2.9.5 Winding-up and dissolution
A society can be wound-up under the Insolvency Act 1986 if it is insolvent, or by way of an Instrument of Dissolution, if it is still solvent. Member share capital is fully at risk, and any share capital belonging to a member will only be realisable after all other creditors of the society have been repaid in full.
If a society is insolvent, it will be wound up under the Insolvency Act 1986, subject to any other administrative procedures (see Section 2.9.4). Members will lose their share capital, but, under normal circumstances, will not be liable to contribute towards the debts of the society. However, under Section 124 Co-operative and Community Benefit Societies Act 2014, members who have withdrawn share capital up to one year before the date of the insolvency remain liable for the debts of the society, up to the value of the share capital they have withdrawn, if the existing members’ share capital is insufficient to cover these debts. This places a duty on societies to suspend all withdrawals of share capital if and when it is known to be insolvent.
If a society is solvent and is up to date in making its annual returns, it can apply to the FCA for an instrument of dissolution to terminate its registration as a society. The instrument is a document setting out the assets and liabilities of the society, the number of members of the society and the nature of their interests in the society, all claims by creditors and the provisions to meet these claims, and proposals for the disposal of any residual assets in the manner prescribed by the society’s registered rules. A resolution based on the instrument of dissolution must be supported by at least three-quarters of the members at a general meeting of the society. If the society is dormant, it must be approved by a special resolution passed at two general meetings, the first meeting with a two-thirds majority vote, and the second meeting by a simple majority vote, held between 14 days and one month later. An instrument of dissolution has to be advertised by the FCA in the London or Edinburgh Gazette, as well as a newspaper which is local to the society, giving the public three months’ notice of the society’s dissolution and the right of creditors to ask a court to set aside the dissolution. A society with residual assets of less than £1,000 can request to cancel its registration. This does not require the consent of members or a special resolution, but can be subject to a legal challenge.
The final step in the dissolution process is for the society to submit a Section 126 certificate to the FCA after the three month notice period has lapsed, certifying that all the property vested in the society has now been transferred to the persons entitled to it.
Charitable community benefit societies registered with the Scottish Charity Regulator will also have to seek their consent before winding up or dissolving. This is required under section 16 of the Charities and Trustee Investment (Scotland) Act 2005 and they must seek consent at least 42 days in advance of the proposed date of dissolution. Further information can be found at www.oscr.org.uk/media/1589/dissolving-your-charity.pdf .
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