2.9.1 Introduction

It is the duty of the board to act if a society becomes insolvent and is unable to discharge its debts when they fall due. If it fails to act and the society continues trading then it could be in danger of wrongful trading, and the directors could become personally liable for the debts of the society.

The Co-operative and Community Benefit Societies Act 2014 introduced major changes to how insolvency in a society can be addressed. However, it should be noted that much of what follows only applies to societies registered in England and Wales. Scotland has its own system of receivership and the 2014 Act does not apply to Northern Ireland. 

In 2014, new regulations (Statutory Instrument 2014, Number 229) gave societies facing insolvency most of the same options as those already available to companies. A society can enter into voluntary arrangement with creditors based on the company voluntary arrangements (CVA), or enter into administration, both of which are set out in the Insolvency Act 1986. Alternatively, it can enter into an arrangement with creditors based on Part 26 of the Companies Act 2006. These arrangements are not available to societies that are registered social landlords. And unlike companies, societies cannot enter into administrative receivership where the receiver is working for a secured creditor, not the creditors as a whole.

The FCA’s registration guidance provides detailed guidance on the arrangements for insolvency and dissolution of a society. This guidance is summarised in this section. However, any society embarking on this course of action should follow the FCA’s guidance on these matters, and not rely on the summary presented here.  

If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at communityshares@uk.coop