Statutory conversion routes provide a streamlined way to change legal structure.
Usually, changing from one legal structure to another involves 1) the incorporation of a new entity, 2) the contractual transfer of assets and activities from the old entity to the new entity using a transfer agreement, and 3) winding up the old entity. This can be an expensive process depending on complexity of the organisation's activities.
However, under sections 112 and 115 of the Co-operative and Community Benefit Societies Act 2014 (CCBSA 2014), it is possible to convert from a society to a company, and from a company to a society, using statutory conversion processes. These routes are available for both companies limited by guarantee and companies limited by shares. However, there are restrictions, including in relation to community benefit societies with a statutory asset lock.
The statutory conversion routes provide a streamlined way to change from one legal structure to another. If a statutory conversion route is used, the existing entity remains the same legal person, and there is no need to transfer property or assets over.
The High Court provided helpful clarity on this point, confirming the long-held view of many society practitioners, in the case of Mount Wellington Mine Ltd v Renewable Energy Co-operative Ltd [2021] EWHC 1486. In this dispute regarding a lease, the court considered whether a company which had converted into a society under the CCBSA had become a different legal entity. This was relevant as it determined whether the society was entitled to exercise its right under the lease, which had been granted when the entity was a company. The court held that the society was the same legal entity, and so was still party to the lease and able to exercise its rights. The conversion was merely a change of legal form.
It confirmed that the assets and liabilities remain with the entity when using a CCBSA 2014 conversion route. Therefore, if you opt to convert using those statutory conversion routes under the CCBSA 2014, you do not need a transfer agreement, conveyance or assignment to transfer property on a conversion. This includes both leasehold and freehold land held by the society.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
