Second Reading of the Co-Operative Societies (Amendment) Bill

CO-OPERATIVE SOCIETIES (AMENDMENT) BILL 2024

Mdm Deputy Speaker, on behalf of the Minister for Culture, Community and Youth, I beg to move, "That the Bill be now read a Second time."

Cooperative societies, or "co-ops" for short, are member-owned businesses that serve a social purpose. They operate on the principles of self-help and mutual assistance and are formed when individuals come together to address their common economic or social needs, or the needs identified in the community. We have a total of 79 registered co-ops today, broadly categorised as credit co-ops and non-credit co-ops.

Credit co-ops promote savings and grant loans to their members who generally share a common bond. Members typically come from the same workplace, the same industry, or the same community. There are 22 credit co-ops serving 130,000 members. As of 31 March 2023, members' deposits in credit co-ops amounted to $823 million, and loans to members amounted to $206 million.

There are also 57 non-credit co-ops that operate in various sectors from retail to social services. The public may be more familiar with NTUC-affiliated co-ops that moderate the costs of essential goods and services. These co-ops have become household names. An example is the NTUC Fairprice Co-op. However, there are many other smaller and less known co-ops that serve their members in their own respective ways.

Our co-ops help strengthen the social fabric of our nation. Co-ops are one of the earliest forms of community self-help organisations. With a history of almost a hundred years, our co-op sector has continued to evolve and adapt to society's changing needs. For example, co-ops today enhance their programmes to care for and serve the vulnerable within our community or seniors in need. One such co-op is the Employment for Persons with Intellectual Disability Co-op, or E4PID for short. E4PID aims to establish and operate social enterprises that employ persons with intellectual disabilities. Another is the Silver Horizon Travel Co-op, which encourages active living and building friendships through customised travel programmes for seniors.

At the Ministry of Culture, Community and Youth (MCCY), we continue to see co-ops' inherent value in building social capital and a more caring and cohesive society.

The Co-operative Societies Act was last amended in 2018, to meet three key objectives: first, to strengthen the competency and governance capabilities of co-op officers; second, to enhance regulatory powers to enable swift intervention in distressed or errant co-ops; and third, to update regulatory requirements to better support co-ops' operations and development.

Following the Act amendments, subsidiary legislation was made in 2019 to prescribe a competency framework for key officers of credit co-ops. Our primary focus was on credit co-ops given their fiduciary responsibility for members' deposits. Persons taking up specified roles such as Chief Executive Officer and Chief Financial Officer must have relevant work experience and educational qualifications – this is to ensure that they are suitably qualified. The requirements took effect immediately for new hires. Existing officers who did not meet the requirements were given a transition period to upgrade their skills and were supported with grants to do so. To date, most affected officers have met the competency and training requirements.

The Registry of Co-operative Societies (RCS) had also worked with the co-op industry body, the Singapore National Co-operative Federation (SNCF) to design a Mandatory Induction Course that all members of the Committee of Management (COM) and key officers of a co-op must attend. This training ensures a baseline understanding of regulatory requirements as well as best practices for good governance. 502 co-op officers have attended the course since its inception in January 2017. MCCY continually reviews our policies to ensure they remain relevant and effective for our co-op sector. We receive feedback from the sector on the many challenges that they face and then we assess if and how we may update our regulations to address concerns raised. We have prioritised some of the more pressing concerns and seek to address them in this particular set of amendments.

Let me move now to the proposed amendments.

The Bill before the House aims to address three key objectives: first, to facilitate co-op operations so they can better serve members' interests; second, to provide greater clarity on specific legislative provisions; and third, to make technical amendments to update the Act in accordance with current practices.

Let me begin with the first objective of facilitating co-op operations. One amendment within this category addresses feedback we received in relation to co-ops' distribution of dividends from reserves.

Under the existing Act, a co-op may only declare dividends from the preceding year's surplus. If a co-op incurs a loss or makes lower profits in a financial year, members will either receive no dividends or lower dividends, even if the co-op has reserves and is financially robust. Hence, co-ops requested for flexibility to use their reserves in such circumstances.

Co-ops are generally advised to be prudent and to preserve their reserves so that they can meet their business needs, act as a buffer against unanticipated losses, and to ensure their long-term viability. However, we note that through their prudent practices over the years, many co-ops have accumulated healthy reserves. Hence, we propose to give co-ops some flexibility to tap their reserves to pay dividends to their members. We acknowledge that dividends are a key benefit for co-op members and are akin to interest on savings in the case of credit co-ops. Similarly, we will give co-ops some flexibility to use their reserves to pay honoraria to their COM. We think that a co-op should be allowed to compensate its COM members for their contributions and services, despite incurring some losses or earning lower profits in a particular financial year, if it is financially strong and has been dutifully building its reserves.

The use of reserves for the payment of dividends or honoraria will be subject to the Registrar's approval. This acts as a safeguard to ensure that co-ops use their reserves prudently. The Registrar will, for example, assess if the dividend and honoraria rates proposed are reasonable. Co-ops must demonstrate that they continue to maintain sufficient capital buffer and healthy reserves for their long-term viability. Credit co-ops must also meet the minimum capital adequacy ratio (CAR), after the payments are made. The Registrar may, in addition, consider past compliance track records to ensure that the co-ops are well-governed to manage their reserves and in the case of credit co-ops, that they meet all prudential requirements.

The amendments will also expand the functions of co-ops' Annual General Meeting (AGM) to include considering and resolving the use of reserves for dividends and honoraria. While the payment of any allowance, honoraria or other benefit to the COM is already subject to members' approval at a general meeting, we are amending the Act to expressly state that it is a function of the AGM to consider and resolve such payments. These changes aim to promote co-ops' accountability and transparency to their members.

The Act currently allows a COM member to receive an honoraria or allowance, but not both. This may create a challenge for co-ops who wish to pay their COM members an honoraria, as well as incidental allowances in the form of, for example, a "transport allowance". We, thus, propose to remove this restriction. The principle remains that an individual should not be remunerated twice for the same role. However, the amendments will give co-ops more operational flexibility in designing benefits packages for their COM and their members.

Another amendment to facilitate co-ops' operations, is to remove the requirement to obtain the Registrar's approval for issuance of bonds and debentures. Issuance of bonds and debentures to raise capital is, ultimately, a business decision for a co-op's management and members to make, provided that its by-laws permit such issuance. A co-op will be expected to comply with the law and its by-laws in doing so. Should a co-op be found to have acted irresponsibly to the detriment of itself and its members, the Registrar may separately review and exercise his or her powers under the Act, to take appropriate action.

Under the current Act, there are moratorium periods during which a member holding a bonus certificate or bonus share in a co-op cannot realise its value. Historically, these moratorium periods were put in place to prevent excessive distribution of a co-op's net surplus in the form of cash payments. They are, in fact, meant to help a co-op keep surplus monies needed for reinvestment within the co-op, where necessary. There is a limited carve-out in specific circumstances where the member is a foreign worker.

We propose to expand this carve-out to where the member is deceased or bankrupt, has a winding-up order made in respect of it where it is a co-op, or has been dissolved where it is a trade union. In these cases, the person authorised to administer the property of the member, such as the executor or administrator, Official Assignee, or liquidator, may receive from the co-op the value of the member's bonus certificate or bonus share. The proposed amendments take into account these unique circumstances and the immediate need for such payouts, balanced against the rationale of preventing excessive distribution of a co-op's net surplus.

We will also amend the Act to ease a co-op's application for registration of by-law amendments. Currently, such an application must be signed by the chairperson and two COM members. With the amendment, it will suffice for either the chairperson or secretary to sign the application, after the co-op has obtained members' approval for the amendments at a general meeting. This ensures that an individual with the appropriate authority signs the application on the co-op's behalf.

Mr Speaker, allow me to move on to the next objective, namely to provide greater clarity on the calculation of co-op contributions to the Central Co-operative Fund (CCF) or the Singapore Labour Foundation. Under the Act, a co-op must contribute 5% of the first $500,000 of its surplus to the CCF and 20% of any surplus exceeding $500,000 to the CCF or to the Singapore Labour Foundation. The CCF is used to promote and develop the co-op sector, including grants for formation of new co-ops, as well as building capabilities of existing co-ops. Co-op contributions to the Singapore Labour Foundation are, on the other hand, used to support initiatives in line with the Foundation's mission of furthering the development of a labour movement of unions and co-ops, and to promote the welfare of union members and their families.

The policy intent has always been to exclude certain capital gains in computing co-op contributions to the CCF or the Singapore Labour Foundation. These are gains from disposal of shares held by the co-op, or from disposal of immovable property owned by the co-op and used for the co-op's own operations. The policy intent is currently reflected in subsidiary legislation under the Act. But we propose to reflect it in the Act itself, with some edits to the wording for greater clarity.

We also propose to amend the Act to empower the Minister to exclude specified Government grants from being subjected to co-op contributions.The Minister may make these exclusions by order in the Gazette, as and when appropriate.

Sir, this brings me to the proposed technical amendments. Clauses 3 and 4 of the Bill are intended to remove the need for the Registrar to have a seal, which is affixed on the certificate of registration of co-ops. This is aligned with the trend towards digitalisation across Government, where it is now common to use digital signatures and certifications for authentication purposes.

Clause 6 will remove the requirement for a co-op to submit its financial statements to an auditor within six months after the close of the financial year, since a co-op must already submit its audited financial statements to the Registrar within six months after the close of the financial year. The Registrar will have the power to extend the time for a co-op to do so.

Finally, clause 7 seeks to amend the Act to clarify that a co-op must send a notice of a general meeting to each member at least 15 clear days before the date of the meeting. The by-laws can require a longer, but not shorter, notice period. This ensures that members are provided with sufficient time to review the materials and propose resolutions prior to the meeting.

Sir, we conducted a three-week long public consultation on these proposed amendments. Of the feedback received, many were clarifications and we have replied to the respective respondents. We also refined some of the proposed amendments for greater clarity. There were also suggestions on other matters, beyond the scope of this round of amendments, such as further changes relating to CCF contributions. These require more study, so we will include them in future policy reviews, along with other feedback from the co-op sector from our ground engagements.

Mr Speaker, Sir, the purpose of our co-ops is to serve their social mission and the community. They are businesses that do good and generate value for our society. However, like any other businesses, co-ops face challenges, such as rising business costs. Some co-ops are more successful at attracting members and customers, as well as expanding their range of services. There are also co-ops that decide to close, due to concerns of long-term financial viability, lack of manpower or the lack of succession planning.

Notwithstanding, we continue to see potential in co-ops and their ability to contribute to the community. MCCY will continue to work closely with the Singapore National Co-operative Federation (SNCF) to engage the public and continue to review our regulatory and administrative requirements, to ensure they remain facilitative towards the formation and operation of co-ops.

It is crucial, however, that co-ops are well-governed. They should prioritise strengthening their governance and building their capabilities, to protect their members' interests, which includes members' deposits in the case of credit co-ops.

To this end, MCCY also works closely with SNCF, as I have mentioned earlier, who is also the Secretariat to the CCF Committee, to provide resources and training opportunities for co-ops. MCCY also reviews and updates the CCF Grant Framework periodically, to ensure it remains supportive of co-ops' development efforts. Co-ops should continue to tap on CCF grants to constantly upskill their COM members, key officers and staff, to deal with the changing business landscapes and raise governance standards.

The Bill will provide our co-ops with more operational flexibility. Co-ops' management and members should share responsibilities and ensure that the decisions are made in the co-op's best interests, so that they can continue to do their best, to serve their social mission and contribute to our thriving society.

Mr Speaker, Sir, I beg to move.