in perpetuity for a public purpose' was a recommendation of the Strategy Unit report "Private Action, Public Benefit" published in September 2002. Some aspects of this recommendation are similar to the proposals the Government is developing for Community Interest Companies.

204.  There are four aspects of the Bill which provide for delegated legislation:

a power to enable the Treasury to bring forward, in secondary legislation, provisions under which 'community benefit societies' could prevent any use of or dealing with their assets except for the benefit of the community (Clause 1);

a power to enable the Treasury to make regulations adapting and modifying section 346(2) to (8) of the Companies Act 1985 as applied to industrial and provident societies, for the purposes of the new section 7E(1) inserted into the 1965 Act by Clause 3 of this Bill (Clause 3, Section 7F(3)(b))

provision for the Bill to come into force by Treasury order (Clause 7)

a power to extend the Bill's provisions to the Channel Islands, by an Order in Council (Clause 8)


205.  Clause 1 will confer power on the Treasury to bring forward, through secondary legislation, provisions under which community benefit societies could prevent any use of or dealing with their assets except for the benefit of the community. Currently it is not possible for investors in a community benefit society to be certain that its assets will always be used for the purpose of serving the community. For example, it is possible for a society to convert into a company and use its assets in whichever way it wishes. Representative bodies of societies and responses from the public consultation on the Strategy Unit Report indicate that there is strong support for the principle of allowing an asset 'lock-in' regime to be made available as soon as possible to community benefit societies.

206.  The aim of Clause 1 is to address this situation. It provides a framework under which the Treasury could bring forward a regime allowing a society to prohibit irrevocably the distribution of assets other than for the benefit of the community. Further detail on the provisions that the delegated legislation may make is provided from paragraph 12 below and also in the commentary set out in the Explanatory Notes to the Bill as brought from the House of Commons on 7 April 2003.

207.  Mark Todd MP, the Private Member who sponsored this Bill in the House of Commons, included in the Bill on introduction an asset 'lock-in' regime which did not require or provide for any delegated legislation. At Second Reading in the House of Commons, the Financial Secretary to the Treasury indicated that, following the analysis of the Strategy Unit's Report "Private Action, Public Benefit", the Government supported the principle of making an asset 'lock-in' regime available to community benefit societies. However, the Financial Secretary also noted that it would not necessarily be possible to consider all the detailed substantive provisions that might be necessary for such a regime within the timescale of this Bill's Parliamentary passage.

208.  Some of the key issues that the Treasury believes need to be worked out in detail before an asset 'lock-in' regime could be implemented are set out in the annex to this memorandum. The Government believes that these issues and any subsequent secondary legislation need to be the subject of consultation with the industrial and provident society sector and other interested parties before any such regime could be implemented. Ensuring the sector can fully comment on the details of the regime is also in keeping with its tradition of member involvement.

209.  Subsequently, the Government supported Mark Todd MP's amendments made at Committee Stage in the House of Commons, which provides the policy framework under which the detailed operation of the regime can be implemented through secondary legislation. The enabling provision will help ensure that relevant societies in the sector can enjoy an asset 'lock-in' as soon as possible while also ensuring that there is proper and full consultation on the detailed provisions of the regime. The Government also believes that an appropriate balance has been struck between identifying as far as possible now in primary legislation the specific types of provisions that are likely to be needed and the need to allow flexibility to respond sensitively to responses received during consultation on the proposals.

210.  Any secondary legislation brought forward under this clause would be subject to the affirmative resolution procedure and so would require approval by a resolution of each House of Parliament before the regulations could be made.


211.  Subsections (1), (2), and (4) allow the Treasury to make provision for some of the mechanics of an asset 'lock-in' regime and to deal with certain matters in particular. Some of these are set out in the annex to this memorandum.

212.  Subsection (5) allows for other provisions which may be necessary in order to appropriately implement an asset 'lock-in' regime:

213.  Paragraph (a) will allow the regulations to impose criminal liability. The creation of criminal offences may be necessary to ensure that any asset 'lock-in' regime can be properly enforced. Industrial and provident society legislation includes a number of criminal offences to help ensure that provisions in the legislation are complied with. The exact nature of any new offences will depend on the detail of the regime and views received in further consultation.

214.  Paragraph (b), (c), (d) and (e) allow for provisions which: confer functions on a prescribed person; confer jurisdiction on any court; authorise a prescribed person to make and enforce binding rules and charge fees sufficient to meet the costs of any functions carried out under the regulations. These provisions are intended to relate to the supervision of the regime, for example, to ensure mergers or dissolutions of societies, which have adopted the lock on their assets, are undertaken appropriately. It may be possible to leave all enforcement to the jurisdiction of the courts. Alternatively, it may be more appropriate to confer supervisory functions on a body. It would then be necessary for the supervisory body to make and enforce rules and to fund its operations.

215.  Paragraph (f) allows for the regulations to modify or exclude other enactments. We can foresee certain circumstances where such a provision might be necessary. For example, if a supervisory body is deemed appropriate and a statutory organisation which already exists is given these supervisory functions it will probably be necessary to modify the statute governing it to allow it to undertake these new responsibilities. If prescribed societies are permitted to convert to other corporate forms, it may be necessary to modify the legislation which applies to those corporate forms to ensure that the asset 'lock-in' can operate effectively on the converted body.


216.  Clause 3 brings certain aspects of industrial and provident society legislation into line with existing provisions of the Companies Act 1985. Subsection (3) of the new section 7F inserted by this clause into the Industrial and Provident Societies Act 1965 applies section 346(2) to (8) of the 1985 Act for the purposes of references in new section 7E(1) to a person's being "connected" with a committee member or to a committee member's being "associated with" a company. Section 7F(3)(b) also allows the Treasury to make regulations adapting and modifying section 346(2) to (8) as so applied to industrial and provident societies. This power is considered advisable because it is unclear that, in particular, subsections (4) and (5) of section 346 and Part I of Schedule 13 as applied by subsection (7) of that section can be simply applied to industrial and provident societies as they stand. For example, the references to "equity share capital" and to shares having a nominal value may require modification if section 346 is to apply meaningfully to societies. Any regulations made under this power would be subject to the negative resolution procedure, and so could be annulled by a resolution of either House of Parliament.


217.  This clause provides for the Act's commencement by one or more statutory instrument(s), and the making of any appropriate transitional provisions. This provision enables the Treasury to specify dates for commencement of the Bill's provisions in such a way as to cause minimum disruption to the planning of societies and those dealing with them.


218.  This enables Her Majesty to direct by Order in Council that any provision of the Bill or any instrument made under it apply to any of the Channel Islands. The Channel Islands authorities were consulted about how this Bill should apply to their jurisdictions. Those authorities agreed that it would be appropriate for provision made by or under the Bill to be capable of being extended to their jurisdictions, subject to any necessary modifications, by Order in Council.

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