New laws to replace pre-independence legislation could significantly benefit Irish co-operative societies and strengthen corporate governance within the sector, an Oireachtas committee has heard.
Following a public consultation last year, the Government published the heads of the Co-operative Societies Bill 2022 in November, aimed at modernising the legal framework within which co-ops operate, consolidating some of the existing legislation, much of which dates back to the Industrial and Provident Societies Act.
Although subsequently amended by various governments, that legislation was initially passed by the parliament of the United Kingdom of Great Britain and Ireland in 1893.
The Oireachtas Joint Committee on Enterprise, Trade and Employment heard that Irish co-op businesses generate some €9.7 billion in annual aggregate turnover, employing more than 11,000 people across the State, largely in agriculture.
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Among other things, the general scheme of the 2022 Bill provides for a reduction in the minimum number of people required to form a co-op from seven to three. It also proposes to introduce modern corporate governance and financial reporting standards for the sector and remove some of the restrictions around raising funds and investment.
Speaking on Wednesday at a meeting of the committee, which is conducting pre-legislative scrutiny of the draft Bill, chairman of Co-operative Housing Ireland Pearse O’Shiel said the “long-awaited” and “historic” legislation is “commendable” and safeguards “the essential democratic nature of co-operatives”.
However, he said the draft Bill does not include optional provisions for a statutory “asset lock”, a mechanism that would prevent the assets of a co-op business being sold off for private profit.
Mr O’Shiel said: “A co-operative assets lock would serve as a safeguard for stakeholders, ensuring that assets acquired through the co-operative remain within the community and cannot be sold for individual gain.”
Dr Bridget Carroll, a researcher at the Centre for Co-operative Studies at University College Cork, said an asset lock would ensure that “any retained surplus or residual value cannot be appropriated for private benefit of members”. It would also remove “the scope for members to make speculative capital gains resulting from the dissolution, disposal or conversion of the society into a company”.
The question of asset sales may arise, she said, because the legislation proposes to mandate co-op businesses to have a financial “legal reserve” in place to cover unexpected losses and other contingencies.
However, she said that the general scheme of the Bill “affords flexibility” to co-ops to determine how the reserve will be distributed if the business is eventually dissolved for any reason.
Paul Gavan, Sinn Féin’s Seanad spokesman for education and workers’ rights, expressed concern that the draft Bill does not provide workers’ co-operatives with a distinct legal designation. He asked the speakers whether they could “point to a country that has successfully developed a worker co-operative sector without having a legal definition of a worker co-operative”.
TJ Flanagan, chief executive of the Irish Co-operative Organisation Society (Icos), said that workers’ co-operatives often fail because of “brutal commercial reality” rather than their legal status.
He said that Icos had recently spent “quite a bit of time” investigating the gig economy to see whether it was possible to “bring people who are stuck in that economy together” within the structure of a workers’ co-operative.
“Our experience is I don’t think it was any flaw in the legislation that these things haven’t succeeded,” Mr Flanagan said. “I think it was just commerce.” However, he left open the possibility that “other tools” including tax incentives could be inserted into the scheme to help the sector develop further.
