Community Interest Company (Amendment) Regulations 2009

We are today debating the draft Community Interest Company (Amendment) Regulations. The community interest company form was created by the Companies (Audit, Investigations and Community Enterprise) Act 2004 and the Community Interest Company Regulations 2005. In passing that legislation, we were creating a new type of company tailored for social enterprises that wanted to use the familiar company form but with the assurance that assets would primarily be used for the benefit of the community. That legislation came into force in July 2005 and, since then, over 3,000 social entrepreneurs or social enterprises have chosen to register as community interest companies. The original legislation also created the office of the regulator of community interest companies as an independent officeholder with responsibility to oversee the sector and maintain public confidence in this new company form. Before introducing the community interest company, we consulted widely on both the principle of this new form and how it should work in practice. One of the principles was that the community interest company would offer more flexibility and choice to the social enterprise sector. It was intended to complement the existing and well established forms, such as charities or industrial and provident societies, which are also commonly used in the sector. Although the community interest company has not been in existence long, there have been a number of related legislative changes over that time. We have also learnt from the experience of the companies and their advisers, as well as the regulator, how some aspects of the regulations work in practice. The draft amendment regulations will therefore update the regulatory framework for community interest companies to take account of these developments. As I have said, the original intention was that the community interest company would sit alongside other legal forms in the sector, and we consider that enterprises should have the option to move between the various legal forms available where this is appropriate. So, the 2004 Act permitted community interest companies to convert to become English or Welsh charities or vice versa. The original legislation also anticipated that we would use regulations to permit conversions both from Scottish charities and to the community benefit form of industrial and provident society, once provisions relating to those two forms were in place. The office of the Scottish charity regulator has since been established and a statutory asset lock is now available to community benefit societies. With those provisions now in place, the draft regulations now permit Scottish charities to convert to community interest companies and permit community interest companies to convert to the asset-locked form of community benefit society. The draft amendment regulations make a number of other changes in the light of experience or to seek to improve the original drafting. These include, for example, clarification of the community interest test to provide more certainty to the regulator in her decision-making. There are also a number of amendments to the provisions which a community interest company is required to include in its articles. The effect of these changes is essentially to allow the companies themselves to determine their approach on certain matters, such as the appointment and removal of directors and casting votes, rather than requiring them by statute to follow a prescribed course. Finally, the draft regulations implement consequential amendments to the regulations arising from the Companies Act 2006. In particular, the 2006 Act introduces changes to the information contained within a company’s memorandum and articles which need to be reflected in the regulations governing community interest companies. In summary, therefore, the draft regulations aim to update the community interest regulations for the benefit of existing and prospective community interest companies. I beg to move.