HM Treasury has backed a private members bill aimed at making it harder for co-operatives, mutuals and friendly societies to unpick their mutual status.
According to the Treasury, the bill tabled by Sir Mark Hendrick would grant it power to allow mutuals further flexibility in determining for themselves the best strategies for their business, relating to their surplus capital.
This, it added, will provide additional safeguards against demutualisation for the societies that choose to adopt the so-called “asset lock”.
The bill supports mutuals who wish to ensure their underlying assets, in many cases built up over centuries by members pooling their resources together for the greater good, are protected and the mutual model preserved into the future, HM Treasury said.
“By enabling an iron-clad guarantee in legislation for mutuals that wish to adopt these restrictions, the bill aims to make these asset locks harder to unpick,” it said.
“It provides additional safeguards against demutualisation – where a mutual becomes a company with shareholders, a process which can, in some cases, aim to capture the asset value of the mutual as a windfall.
“It will ensure mutual capital is maintained for the purpose it is intended; to provide goods and services to those who need them now and for future generations.”
Government also pointed out the bill has been drafted to ensure it has time to engage closely with the sector, regulators, and legal experts as the secondary legislation to give effect to the policy is developed.
It added it will allow the final design of the policy to take account of the existing rights and interests of consumers, particularly policyholders of financial mutuals, and to reflect the different types of business models in the sector.
The government revealed more broadly it is aiming to develop a “modern and supportive business environment” for mutuals and is exploring the options for reviewing key legislation underpinning the sector.
Last month LV= reiterated its commitment to own mutuality after shareholders rejected Bain Capital’s £530m bid to buy the insurer late last year – a deal which would have seen it lose its mutual status.
