No right is absolute in law and “right” may be subjected to conditionality.

1. The Co-op. Act has established the “right” to withdraw from a society a member share(s) at Section 17 with conditions at Regulations 40 (2) & (3). However, the League is exempt from Regulation 40 (3).
    

2. Sections 29(1-3) clearly established the right on which a society as a collective entity may own blocks of shares. However, the Act is silent on how those shares may be treated with. Therefore, the society can decide to make those shares that it hold permanent. By extension those permanent shares can be sold to members on conditions that they are not withdrawable.
    

3. There is a separation of “right” to withdraw as a member versus the “right” to full return of a member share(s). The return of a member share(s) is clearly subject to conditionality legally established by the Co-operative Regulations. Please see Regulations 10 & 12.
   
   Therefore, the right to withdraw as a member does not guarantee the right to full return of all shares. In fact, the Regulations make it clear that a society may regulate the manner in which funds may be raised by means of shares. Please see Section 52 (h) & Regulation 40 (1) (g).
    

4. While shares historically in Co-operatives have been perceived to be fluid, there is no established precedent or legal statute to prevent the raising of fixed shares under the Co-op. Act. It is a question of proposing provisions in a society’s rules for this to happen without prejudice to Section 30 of the Act. The “right” to withdraw as a member should not be confused with the “right” of withdrawal of shares. They are two different and separate “rights”. One is a guarantee with conditions, but the other is a guarantee without conditions.
   
   In the first instance a member of a co-operative is not “free” to purchase any amount of shares by way of the 20% restriction as Section 28 of the Co-op. Act. The Co-op. Act therefore does not allow absolute freedom to purchase, or withdrawals without conditionally, already pointed out above. In addition, the Co-op. Act limits this “freedom” by providing for a charge on share(s) for debts and other sums. Therefore, a member is “free” only to the extent of his “free shares”. Furthermore, this so-called “free shares” have lien by a society up to two years, as established by Section 30.
    

5. Shares in a co-operative are unlimited but fixed by quota per member. This does not mean that no portion of this unlimitedness shares cannot be non-withdrawable and owned by the society or a block of member’s legally. Specification in the law would help to provide clarity and regulatory guidelines, but is presently not contrary to the existing law.
    

Now, with the legal interpretation out of the way, let us then look at the following:-
 

Permanent Shares

“Permanent Shares”. This expression is not defined in the Co-operative Societies Act and Regulations, but is defined in the proposed Bank of Jamaica’s Regulations as “being shares paid up in cash and invested as risk capital, which form a permanent part of the capital of the Credit Union and are redeemable only upon transfer to another member”.

However, it is noted that the regulations are inadequate in this respect, as it does not provide for a share transfer fund to deal with resignation, expulsion or in the event of liquidation.

This type of “Subscribed Capital” has been facilitated by the Department through rule changes for a few Credit Unions. But before I forget, “Subscribed Capital” means shares relating to the permanent capital fund that members have contracted to purchase. Dividend is payable on fully paid up shares.

Deferred Shares

“Deferred share” means a share issued on terms that it shall not be withdrawable for a period; and that it may be interest bearing. It is important to note that in the realm of company law, a deferred share is treated a little different.

Once again there is no definition of deferred share in the Co-operative Societies Act and Regulations, but is defined in the BOJ’s Regulations.

Ordinary Shares

“Ordinary Share” means a share paid in cash that are withdrawable upon request in accordance with special conditions”

The Problems at hand Shares

As can be seen from the definition put forward in respect of ordinary shares, it is clear that these shares are withdrawable by law as outlined above. Historically, Co-operatives have classified members’ shares available for withdrawable as equity and the dividend paid on these shares as an appropriation of Undistributed Surplus. The New International Financial Reporting Standards require that the members’ shares available for withdrawal be classified as liabilities in accordance with substance rather than the legal form of the arrangement and that the dividends paid thereon be classified as an expense. Therefore, this has become a non-compliant issue facing the Department and a legal hurdle.

This is so, as it can result in the overstatement of equity, understatement of liabilities and as well as an overstatement of Net surplus.

Members would have no equity as owners

Members would not be paid a dividend, but rather an interest or a premium.

Extensive breaches of their maximum liability.

Diminished surplus as result of higher interest cost.

There would be breaches of the Act, Regulations and Rules.

Exposure of members’ shares to fair value assessment, when value is fixed by statute.

Forced undercapitalization of Credit Unions.

Honoraria

Honoraria will now be treated as an expense as required by IFRS. However, honoraria can be shown as an expense, but surplus is then shown before and after honoraria. This will circumvent, but satisfy IFRS requirement.