Out-Law News 2 min. read
31 Jul 2013, 3:22 pm
The Mutuals' Redeemable Shares Bill would, if enacted, provide the Government with the power to update existing laws in order to allow friendly societies or mutual insurers to make redeemable shares available for purchase by investors, subject to certain qualifying conditions.
Redeemable shares represent a stake in an organisation which those organisations can offer for sale on the understanding that they can buy them back after a period of time has elapsed or on a fixed date.
Under the terms of the Bill, only friendly society or mutual insurers authorised to issue redeemable shares by its "memorandum or rules" would be allowed to do so, and those organisations would only be permitted to redeem shares if "at the time of redemption, at least one issued share which is neither redeemable nor withdrawable".
The new regulations which would be able to be drawn up if the Bill is passed could permit friendly society or mutual insurer directors, or a committee within those organisations, to specify the precise "terms, conditions and manner of redemption of shares if they are authorised to do so". A new class of fixed-term shares will allow membership with one vote. Shares will reward holders with a rate of interest payable under the rules and a repayment of the capital at the end of the term.
The Bill has been proposed by Conservative peer Lord Naseby, a long-standing supporter of mutuals and is currently Vice Chair of the All Party Parliamentary Group for Mutuals and a former Chair of Tunbridge Wells Friendly Society. Pinsent Masons acted for Tunbridge Wells Friendly Society when it was sold to Forester Life earlier this year. The Bill has been drafted by mutuals campaigner Mutuo in response to a key recommendation from the Ownership Commission that was published last year and draws on similar legislation in Canada and the Netherlands.
Under the Bill, which had its first reading in the Lords on 22 July 2013, individuals who are only members of a friendly society or mutual insurer by virtue of the fact they hold redeemable shares will be unable to vote on a number of matters that could arise in relation to those organisations, such as on proposed mergers, the transferring of the organisation into a company or on the sale of business under insolvency law procedures.
"These are exciting proposals and they offer many of these organisations a solution to the difficult problem of how to adapt to new market conditions," expert in insurance law Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said. "If passed, these proposals will enable these societies and mutuals to secure new investment in their businesses and give them the ability to grow through acquisition."
Corporate law expert Martin Webster of Pinsent Masons added: "No doubt this Bill is motivated by the plight of the Co-op Bank which recently found itself short of capital and, as a mutual, had no shareholders who could be asked to stump up new cash. But it remains to be seen how new shareholders can be given the type of rights they might expect in return for their investment without diluting the traditional rights of the mutual's members. It is a difficult balance to strike and I wonder how much the potential conflicts have been thought through."
