With the introduction of new rules surrounding Industrial and Provident Societies (IPS) and insolvency, Rebecca Hazeldine, solicitor at Geldards LLP, reviews the new provisions for IPSs
A wealth of organisations from working men’s clubs to football supporters’ trusts to the Royal British Legion, can now benefit from an insolvency “safe haven” should they find themselves serious financial difficulty.
Many such organisations are set up as Industrial and Provident Societies (IPSs), a business form which has its origins in social philanthropy, self-help and the cooperative movement.
Until this year, the “safe haven” of Company Voluntary Arrangement (CVA), administration or Scheme of Arrangement (SoA) was not open to an IPS. Now legislation in the form of the Industrial and Provident Societies and Credit Unions (Arrangements, Reconstructions and Administration) Order 2014, has been implemented to open up these insolvency provisions to IPSs.
IPSs have a separate legal personality, limited liability for participants and are regulated by the Financial Conduct Authority (FCA). There are two types: the ‘bona fide cooperative’ mutual model and the society for the benefit of the community.
If an IPS became insolvent in the past, the only options were dissolution or liquidation. There was no opportunity to use a formal insolvency process to rescue or restructure the venture. The new provisions mean that IPSs (except private registered providers of social housing or social landlords) now have the ability to use formal insolvency procedures which all aim at “rescue” and bring new flexibility, in that:
However, an IPS will not be subject to administrative receivership (in this respect there is no change in the law). This is a further option available to companies whereby a secured creditor can appoint an administrative receiver (as opposed to an administrator) in a limited range of circumstances. The main advantages of this are that an administrative receiver works only for that creditor, not the creditors as a whole.
If any one of these new procedures is to be used, it will be important for an IPS to check the modifications which have been made to the procedures, for example, there may be particular requirements as to the level of engagement required with the Financial Conduct Authority.
There have been a number of other recent developments relating to IPSs. Since April 2014, the Company Director Disqualification Act 1986 now applies to IPSs. The Co-operative and Community Benefit Societies Act 2014 has also been enacted and will come into force on 1 August 2014. This Act consolidates the legislation relating to co-operative societies, community benefit societies and other IPSs with minor amendments. It is also worth noting that from 1 August 2014, all new societies registered will be known as co-operative societies or community benefit societies rather than IPSs.
Posted on 3rd June 2014 by
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