The Mutuals’ Redeemable & Deferred Shares Bill 2014 was read for a first time today (June 5th) in the House of Lords.
A brief overview of why the Bill is needed and the solution it offers is set out below.
Currently, mutuals can only raise capital from retained earnings or borrowing and do not have the flexibility to raise additional funds from their members or other external sources, except in limited circumstances.
These restrictions can limit their capacity to adapt to new market conditions, develop new products, secure maximum investment in the business and to grow through acquisition.
Mutuals should be permitted to raise capital from existing and new members through new shares which this legislation would enable. Similar shares exist in other highly successful mutuals around the world, and have recently been created for UK building societies.
Mutuals may choose to offer the shares as a new option in the UK for both institutions and individuals who are seeking to diversify their investment portfolio.
Mutuals may in due course construct internal trading schemes for such shares to promote greater liquidity.
Redeemable and deferred shares would entitle the holder to:
- membership of the mutual
- one vote as a member, however many shares are held
- such level of interest as is payable under the rules
- repayment of the capital at par at the end of the term, or sooner if the society is wound up
The Mutuals’ Redeemable and Deferred Shares Bill would create a legal framework for these shares to be issued in all types of Industrial & Provident Societies, Friendly Societies and Mutual Insurers. The Bill will also provide powers to make regulations to deal with the detailed implementation of such schemes, subject to Parliamentary approval.
The Bill was introduced by Lord Naseby in the House of Lords and was read for the first time on 5 June 2014. We are seeking Government support to allow time for the Bill to progress through both Houses.
In summary, the Bill will:
- Create optional new classes of share through which specified mutuals can raise additional funds
- Provide defined rights to specified mutual society members
- Restrict the voting rights of certain members who hold only such shares, so that they cannot participate in any decisions to transfer, merge or dissolve the mutual