Striking off by the F.C.A
Loss of Registered Society status under the Co-operative and Community Benefit Societies Act 2014 by a Society
Problems occur where the Financial Conduct Authority (FCA) cancels the Societies registration, cancellation of registration means that the corporate status and the limited liability of the Society ends but the Society itself may continue. It has the effect of converting a Registered Society into an unincorporated association, with the assets, transferring to its members by operation of law. This action by the FCA causes major problem for the Society, leaving it in limbo, neither dissolved or benefiting from corporate status and limited liability thereby exposing the individual Officers and members to legal action.
If a Registered Society wishes to be dissolved it may do so under either section 119 of the Co-operative and Community Benefit Societies Act 2014 by an instrument of dissolution, signed with the consent of three quarters of the members or under section 123 it may be wound up as a company in accordance with the procedures laid down by s. 1012 of the Companies Act 2016.
Effect of Cancellation of Registration
The FCA may de-register a Society as a result of a failure to file Annual Returns and pay the annual fees to the FCA. The cancellation of the Registered Society is published in the Gazette and the registration under the Co-operative and Community Benefit Society is cancelled. However, no steps are taken to dissolve the Registered Society under either the Co-operative and Community Benefit Societies Act 2014 or Companies At 2016. The cancellation of registration by the FCA takes place under s. 5 of the Co-operative and Community Benefit Societies Act 2014 (formally section 16 of the Industrial & Provident Society Act 1965). Section 5 does not state that the act of cancellation also dissolves the Society but rather:
(Sc6) As from the date of publication of the notice in the Gazette until the end of the period for which the society’s registration is suspended, the society is not entitled to any of the privileges of this Act as a registered society. This does not affect any liability incurred by the society (which may be enforced against it as if the suspension had not occurred).
In Hole v Garnsey [1930] AC 472 at 499 Lord Tomlin, speaking of a predecessor Act said :
“The registration of a society may be cancelled or suspended. Such cancellation or suspension does not destroy the society, but only deprives it of and relieves it from the privileges and obligations which follow from registration. It can continue its existence so long as it does not infringe the provisions of s. 1, sub-s. 2, of the Companies Consolidation Act, 1908.”
In Boyle & Others v Colins & Others [2004] EWHC 271, para 34 Lewison J concluded in respect of section 16 of the Industrial & Provident Society Act 1965 that:
“as from the date of cancellation of the registration the society (if it still exists) becomes an unincorporated association, to which the principle of spontaneous dissolution may apply. If the substratum of the corporation has ceased to exist before the cancellation, then the cancellation will terminate the existence of the corporation and there will be no putative successor unincorporated association. What I do not think is possible is for the corporation to cease to exist unless either it has been dissolved by one of the methods prescribed by the 1965 Act or its registration has been cancelled.”
The effect was further explained in the case of Sanderson & Others v Hi Peak Property Limited [2014] EWHC 4918 paras 12 & 13:
12… It is perhaps implicit in section 3 of the 1965 Act that cancellation of registration will take away from the society the things which section 3 states are the consequence of registration. So, on that basis the society ceases to be a body corporate, it ceases to be able to sue and be sued in the name of the body corporate, it ceases to have limited liability and the property ceases to be vested in the body corporate.
13 … So as section 3 itself impliedly suggests, the cancellation of registration means that the corporate status and the limited liability of the society goes but the society may continue.”
In Sanderson Morgan J goes on to explain that if the association continues as an unincorporated association, then the assets of the corporate body are held by the members of the unincorporated association.” If the association ceases to exist, the assets would be held by the members at the date of cancellation (if it ceased to exist before that date) or the date on which the association ceased to exist if that took place after cancellation. Circumstances in which an association will cease to exist would include dissolution in accordance of the rules of the association, by agreement by all members, by court order, where the association can no longer fulfil its purpose or membership drops below two members.
If no formal dissolution ever took place, the assets held by the Registered Society as a separate legal entity would, under normal circumstances have vested in the members of the Society as an unincorporated association.
Who exactly holds the assets will depend on whether at any point the unincorporated association ceased to exist. Furthermore, the rules of the Society will normally set out how any property is owned by its members. It will therefore be necessary to consider the circumstances in which the Society has continued to operate.
There is no specific requirement for the rules of an unincorporated association to be in writing, this may give rise to some concern as to whether there is evidence to establish that there has been sufficient continuity or whether the original Registered Society has ceased to exist and new association has arisen in its place. Care will also need to be taken in drafting a new constitution to prevent arguments being raised that this is a new association.
How are the assets now held and who specifically it is held by, will depend on the circumstances in which the Society has continued to operate? For example, the rules of the Society may consider that the assets are held by all members or held on trust by a select few. Provided the Society has continued to operate in the same manner since the cancellation of its status, there is a good chance that it can successfully argue that it continues to own all the previous Registered Societies assets.
SUMMARY
Cancellation of registration has the effect of converting the Registered Society into an unincorporated association, with the assets, transferring to its members by operation of law. The cancelation causes numerous problems for the Society: whether assets are held by all the members equally or by a number of trustees; it causes uncertainty as the primarily on the rules of the Society; corporate status and limited liability will be lost exposing the individual Officers and members to legal action.