Draft Regulations for Community Interest Companies
Draft Regulations for Community Interest Companies (CICs)
Comments from ACCA
December 2004
ACCA is pleased to comment on the above consultation. ACCA is a professional accountancy body with over 100,000 qualified members based both in the UK and overseas. Many of our practising members in the UK have clients in the charity and non-profit-making sector and are likely to deal with CICs in due course. Our comments on the specific consultation questions are set out below.
Q1 Does draft reg4(e) achieve the stated aim in an appropriate way?
We understand the objective of the clause in question but suggest that, to make the provision workable, there needs to be a separate definition of, or a better presentation of what is intended by, the term �private gain'. If employees or members of a particular applicant body are to benefit from the activities of a CIC then they will be �gaining' from those activities; it may be argued that such gains are private since they will be made by those within the organisation. And if the CIC is set up to provide exactly those benefits, then its activities will be solely conducted for purposes of achieving those �gains'. If the intention is to preclude for authorisation purposes gains of a financial nature, or gains made by owner-managers of the CIC, then such intentions need to be made more explicit.
With regard to the other prohibition clauses in reg 4, we query whether there is a need to bar CICs from standing as candidate in any election. We also suggest that the political prohibitions should encompass only political parties: the proposal to refuse CIC authorisation to any body which plans to campaign in relation to government policy or referenda seems to be unreasonably restrictive.
In the introduction of reg 4, we suggest that the words �or a section of the community' need to be added to the existing text; otherwise those organisations precluded from qualification might argue that, though they are not benefiting the community as a whole they are benefiting a section of it.
Q2 Does draft reg 21 allow an appropriate level of intervention by the Regulator to protect the residual assets of a CIC?
With regard to the Regulator's role where the CIC has not made an appropriate nomination, it appears to us that he will have a considerable responsibility to intervene in the decision as to the destination of the wound up CIC's assets, a responsibility which we suspect the Regulator would prefer to be curtailed. Under reg 21(6) the Regulator is required to consult with the directors and members of the former CIC as to their wishes, unless he thinks it impracticable or inappropriate to do so. We suspect the Regulator will often consider it to be impracticable to consult with the former CIC's members at least. Further, we suspect that the Regulator will wish to exercise his powers of discretion as rarely as possible. We would therefore recommend that the nomination of one or more bodies to receive a CIC's surplus assets should be one of the formation conditions. Any changes to the CIC's wishes should be notified to the Regulator in the CIC's annual return. In those situations where the Regulator considers that the nominated body is inappropriate, we suggest that there should be an obligation to consult only with the former CIC's directors, though he should have the option, where he feels it appropriate, to consult also with its members.
Q3 Should the Regulations allow �index linking' of investor shares such that the value of the share could be adjusted to compensate for the effect of inflation?
We support the proposal in the regulations to allow shareholders to expect no more than the paid up value of their shares. To offer investors the opportunity to index link their claims would seem to be contrary to the spirit of the new legislation.
Q4 Do paragraphs 5 and 6 of Schedule 3 to the draft Regulations restrict the ability of investor shareholders to control CICs in an appropriate way?
It seems to us excessive to seek to control the influence of investor shareholders by regulating the quorum at a general meeting, since attendance and voting behaviour might not be the same thing. It would be more effective and straightforward to regulate the voting majorities required for resolutions to succeed. The simplest approach of all would be to deny investor shareholders the right to vote at all. An alternative possibility would be to provide in the regulations that each vote cast by a non-investor shareholder is to be deemed for voting purposes to be worth three times the value of each vote cast by an investor shareholder. The standard simple and special majorities could then proceed to be calculated on that basis.
On a point of detail with regard to the definition of �asset locked bodies', both Schedules 2 and 3 refer to �bodies established in a state other than the UK'. If these references are intended to be to a member state of the EU, then this should be clarified.