HL Deb 08 July 1968 vol 294 cc775-88

8.36 p.m.

LORD PEDDLE

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Peddle.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD CHAMPION in the Chair.]

Clauses 1 to 11 agreed to.

Clause 12 [Consequential amendments of rules by societies]:

LORD PEDDIE

I will explain Amendments Nos. 1 and 2 together. They refer to a subsection which deals with a once-for-all period, so that the definite article is more appropriate than the indefinite one. That is the sole justification for these two Amendments. I beg to move.

Amendment moved— Page 13, line 30, leave out ("a") and insert ("the").—(Lord Peddle.)

On Question, Amendment agreed to.

LORD PEDDIE

I beg to move the next Amendment.

Amendment moved— Page 13, line 32, leave out ("a") and insert ("the").—(Lord Peddle.)

On Question, Amendment agreed to.

Clause 12, as amended, agreed to.

Clauses 13 and 14 agreed to.

Clause 15 [Meaning of "subsidiary"]:

8.38 p.m.

LORD DRUMALBYN moved, in subsection (5), after the second "if", to insert: the first-mentioned society transacts at least one half in value of its business with that other society or the members of that other society, and".

The noble Lord said: I beg to move the Amendment standing in the name of my noble friend and myself and suggest that we should take No. 4 at the same time. I had intended to go into the merits of these Amendments in some detail but, owing to the late hour and to the limited number of noble Lords present, this will probably be unnecessary. Your Lordships will be aware from Second Reading and subsequent proceedings that this matter has already been ventilated.

We are dealing with Amendments drafted by the Co-operative Insurance Society. I am now informed that owing to changes in the composition of the Committee of the Co-operative Insurance Society a majority of the Committee does not wish these Amendments to be pressed since, I understand, they are satisfied with the discussions and correspondence they have had on the subject with the Chief Registrar. There remains the minority who took a different view and as we are always jealous in Parliament of protecting the rights of minorities, I would have gone into this in more detail but for the present circumstances.

The core of this matter is simply that the Co-operative Insurance Society did not wish to be treated for the purposes of this Bill, or indeed of any Act, as a subsidiary of its members, or, in particular, a subsidiary of the Co-operative Wholesale Society, which holds four-fifths of the shareholding, the comparatively small amount of £52,500, in this very large enterprise, the Co-operative Insurance Society, which has assets of £450 million and over. They took this view because they hold that the Co-operative Insurance Society is not comparable with a company, and therefore that the criteria for a company to be a subsidiary—namely, membership and control—do not apply to the Co-operative Insurance Society, on the ground that the Co-operative Insurance Society is really independent. They put it in this way in the circular that they issued on June 6: A company operates for the benefit of its ordinary shareholders, who are entitled to its disposable profits in proportion to the size of their shareholdings and control of its assets. The position in a co-operative society is quite different. The basis of the co-operative philosophy and trading on which the whole of the Industrial and Provident Societies' legislation is founded is that a society should operate its business for the benefit of those making use of facilities it provides. It must pay no more than a strictly limited rate of interest on share capital and its disposable surplus should be returned to those making use of its facilities not to its shareholders as such. And then it goes on: It is therefore a contradiction in terms to describe an Industrial and Provident Society as a subsidiary of another society even if the latter owns sufficient shares to give it majority voting power. The term 'subsidiary can only be properly applied to a proprietary organisation in which the shareholders are the proprietors. To apply the term 'subsidiary' to an I. and P. Society is to undermine the basic cooperative principle that an I. and P. Society cannot be a proprietary organisation and must be operated in the interests of the persons using the facilities of the Society regardless of how the shares are held. To some extent, in this Bill which deals primarily with accounts and also quin-quennial valuations—these are the principal subjects—it is possibly a rather academic matter in view of the discussions to which I have already referred and the assurances that have so far been given.

The points at issue are simple enough. The first is: Does the fact that the Co-operative Wholesale Society control the management of the Co-operative Insurance Society mean that they control the assets? It has been established, I think, with reasonable certainty, that so far as the assets are concerned, except in the event of a winding-up, the assets are not available to the Co-operative Wholesale Society; they are to be used for the purposes of the policy holders. The Co-operative Insurance Society, I believe, have asked for an assurance in writing that the Co-operative Wholesale Society have no intention of winding up the Co-operative Insurance Society, nor any intention of manipulating the assets of the Co-operative Insurance Society in any way other than just to receive the fixed dividend, which they have themselves fixed in accordance with the constitution of the Co-operative Insurance Society.

The second point on which they have asked for an assurance is that the Cooperative Wholesale Society will avail themselves of Clause 14(2)(b), and not include this subsidiary, the Co-operative Insurance Society, in their accounts on the ground that the result would be: misleading, or harmful to the business of the Society or any of its subsidiaries"; or, indeed, on the ground of paragraph (c) of that subsection, that the business of the Society and that of the subsidiary are so different that they cannot reasonably be treated as a single undertaking.

The difficulty that arose here arose from the way in which the Co-operative Wholesale Society referred to their subsidiary, the Co-operative Insurance Society, in their accounts for the past year. It was feared by the Co-operative Insurance Society that the way in which this was done would reflect upon the position of independence of the Co-operative Insurance Society in the management of their affairs, and might prejudice the, business of the Society, and indeed the interests of their policy holders. They have, therefore, also sought an assurance: as to the way in which this reference would be carried in any accounts made in future under this Bill.

I do not know what the noble Lord can tell us about this to-night, but I do not think there has yet been time for the Co-operative Wholesale Society to reply to the invitation for written assurances. But in view of the fact that the assurances have been obtained verbally I do not propose to press these Amendments to-night. It is a matter of judgment, of course, as to whether in defining a subsidiary for the purposes of co-operative societies it should be defined in the same way as a company. I think it is very doubtful.

I should have preferred that the matter had been put beyond all doubt by finding a definition of a "subsidiary" for the purposes of a co-operative society similar to the Amendment that I have put down, if not in exactly those terms: because under my Amendment the present clause reads as follows: For the purposes of this Act, an industrial and provident society shall be deemed to be a subsidiary of another society if, but only if, the first-mentioned society transacts at least one half in value of its business with that other society or the members of that other society, and (a) is a member of the first-mentioned society and controls the composition of its committee; or"— and this is not particularly relevant— (b) can exercise a majority of the votes to which members of the first-mentioned society are entitled under its rules. Then it would continue, with Amendment No. 4: For the purposes of this subsection, the first-mentioned Society shall be deemed to transact at least one half in value of its business with that other society or the members of that other society, unless the Chief Registrar is satisfied that this is not the case. The effect of this would, of course, have been to exclude the Co-operative Insurance Society, and probably no other co-operative society, because the Co-operative Insurance Society transacts very much less than half the value of its business with the Co-operative Wholesale Society or its members. So it would have been excluded automatically, and this would probably have been desirable, in view of the special position of an insurance society. After all, the Cooperative Insurance Society is in effect a mutual insurance society except for the fact that there is a shareholding held by the Co-operative Wholesale Society through which they are able to control the management of the Cooperative Insurance Society. But I take it that it would be open to the Co-operative Insurance Society at any time to do what other insurance companies have done; namely, to turn themselves completely into an independent co-operative insurance society, or, for that matter, into a mutual insurance company where the control would not lie with anybody else but would lie with the policy holders.

However, that is not a matter that we are discussing this evening. The matter is a very much mere restricted one. It is purely and simply whether we should have a definition of a subsidiary so far as the Co-operative Society is concerned, which will exclude the Co-operative Insurance Society, or whether we should leave the words in the clause as they are. In view of the fact that the Co-operative Insurance Society itself seems to have received verbal assurances that are satis factory to it, and is only awaiting the written assurances, I do not intend to press this Amendment, but I thought it was as well that the matter should have been ventilated. I beg to move.

Amendment moved— Page 16, line 43, after second ("if") insert the said words.—(Lord Drumalbyn.)

8.53 p.m.

LORD PEDDIE

In moving this Amendment, the noble Lord stated that in view of the lateness of the hour he would curtail the range of his argument in support of the Amendment, but he has made a number of statements which I think justify some reply. He has quoted extensively from the documentation circulated by the C.I.S. to Members of this House some time ago, but I would remind the Committee—

LORD DRUMALBYN

Would the noble Lord allow me to interrupt for one moment? I did not actually quote from the document addressed to this House; I quoted from the Press release which came, he will remember, on the 6th of the month, whereas the other document was issued, I think, on the 14th.

LORD PEDDIE

That, of course, supplemented the original document and dealt with it in even greater detail. So I think it is necessary that a detailed reply should be given, because this is a matter that has aroused a considerable amount of interest and attention in the Co-operative Movement.

This Bill is quite innocuous, calculated to do some good to co-operative and friendly societies, and it has been discussed between the Registrar and representatives of the leading co-operative organisations and the friendly societies for three years. There is complete agreement and no objection at all to this Bill. In his Amendment, the noble Lord introduces an entirely new element in the definition of a subsidiary. I can assure the Committee that after full and detailed consideration of all aspects of this point by the C.I.S., the objection of the C.I.S. Board has been withdrawn. As the noble Lord has stated, Clause 13 provides for group accounts where societies are registered under the Acts and have as their subsidiaries other societies or companies, and Clause 15 defines subsidiary. I know that a co-operative society is not a company, but where a company is a subsidiary under this Bill the clause applies the test laid down in Section 154 of the Companies Act 1948; namely, the control of the board of directors, or the majority holding of equity share capital.

When we come to a co-operative society the situation is a little different because there is no equity share capital. But the same basic principle is employed in determining whether one industrial and provident society is a subsidiary of another. The test is the exercise of voting powers, and subsection (5) applies two tests as to whether one society is the subsidiary of another: the control of the committee of management, and the control of votes. Both are tests of the power of one society to control the management of the other, and the subsidiaries are defined by reference to that power. It is important that the Committee should realise that in this Amendment an entirely new element and new test is being introduced as to whether or not one is a subsidiary of the other. In this particular case—and I would urge this upon the noble Lord, Lord Drumalbyn—it is to be based upon a judgment of the circumstances of a particular society's business. Accordingly, this Amendment would enable one society to approach the Registrar if it does not conduct at least one half in value (and I emphasise that) of its business with the society, or members of the society of which it would otherwise be a subsidiary. In so doing it would cease to fall within the definition of a subsidiary, in spite of the fact that control of management rests with the other society.

This Amendment stems from attempts of the C.I.S. to devise a formula to avoid falling within the definition of a subsidiary. Nevertheless the rules of the C.I.S. empower the C.W.S. to appoint eight out of ten of the directors and to exercise four-fifths of the members' votes. Thus clearly the C.I.S. comes within the definition of subsidiary on both present tests.

I should like to emphasise to the Committee and to place on record that these Amendments are wholly unnecessary and would indeed create serious complications. The Bill already, in Clause 14(2), provides for exemption from the requirement of group accounts if the result is misleading or harmful, or the two businesses are so different that they cannot be treated as a single undertaking.

The noble Lord asked me to make a positive statement in regard to this. I can, and I will. The C.W.S., as the parent organisation, recognised that the two classes of business were so different that they could not be regarded as a single undertaking. Therefore there is no suggestion of the incorporation of the accounts of the C.I.S. into those of the C.W.S., and assurances have already been given. I might also point out that even in spite of that there is within the Bill a clear indication of the necessary for accounts to be presented in such a way that they must avoid anything misleading that may result from the consolidation of accounts. Therefore I suggest that the exemption provided by Clause 14(2)(c) would enable independent accounts as before.

It was suggested also by the noble Lord, Lord Drumalbyn, that it might be considered wrong to apply the present test to societies run on co-operative principles, but as a matter of fact there are several co-operative societies which control other co-operative societies. In most cases where such control exists, the relationship is such as to justify group accounts covering the affairs of both societies. I might refer to co-operative chemist societies, of which there are about 75 in Britain, and the Co-operative Tea Society, which is a big national society, is a further example. The present test in the Bill looks simply at the power of control and defines subsidiaries by reference to that power. I would also make quite clear that this Bill simply acknowledges a situation which has long existed. The relationship between the C.I S. and the C.W.S. has existed for many years and nothing in this Bill will alter that relationship.

I suggest also that the Amendment would complicate and distort the accepted meaning of "subsidiary". It would also create very serious practical difficulties. I am quite sure the noble Lord, Lord Drumalbyn, has not appreciated the difficulties that could arise in this practical form. The first arises from the use of his word "value" in referring to the business of the society. Depending on the nature of the society's business, "value" may vary according to the way it is approached. It might be simple for the C.I.S. to establish "value", actuarily or otherwise, but societies carrying on mixed business, agriculture societies or others which supply services as well as goods, could find difficulty in deciding which yardstick to apply. Is the value of the services the cost to the member or the profit to the society, or the actual value to the member, which may be considerably in excess of any of these figures? The Amendment gives no guidance at all on how to determine value.

There is a further really serious difficulty. We must not relate this Amendment solely to the C.I.S.: it would apply to all societies that could be considered subsidiaries within the definition, and the difficulty would arise that they would have the problem of establishing the status of persons with whom they do business. The Amendment would require that an inquiry be made of every customer as to his membership of another society. With the C.I.S. again this would present no difficulty, but the majority of co-operatives deal with individuals who do their trade across the counter, and there would be considerable difficulty. And it is quite clear that this Amendment, which arose out of the original attitude of the C.I.S. and met the needs of the C.I.S., takes no account of the position of other societies.

I must wind up by pointing out another serious difficulty. The use of the word "subsidiary" is not confined to Clause 15. Clause 8 of the Bill prohibits any officer of a society from acting as the auditor of a subsidiary under the present definition of subsidiary as in Clause 15. So that it follows that an officer of a society which controls another cannot act as the auditor of that other, and that is quite clearly a desirable restriction. The Amendment would cut across this and enable an officer of the C.W.S. to audit the accounts of the C.I.S. notwithstanding the element of control involved. Therefore I feel that on a rational consideration of the full impact of these Amendments there is really no justification for them at all. But I am glad that the noble Lord, Lord Drumalbyn, has no intention of pursing this matter. I welcome the opportunity of clarifying a situation which has been something of a problem over the past few days.

LORD DRUMALBYN

I am grateful to the noble Lord for his response to this Amendment. He perhaps went into a little more detail than necessary, even to reply to my Amendments, but I do not complain about that in the slightest. He says that this Amendment would introduce an entirely new test of what a subsidiary is, but one has to have regard to the words here. In any case, this is only a definition of "subsidiary" for the purposes of this Bill, to decide how accounts are to be grouped and in what circumstances they are to be grouped by the parent company. So I do not think that would be a serious objection at all.

I did not myself go into the other kinds of co-operative society, and of course there would not be any difficulty at all as far as the Co-operative Tea Society is concerned. In each case it would be a matter for the subsidiary to make their case to the Registrar if they wanted not to be counted as a subsidiary, and it would be a matter for the Registrar to be satisfied, and he could decide for himself how he would treat "value" for this purpose. My information is, and I may be right or not, that in most cases there would not be a very great deal of difficulty. I say that, however, merely in defence of the Co-operative Insurance Society, who, I am sure, did not think of this definition lightly and went into it with some care; they must be presumed to know quite a lot about the co-operative movement, and I do not think they would have put this down if it was going to be so very difficult to operate. I think we are probably now at one on this. I need not pursue the Amendment further, and, thanking the noble Lord, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 15 agreed to.

Clauses 16 to 21 agreed to.

LORD PEDDIE moved, after Clause 21, to insert the following new clause

Channel Islands and Isle of Man

"—(1) Her Majesty may by Order in Council provide—

  1. (a) that all or any of the provisions of this Act shall extend to any of the Channel Islands, or
    2. 785
  2. (b) that all or any of the provisions of this Act, in so far as those provisions relate to societies registered under the Act of 1896, shall extend to the Isle of Man,
with in either case such exceptions, adaptations and modifications (if any) as may be specified in the Order.

(2) Any Order in Council made under this section may be varied or revoked by a subsequent Order in Council so made.

(3) Any Order in Council revoking an Order in Council made under this section may contain such transitional or other incidental or supplemental provisions as appear to Her Majesty to be necessary or expedient in consequence of the revocation."

The noble Lord said: This is quite a simple Amendment. The present Bill does not extend to the Channel Islands or the Isle of Man, and the purpose of this clause is to bring the Bill into line with the principal Act so far as the Dependencies are concerned. The clause provides for an extension by Order in Council, rather than the direct application to be found in the principal Act, and this change is due to the constitutional relationship between the United Kingdom and the Islands which requires that the application of United Kingdom legislation is made only in agreement with the island Governments. Consultations between the two parties have only just been completed, which is the reason why the clause did not appear in the Bill when originally introduced. I beg to move.

Amendment moved— After Clause 21, insert the said new clause. —(Lord Peddle.)

On Question, Amendment agreed to.

Clause 22 agreed to.

Schedule 1 [Minor and consequential amendments]:

LORD PEDDIE

With your Lordships' permission I would speak to Amendments 6, 7 and 8 in Schedule 1. These Amendments revise the wording of certain provisions of the Friendly Societies Act 1896 and the Industrial and Provident Societies Act 1965. They are simply consequential upon the provisions of the Bill abolishing approved auditors and providing for the valuation of part or parts of the business carried on by a society. I beg to move.

Amendment moved— Page 24, line 5, leave out from ("of") to ("balance") in line 7 and insert ("copy of last balance sheet and valuation report at registered office)—

  1. (a) for the words 'of the last quinquennial valuation' there shall be substituted the words a copy of the last report under section 28 of this Act on the condition of the society or branch or, where a report or reports are required under that section in respect of a particular business or particular businesses conducted by the society or branch, a copy of the last report under that section in respect of that business or in respect of each of those businesses, as the case may require'; and
  2. (b) for the words 'any special report of the auditors' there shall be substituted the words 'the report of the auditors or the'"). —(Lord Peddie.)

On Question, Amendment agreed to.

LORD PEDDIE

I beg to move.

Amendment moved—

Page 24, line 39, at end insert— ("In Schedule 1, in paragraph 11 (rules of certain societies registered under the Act to provide for valuations of assets and liabilities), for the words from 'a valuation' to the end of the paragraph, there shall he substituted the words 'such periodic valuation or valuations (if any) of the assets and I abilities of the society as a whole, or of the assets and liabilities of the society in respect of any particular business or businesses conducted by the society, as may from time to time he required by law in the case of that society '.")— (Lord Peddle.)

On Question, Amendment agreed to.

LORD PEDDIE

I beg to move.

Amendment moved—

Page 25, line 28, at end insert— ("In Schedule 1, in paragraph 10 (rules of societies to provide for audit of accounts), for the words 'approved auditors' there shall be substituted the words auditors appointed by the society in accordance with the requirements of the Friendly and Industrial and Provident Societies Act 1968'.").—(Lord Peddle.)

On Question, Amendment agreed to.

Schedule 1, as amended, agreed to.

Schedule 2 [Repeals]:

LORD PEDDIE

This Amendment is to provide consistency with Clause 16 of the Bill. It disposes of the need for Treasury approval. Clause 16(3), allows the Chief Registrar to dispense with the valuation in respect of any particular business conducted by a society. Treasury approval is not needed for the exercising of this power and the Amendment, by deleting the requirement that Treasury approval be obtained, brings Section 28(5) of the Friendly Societies Act 1896 into line with Clause 16. This is, in point of fact, a Treasury Amendment—at least, the Treasury have agreed to the Amendment and I am given to understand they did, in fact, suggest it.

Amendment moved— Page 25, line 41, leave out ("and subsection (3)") and insert ("subsection (3), and the words 'with the approval of the Treasury' in subsection (5).").—(Lord Peddie.)

On Question, Amendment agreed to.

LORD PEDDIE

Again with your Lordships' permission, I would take Nos. 10 and 11 together. They are simple Amendments. In view of the abolition of the approved auditor, these are simply consequential Amendments to the principal Act. I beg to move.

Amendment moved—

Page 25, line 42, at end insert— ("In section 80(1) the word 'approved'.").— (Lord Peddle.)

On Question, Amendment agreed to.

LORD PEDDIE

I beg to move.

Amendment moved—

Page 26, line 4, at end insert— ("In section 72(2) the words 'or approved auditor'.".—(Lord Peddle.)

On Question, Amendment agreed to.

Schedule 2, as amended, agreed to.

Schedule 3 [Transitional provisions]:

LORD PEDDIE

Again with your Lordships' permission, I beg to move Amendments 12 and 13 together. These Amendments delay the effect of the repeal of the words "approved auditor" in Section 100 of the 1896 Act and Section 72(c) of the I. and P. Act, 1965. This is to cater for the transitional period when the approved auditor will be passing out of existence. I beg to move.

Amendment moved—

Page 26, leave out lines 26 to 31 and insert ("in respect of any year of account, nothing in section 20(1) of this Act shall affect the operation—

  1. (a) of section 100 of the Act of 1896, in the case of a society registered under that Act, or
  2. (b) of section 72(2) of the Act of 1965, in the case of a society registered under that Act,
in relation to documents purporting to be signed by the approved auditor to whom the accounts of that society for that year of account are submitted for audit under section 26(1) of the Act of 1896 or under section 37(1) of the Act of 1965, as the case may be.").—(Lord Peddle.)

On Question, Amendment agreed to.

LORD PEDDIE

I beg to move Amendment No. 13.

Amendment moved— Page 26, line 37, after ("1896") insert ("or section 72(2) of the Act of 1965.").—(Lord Peddle.)

On Question, Amendment agreed to.

Remaining Schedule, as amended, agreed to.

House resumed: Bill reported, with Amendments.