November 1995
58.3 Types of friendly societies
A friendly society is usually an association formed for some beneficial aim, such as to provide life, endowment or sickness insurance to a specified limit, or to establish a working man’s club for social or recreational purposes, or to promote other benevolent activities, e.g. old people’s homes. Under the Financial Services and Markets Act 2000 a friendly society should be registered with the Financial Services Authority (FSA) (of 25 The North Colonnade, Canary Wharf, London E14 5HS Tel: 020 7676 1000). A friendly society will be an incorporated friendly society if registered under Section 6 of the 1992 Act and such a society should be wound up as if it were a registered company by virtue of Section 22 of that Act. Following the introduction of the 1992 Act, all new societies will be incorporated friendly societies; however, societies registered under the 1974 legislation will remain liable to be wound up as unregistered companies unless they have converted into incorporated friendly societies. All further guidance in this chapter is in relation to friendly societies formed under the 1974 Act, which are sometimes known as registered friendly societies. Further guidance on dealing with an incorporated friendly society is provided in Chapter 59.
58.4 Friendly society is governed by its rules
Like all unincorporated societies a friendly society is founded upon the law of contract and it is implied that all the members of the society will be governed by the rules of that society. The current rules should have been registered with the FSA. For any amendment to the rules to be valid, it must have been registered with the FSA.
58.5 Officers of friendly societies
By virtue of Section 119 of the Friendly Societies Act 1992 an officer of a friendly society includes:-
The official receiver may call upon any of these parties to assist with his/her enquiries in the winding up of the society. Should any of these parties fail to co-operate, the official receiver may consider making an application to court for their public examination.
Notes: [s133]58.6 Trustees/assets of a friendly society
Under Section 54 of the Friendly Societies Act 1974 the assets of a registered society vest in its trustees who hold the legal interest on trust for the Society and its members in accordance with the rules of the society. Whilst the liquidator will have the power to sell the Society’s beneficial interest in the property he will not have the power to sell the legal title therein since this will continue to be held by the trustees [S167 & Sch 4). The official receiver should endeavour to secure the co-operation of the trustees in protecting and realising the society’s assets for the benefit of its creditors; however, the trustees are under no obligation to act in accordance with the liquidator’s directions and so if he/she experiences any difficulty in achieving co-operation, application to the court for an order vesting the property in the liquidator may have to be made.
Where the case is suitable for the appointment of an insolvency practitioner, an application for vesting should be dealt with by the insolvency practitioner. In all cases, where it is necessary for the official receiver to deal with assets of a friendly society, he/she should bear in mind the provisions of Section 54(3) of the Friendly Societies Act 1974 which limits the liability of the trustees to make good any deficiencies in the funds of the society to only the extent of sums actually received by the trustees on account of the society.
Notes: [s145(1)]58.7 Legal proceedings concerning a friendly society
Legal proceedings may be taken by the trustees or by any other officers authorised by the rules of the society to do so (under Section 103 of the Friendly Societies Act 1974). Service of documents for the purposes of legal proceedings may be by personal service on the officer or person sued on behalf of the society or otherwise at the registered office or trading address but any service by post should have been sent to the committee of the friendly society at the registered office. If the official receiver is considering commencing or continuing proceedings in the name of the Society, then sanction should be obtained. The official receiver should consult Technical Section at Headquarters for further guidance. The usual guidance on securing adequate funds or indemnities to cover the costs and any potential adverse costs should be followed (see also chapter 32.2 - Employment of Solicitors). Whenever legal proceedings are considered necessary, the liquidator may apply to the court to take proceedings in his/her official name, if the proceedings are not to be taken in the name of the trustees of the society (or such other persons as the Rules may permit). On the rare occasions that such an application is appropriate and the official receiver is the liquidator, he/she must first provide Technical Section at Headquarters with details of the proposed application and the reason why an insolvency practitioner has not been appointed. The official receiver should be completely satisfied that he/she has adequate funds or indemnities to cover the costs of the proposed proceedings and potential adverse costs, particularly as the proceedings will be taken in his/her own name.
Notes: [S167 & para 4 Part 11 Sched 4][s145(2)]58.8 Action by the OR on winding up
All of the provisions relating to the winding up of an unregistered company under Part V of the Insolvency Act 1986 may be applied to winding up a friendly society (see part 4 of this chapter). This paragraph details other aspects of the winding up which should be considered. In addition to the usual notices on the making of a winding up order, the official receiver should also notify the FSA of the order (see paragraph 3.42). Once available, a sealed copy of the winding up order should be sent to the FSA for his file on the society but not to the Registrar of Companies. The official receiver should examine the court file and particularly the petition which should outline the main details of the formation of the society and its membership. Full details of the information outlined below may be obtained on written request from the FSA if the official receiver is unable to secure it quickly from other sources eg by inspection of the society’s records; -
The FSA may make a charge for providing copies of documents on his file. A debit balance for this purpose may be incurred without reference to Technical Section.
Reference should be made to paragraphs 58.21 and 58.22 respectively concerning the reporting of unfit conduct under the Company Directors Disqualification Act 1986 and possible criminal offences.
Where the official receiver remains the liquidator and decides that the winding up is for practical purposes complete, he/she should forward the notice of his/her intention to seek his/her release as liquidator from the Secretary of State to the FSA. A summary of his/her receipts and payments should also be sent (see also Chapter 37).
The FSA will ask the official receiver, as liquidator, to complete Form AG to confirm the completion of the winding up of a friendly society. It is not possible for Form AG to be completed as it stands as the official receiver cannot certify that all the property of the society has been transferred to ‘persons entitled’ to it as invariably any property will have been sold to meet the expenses of the winding up and then the debts of the society. The official receiver should return the Form AG to the FSA with the standard text crossed through and with the following text in its place:
‘The affairs of the above named society have been fully wound up under the Insolvency Act 1986 and the Official Receiver was released as the liquidator of the society on (give date).’
The form can then be signed by or on behalf of the official receiver, if he/she was the liquidator of the society. If the FSA will not accept Form AG amended in this way and the official receiver becomes involved in protracted correspondence with the FSA about the completion of this form, details should be referred to Technical Section which will contact the FSA about this matter.
Note: [Form 4.11][ Form NORAD ]
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