The Government has announced plans to publish new legislation for the co-operative sector in 2023 which seek in particular to modernise corporate governance, financial reporting and compliance requirements.

This reflects the approach adopted in the companies Act 2014 and is seen as key to enabling co-ops grow, develop and access external funding.

There is currently no specific legislation dealing with co-operatives in Ireland with most co-ops operating under legislation that dates back to the 1800s.

Key provisions

The legislation also includes provisions that make it easier to set up and operate a co-op by reducing the minimum number of founding members from seven to three.

It also expands the categories of founding members to include corporate entities. It provides for audit exemptions for smaller co-operatives.

It also provides for virtual and hybrid participation at general meetings which became key during the COVID-19 lockdowns. It aims to provide co-ops with flexibility to reflect in their rules what suits their particular circumstances.

Proposals welcomed

The Irish Co-Operative Organisation Society (ICOS) has been lobbying to update the existing governing legislation for many decades.

The current legislation, while adequate, is disjointed, lacks modern language or approach, and is probably a disincentive to the development of a modern co-operative sector according to TJ Flanagan, CEO of ICOS.

While broadly welcoming the proposed legislation, his organisation is disappointed that it will make the process of mergers more onerous.

According to Flanagan, “it looks like, in the case of mergers; we’ll need to have two special general meetings, the first with over 75% approval, and a second with over 50%.

“Heretofore, if you got 75% the first meeting, there was no need for a second meeting. If you got a majority, but less than 75%, you needed the confirmatory meeting.”

ICOS is also disappointed with the provision that the minimum number of members in a co-op can be as low as three.

ICOS Rules are all about democracy, control, electoral and decision-making systems. It’s hard to see how those would apply to three people, said Flanagan.

Clarity on directors’ duties

ICOS welcomes clarity on fiduciary duties, the actual legal duties of directors, codified, like they are in company law. It’s been difficult for co-op directors to be completely sure they are fully discharging their duties in the absence of legal clarity.

The extension of the mandate of the Corporate Enforcement Authority to co-ops provides clarity for co-op boards as well, and co-ops should have nothing to fear from it, Flanagan said.