Striking off by the F.C.A
Difficulties arise where the Financial Conduct Authority (FCA) cancels the registration of a society. Cancellation of registration results in the loss of the society’s corporate status and limited liability. However, cancellation of registration does not of itself dissolve the society, and the society may, depending on the circumstances, continue to exist.
The effect of cancellation is that the society ceases to enjoy the statutory privileges of registration. In practice, this may result in the society continuing to operate as an unincorporated association, potentially exposing officers and members to legal risk. This can place the society in a state of uncertainty, neither formally dissolved nor benefiting from corporate status and limited liability.
If a registered society wishes to be dissolved, it may do so either under section 119 of the Co-operative and Community Benefit Societies Act 2014 by means of an instrument of dissolution, signed with the consent of three-quarters of the members, or under section 123, by being wound up as a company in accordance with the procedures laid down by section 1012 of the Companies Act 2006.
The FCA may cancel a society’s registration as a result of, for example, a failure to file annual returns or to pay annual FCA fees. Notice of cancellation is published in the Gazette, and registration under the Co-operative and Community Benefit Societies Act 2014 is cancelled.
However, cancellation of registration does not involve any formal dissolution of the society under either the Co-operative and Community Benefit Societies Act 2014 or the Companies Act 2006. Cancellation takes place under section 5 of the 2014 Act (formerly section 16 of the Industrial and Provident Societies Act 1965).
Section 5 does not state that cancellation of registration dissolves the society. Instead, it provides:
(s.6)
“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, referring to a predecessor Act, stated:
“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.”
In Boyle & Others v Collins & Others [2004] EWHC 271, Lewison J concluded at paragraph 34, in relation to section 16 of the Industrial and Provident Societies 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.”
The effect of cancellation was further considered in Sanderson & Others v Hi Peak Property Ltd [2014] EWHC 4918 at paragraphs 12 and 13:
“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. 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.”
“So … the cancellation of registration means that the corporate status and the limited liability of the society goes, but the society may continue.”
Morgan J went on to explain that, where the association continues as an unincorporated association, the assets previously vested in the body corporate are held by the members of that unincorporated association. If the association ceases to exist, the assets will instead be held by those who were members at the relevant date, depending on when cessation occurred.
Circumstances in which an association may cease to exist include dissolution in accordance with its rules, agreement of all members, a court order, the inability of the association to fulfil its purpose, or a reduction in membership below two members.
Where no formal dissolution has taken place, assets previously held by the registered society as a separate legal entity will, in general terms, cease to be held by a body corporate and will instead be held in accordance with the principles applicable to unincorporated associations.
Who holds those assets, and on what basis, will depend on the continuity of the association, the existence and content of any rules, and whether the association can properly be regarded as having continued to exist following cancellation. The rules of the society will normally be relevant in determining whether assets are held by all members collectively or on trust by particular individuals.
There is no statutory requirement for the rules of an unincorporated association to be in writing. This may give rise to uncertainty where there is insufficient evidence of continuity or where it is unclear whether the original registered society has ceased to exist and a new association has arisen in its place. Care must therefore be taken when drafting any new constitution to avoid arguments that a new association has been created.
Provided the society has continued to operate in substantially the same manner following cancellation, there may be a reasonable basis for arguing that the association continues and that it holds the assets formerly vested in the registered society, albeit no longer as a body corporate.
Cancellation of registration by the FCA removes the corporate status and limited liability of a registered society. It does not automatically dissolve the society. Depending on the circumstances, the society may continue to exist as an unincorporated association.
The consequences of cancellation can be significant. Questions may arise as to how assets are held, whether by all members or by trustees; uncertainty may arise from the society’s rules; and the loss of corporate status may expose officers and members to potential legal risk. Each case will depend on its particular facts, and careful consideration should be given to the society’s history, rules and ongoing activities.