PART II: THE LAW OF CO-OPERATIVES
GENESIS AND DEVELOPMENT OF CO-OPERATIVES AND MOVEMENT.
Cooperative as a concept is derived from the word cooperation which essentially contemplates a situation where persons cooperate with each other towards achieving shared goal. In that sense cooperatives are as old as a human civilization. In the traditional African setup they took the form of formal associations built around such units as the clan or the village. The most important point is that out of those traditional formal associations have been built the modern cooperative movements. The modern cooperative movement is now formal in the sense that it is …by clearly stipulated rules. In the modern sense the cooperative movement is said to have originated from Europe around the beginning of the 20th century.
It is more of origin in Europe may have been described as a bottom up mode in the sense that it was originated by the poor members of the society who saw the need to unite to protect themselves against exploitation at the hands of the middle class.
In Kenya, however the modern cooperative movement had a different mode of origin because it was originated by the middle class white settlers who decided to unite in order to maximize benefits out of their agricultural activities.
In Kenya, the first modern type cooperative society is said to have been formed around the year 1908 by the white settlers. During that time the African population was not permitted to participate in the cooperative movement and the colonial government gave two reasons for that:
a. That the African population did not have well educated people who could properly maintain the books of accounts of cooperatives society
b. The government argued that it was too early to allow Africans to participate in the movement.
The truth of the matter was that the colonial government feared that if Africans were allowed to participate in the movement they could use the sense of togetherness that cooperatives bring in order to stage a strong revolt against the colonialists. Even then the African population showed a lot of interest in the co-operative movement.
That interest forced the colonial government to form a commission of enquiry in 1930 known as the Campbell commission which was given the responsibility of investigating the desirability of allowing Africans to participate in the movement. The commission reported that it was highly desirable to allow Africans to participate in part of its report it stated as follows “no government responsible for the welfare of people like those of Kenya can afford to omit to place at their disposal the advantages they derived from cooperative organizations with suitable guidelines”
Following those recommendations the first African cooperative was formed in the 1930 which was known as the Taita Vegetable society with the objective of producing, breeding and marketing vegetables at the coast. It was alarge society with 239 members.
Following the commission’s recommendations, the first cooperative legislation was enacted namely the cooperatives ordinance of 1932 which for the first time required that cooperative societies be registered. It also made provision for rights and duties for members on the one hand and of the cooperative societies on the other hand.
That legislation remained in place until 1945 when the new legislation was enacted that repealed it namely the cooperatives ordinance of 1945.
The main feature of the 1945 ordinance was that it introduced the department of cooperatives which was then given the mandate of coordinating cooperatives matters throughout the country, promoting the cooperative movement and educating the masses on its movement. It is reported that the department performed its functions very well because it was able to mobilize interest from both the African population and the white settlers.
The interest on the part of the colonial government was manifested in the open support that the government officers gave to the cooperative movement. One such support was evidence by the then district officer who was then based in North Kinangop district in 1962 who said “I believe cooperative is what Africans want and is not far removed from their tribal concept of communal ownership of land. Ithink they would like to keep the economy going given a bit of encouragement and would do their best to make it work.
The colonial government had therefore identified the cooperative movement as … through whichthe economic growth of the country could be advanced. That same interest was inherited by the defendant Kenya government and has been manifested in several ways:
a. In 1965: when the government promulgated its first major policy paper (sessional paper no. 10) the cooperative movement was identified a major vehicle through which the African socialism could be promoted and within that concept lay the concept of economic progress.
b. In 1963: a motion was introduced in parliament which received a unanimous vote to establish a specific ministry of cooperatives which was to manage the cooperatives. That ministry was established in 1974 by upgrading the dept. of cooperatives that was established in 1945 into a full ministry. And since then the successive government have had a ministry for cooperatives.
Following the mention of the cooperative movement in sessional paper no. 10, player in the political sector in the country started seeing a cooperative movement as a tool which they could advance their personal political interest. Consequently many of them infiltrated the cooperative movement and hijacked the agenda as they used most cooperative societies for their own political advancement.
Following that heavy political infiltration the government saw a need to change the law in order to protect cooperative societies from having their agenda hijacked. In 1969 the 1945 ordinance was repealed and replaced by the cooperatives societies’ act. The main feature of that act was that it created the office of the commissioner of creative development who was given the power to monitor the operation of cooperative societies and to disband management committees who were not faithful to the agenda of their cooperative societies and also the power to question the budgets of cooperative societies.
Note: it is reported that the progress of cooperative movements during the colonial era was somehow interrupted between 1943 - 1945 following the declaration of state of emergency. The state of emergency caused many employees of the department of cooperatives who were mainly colonial officers to abandon their station of work. As a result the property of many cooperative societies was looted. The paradox however is that it is also reported that it is during that period that the largest number of cooperative societies were formed since the introduction of the cooperative movement. It has been suggested that the explanation for that the restrictions that the state of emergency imposed forced the African movement to appreciate the importance of cooperation ant togetherness.
PRINCIPLES OF COOPERATION
They are also commonly referred as the cooperative principles. They are the principles around which the cooperative movement operates. Those principles have not been defined from by any law but have been accepted as governing the cooperative movement throughout the world.
Under the 1997 cooperative societies act, this principle have been recognized by being mentioned and the act directs that for any cooperative society to be registered under the act it must in its by-laws embrace the principle of cooperation.
These principles are the following:
1. The principle of voluntary and open membership
This principle is to the effect that the membership must be open and based on the free choice of the person. The principle applies in two senses. The first sense it means that no person should be compelled or unduly influenced to joina cooperative society. On the contrary the decision to join should derive out of the person’s free volition. At the second sense, the principle means that the opportunity to join the membership of the cooperative society should be open to every person who has the will to join and for as long as a person possess the qualification to join, and remain a member he should not be compelled to leave or expelled from membership. A member may only be expelled from membership of either he has lost the qualification required for membership or the members ata general meeting have resolved to expel him because he has contravened the bylaws of the society. It is because of that principle that the cooperative societies’ rules particularly rule 9 of the 2004 rules provides that no cooperative society may fix a maximum limit to the number of its members.
2. Democratic member control.
This principle is to the effect that coop societies should be governed or controlled by the members in accordance with acceptable democratic principles. The principle insists that coop societies are democratic organizations. The principle manifests itself in two ways:
1. In the management of cooperative societies, the management responsibilities are vested upon the members. The members are considered to be a supreme decision making organ and they manage the society through general meetings. Every member has the right to attend the general meeting. The law recognizes that the general meeting may then delegate certain functions/obligations/powers to smaller units from within the membership. But those smaller units constantly remain answerable to the general meeting.
2. The second level of that principle is that members are deemed to be equal. Consequently, at the general meeting each member has only one vote irrespective of the amount of capital he may have invested in the society. And also irrespective of the length of time for which he has been a member.
3. The principle of autonomy and independence
That principle recognizes that cooperative societies are organizations in the economic sector. Consequently, they must remain players in the economic sector. They must shield themselves from influence from other sectors and not allow themselves to be dictated upon by other partisan interests.Accordingly they must not discriminate members on the basis of such partisan considerations as political, religious or social pacification.
4. Principle of education, training and information.
That principle is to the effect that cooperative societies must educate, train and inform their members, employees as well as the general public. Such education training and information should cover subjects that would promote the cooperative movement as well as other matters of public interest. In practice, that principle is given effect to when cooperative societies organize seminars or workshops for the employees or members or they engage in public awareness campaigns.
· Constitutional review process in the run up towards the new constitution…
5. Principle of economic participation by members
The principle is to the effect that economic goods of a coop belong to the members and themembers should participate in them by receiving a share of those rules. Under the cooperative societies act it is recognized that if a coop society makes any saving or surplus then those savings or surplus belong to the members and should either be given to them or invested in them. In practice that response is given effect to by cooperative societies declaring and paying out to their member’s bonuses and dividends.
6. Principle of limited interest on capital.
That principle is to the effect that in paying members a share of the economic goods of their society, they should not outrageously benefit from their capital investments in the society. That is to say the amount of interest or benefit that they derive must be limited and modest. It is for that reason that cooperatives societies pay dividends and bonuses at rates that are fairly low. Under the 1969 act, it was expressly provided that no society would pay dividends at the rate exceeding 10% of the members’ savings.
Under the 1997 act there is no fixed percentage but it is required that the rate of dividends must be tabled and agreed upon at the general meeting. And it must be applied uniformly to all members.
7. Principle of growth by mutual cooperation (cooperation among cooperatives)
It is to the effect that cooperative societies must understand themselves to be players in the worldwide movement. For that reason they must not work in isolation. Contrary, they must cooperate with each other particularly so that they may enhance their capacities to promote the welfare of their members.
In practice, this principle is given effect to when cooperative societies engage in exchange visit with each other.
8. The principle of concern for the community in general.
It is to the effect that cooperative societies must be concerned about not only a promotion to the welfare of their members but also welfare to the community at large. They must show interest in the whelming of the public within which they operate. That principle may be given effect to in two ways:
a. The cooperative societies my resist from engaging in activities that may endanger the public good. That will depend in circumstances of each case e.g. pollution.
b. The society may engage in positive activities that promote the public good. Also depends on circumstances.
It is in that spirit that rule 43 of cooperate society rule 2004, provides that if any assets or funds remain after the dissolution of a cooperative society, then they may be vested in any public project that the general meeting may determine.
THE LEGAL REGIME RELATING TO COOPERATIVE SOCIETIES IN KENYA.
The law governing cooperatives in Kenya is now contained in the cooperatives society act of 1997 as amended by legal notice no. 2 of 2004. That act operates alongside the cooperative society rules published as legal notice no. 103 of 2004. The 1997 act repealed the 1969 act. The 1969 act had been criticized as having concentrated too much powers in the hands of the commissioner of cooperative development and the minister.
The main feature of the 1997 act is that it took away certain powers from the minister and commissioner and redistributed them with the bulk of the powers now being conferred upon the members.
Under the 1997 act, for a cooperative societies to be registered it must demonstrate its core objective is the promotion of the welfare of its members. Under the repealed act the commissioner had the power to evaluate the ability of the society to promote welfare of its members and had the discretion to decline the registration if he was of the opinion that the society had no such capacity.
No such power exist under the 1997 act but every society making an application of registration is required to also submit a statement explaining its capacity to promote the welfare of the members.
Under the 1997 act there are 4 types of societies
1. Primary societies - These are societies whose membership comprises exclusively of natural human persons.
2. Secondary societies – these are societies whose membership comprises of primary societies.
3. Cooperative unions – these are unions whose members comprises exclusively of primary societies.In Kenya the most prominent cooperative union is known as KENYA UNION OF SAVINGS & CREDITS COOPRATIVE UNIONS (KUSCCO).
4. Apex societies – these are societies whose sole purpose is to provide goods and services to the cooperative unit. Kenya COOPERATIVE ALLIANCE(KCA)
The person vested with the power to register is the commissioner. The law requires that for purposes of registration, an application should be presented to the commissioner through a prescribed form. That app;liocation is required to supply certain information about the proposed society. The information required includes the following:
a. The name of the society – the choice of name of society is subject to certain legal requirements
a. The name must not be similar to that of another existing similar society
b. It must not be a name that is likely to mislead the public as to the real identity of the society.
c. If the society is proposed to be registered in limited liability then the word limited must form part of the name of the society as the last word.
d. The word cooperative must form part of the name of the society.
e. The word cooperative is a protected word in law. Accordingly no person/organization is permitted to use that word in its operation ...unless it is a registered cooperative society. The contravention of that constitutes an offence.
b. The society’s area of operation including the postal address and the physical address of the society’s office.
c. The type of society that is proposed to be registered. Whether primary, cooperate etc. in the event that it is a primary society or a secondary, then it should also be indicated if it is to be registered in a limited liability.
d. The language in which the society’s books of account will be kept. That indicates the books of accounts may indicate in any language in which the members are comfortable with.
e. The name if the person proposed to perform the function of the secretary. Following the 2004 amendment that person should be a qualified CPA. The application must also identify the persons who are proposed to be the members of the corporate society. For purposes of registration the society must raise the minimum number of members. If it is an apex society or a cooperate union then the minimum number of members required is two. If it is a primary or secondary then the minimum number required are ten. All those members must meet the required qualification of membership under s. 14 of the act. The qualification are
a. One must have attained the age of 18
b. You must be holding with him/her employment, profession, occupation or trained in the sector for which the co-operate society is being formed.
c. The person must be either resident or occupying land within the society’s geographical area of operation.
When the application for registration is submitted it should be accompanied by four copies of the proposed by law of the society which must be in the English language. Once the application is presented to the commissioner he ..it and if he is satisfied that the application meets the requirements of law, he will register the society.
The society may be registered with limited or unlimited liability. But if it is a co-operate union or apex society it may only be registered with limited liability.
If the commissioner is not satisfied with the application then the law allows him two options:
a. He may out rightly refuse to register the society in which case he must inform the society in writing about his reason for refusal. If any party is aggrieved by that refusal he has the right to appeal to the minister and a final right to appeal to the high court.
b. The commissioner may brand the society “provisional registration”. This may only be granted if the commissioner is of the view that the non-compliance is not very fundamental and that it may be rectified within reasonable time. Provisional registration is however only temporary, it will last only for the period specified by the commissioner and the maximum period allowed is 12 calendar months. Every society with provisional registration is allowed to operate with the full powers of the cooperative society with the only exception being that it must prominently publish its official documents and bill board the fact that it is provisionally registered.
During the period of provisional registration it is expected that the society should take the necessary steps to rectify its non-compliances so that it may qualify for full registration. Once it qualifies the commissioner may grant it full registration which will be backdated to the date in which it was granted provisional registration. If it fails to attain compliance then the commissioner may at any time cancel the provisional registration and refuse full registration in which case any aggrieved person has right of appeal to the minister and final right of appeal to the high court.
Consequences of registration
Once society is register either fully or provisionally the following consequences ensue:
a. The society shall become body co-operate with cooperate powers and perpetual succession as well as the common seal. The corporatepowers enable it to enter into contracts on its own name, enter into suits and institute on its own name and to acquire property on its own name.
b. Once the society is registered it is incumbent upon the commissioner providing the society free of charge with the following documents :
a. Certificate of registration or provisional registration as the case may be.
b. Copy of the corporate societies act and the rules.
c. The application form which the society presented for its registration.
d. The by-laws of the society as registered under the hands of the commissioner.
c. The certificate if registration is deemed to be conclusive evidence that the society is registered as certified unless its registration is subsequently cancelled and the by-laws registered under the hands of the commissioner is prima facie evidence that the by-laws are duly registered.
d. Under s. 13 of the cooperative society’s act. Once the society is registered there comes into existence a contractas between the cooperate society on the one hand and each member on the other hand binding the member to comply with all the bylaws and decisions of the right organs of the cooperate society.
BY-LAWS
Every cooperative society must make and have by-laws. No cooperate society may be registered without by-laws.
The by-laws of the society must cover as many matters as possible that are capable of describing or regulating the societies operations at the minimum it must provide for all the matters prescribed under rule 18 of the cooperate societies rules.
The by-laws are considered to be amendable to amendments at any time as the society may deemfit. Any by law may be amended. Anamendment may only be done by the society’s general meeting. That meeting must meet the required quorum in law. For a society with a limited required is at least half of the members and at least ¾ of them must vote in favor of the amendment.
In the case of society with limited liability is that which is prescribed in the by-laws and the majority of those present must vote in favor of the amendment. For an amendment to take effect it must be presented to and registered by the commissioner.
THE MANAGEMENT OF COOPERATIVE SOCIETIES
Cooperative societies are managed at four levels or at four different organs namely:
a. The general meeting
b. The management committee
c. The board of representatives
d. The supervisory committee
GENERAL MEETING
This is the supreme organ of every co-operate society with the power ...in the society. It has the power to make decision on the most crucial matters in the society. That general meeting every member has the right to attend and vote. The law recognizes 3 types of general meeting namely
i) The first general meeting
That is the general meeting that every co-operate society must hold at least one month after it has received its certificate of registration. That meeting must pass resolutions on matters that are necessary to set off the operations of the society into the future including the following:
a. Appointing the society’s bankers, auditors and advocates
b. Deterring the society’s maximum borrowing powers
c. Electing the society’s officials
d. Considering the society’s budgets or estimates
ii) Annual general meeting
Meeting that every co-operate society must hold. It is required to be convened four months after the end of the society’s financial year.
The persons with the power to convene an AGM meeting are:
a. The management committee/ commissioner – the agenda for the AGM is prescribed under the act. It includes deliberating the most critical issues such as accounts of the society. If the meeting deliberates but fails to approve the account that fact of failure must be notified to the commissioner shall be fined
b. Savings and surpluses to determine whether ornot to pay the dividends and bonuses
c. Pointing the returning officers for the next elections
d. Deciding on the management structure of the society including whether there is need of establishing branches
e. Electing officials for the coming year of the society
iii) Special general meeting
This is a meeting that a co-operate society may convene whenever special circumstances arise necessitating for it to be convened. The special circumstances will depend on the circumstances of the society’s in question. It may include something that has risen and is urgent and cannot wait for the next annual general meeting. It may be convened at any time during the lifetime of the cooperate society and it may discuss any agenda that may have necessitated its being convened. The power to convene special general meeting is vested in the ..of the management committee but it may also be convened by board of representatives or by the commissioner.
The members of the society have the power to demand for a special general meeting if the board and the management committee fail to hold the meeting then the law allows them to hold the meeting.
NOTE:
Every general meeting of a co-operate society requires to be convened by a notice of not less than 15 clear days.
MANAGEMENT COMMITTEE
It is required that every corporate society must have a committee must have a management committee whose membership must be a minimum of 5 and maximum of 9. Management committee is defined as the governing body of the corporate society which has the power to direct the operations of the society. Its powers include the powers to enter into contract on behalf of the society, the power to institute and defend legal proceedings in the name of society and the power to do anything necessary for the purposes of the achieving its objectives.
In performing its functions the management committee is required to discharge its conduct that is described as the prudence of diligent businessmen. In the consequence that if its performance falls below its standards then the members may be held personally liable for any losses that the societies may suffers as a result of their lack of diligence.
The members of the management committee are elected by the general meeting of the society and they remain answerable to the general meeting. As a general rule it is only the general meeting that has the power to remove them.
The law does not contemplate a situation where a cooperative society may exist without a management committee. It is therefore required that if a general meeting passes a resolution removing the entire management committee then that same meeting must elect anew committee or specify the date of the next general meeting in which the committee will be elected.
In exceptional situations a member may be removed by the majority of the members of the management committee in which case they must co-opt another member of the society to act.
Qualifications
For any member to be a member of the management committee will have to satisfy the following:
a. Be a member of the society
b. Be literate
c. Must not be someone who has been adjudged bankrupt
d. Must not have been named adversely in an enquiry report that has been adopted at the society’s general meeting.
e. The person must not be a member of the management committee of more than two other corporate societies
f. He must not be a person who is engaged in business or activities that may be considered be running into competition with the business of the cooperative society. For example, if the society is trading in agricultural produce then he must not himself be trading in agricultural produce in his own right.
g. He must not be a person who has been convicted of fraud or mismanagement under the act
h. Must not owe any debt to the society other than ordinary loan.
i.
It is required that once a person is elected into the committee he must declare his wealth to the commissioner and he must also sign an indemnity form undertaking to indemnify the society for losses attributable to his fault.
The management committee may subrogate its functions to any of the sub-committees but it remains collectively responsible for any proper management of the society’s affairs.
SUPERVISORY COMMITTEE
This is a small committee comprising of only three members. The law requires that every corporate society must have it. It is constituted as an oversight committee that oversees all the operations of the management committee. It is required to make its input in setting the agenda of the society’s annual general meeting. It so expressly prohibited from performing the functions that are persevered for the management committee.
Board of representatives
This is required of only apex societies and cooperative unions.
The act does not define exactly what this board is to be made up of but it is constituted as a board that gives policy directions to the society and in the event that the management committee fails to perform its functions the board of representatives may intervene.
THE RIGHTS, PRIVILEGES AND LIABILITIES OF MEMBERS OF CO-OPERATIVE SOCITIES
1. Once aperson becomes a member ofa corporate society he becomes entitled to rights and privileges and at the same time incurs certain liabilities. First every member must meet the prescribed requirements of membership including the prescribed minimum share subscription. Otherwise he will not be entitled to claim any rights of membership from the society.
2. Members of societies are liable to observe the rule as to the maximum level of shareholding; and the rule is that no member is allowed to hold more than 20% of the issued share capital of the society.
3. A member is free to transfer his shares to any other member approved by the general meeting. he must assist the society by ensuring that his transferred shares does not enable the transferee to acquire more than 20% and he may not transfer shares of he owes any debt to the
4. Every member is restricted in the number if societies he may belong particularly the member is prohibited rejoining more than one society with unlimited liability which has the same objectives as his original society. The exception however is that he may join subsequent society if he occupies land within that societal area of occupation.
5. Once a member becomes a member of a corporate society he becomes entitled to be elected to any organ of the management
6. Every member is entitled to enjoy the services and facilities of his corporate society.
7. Every member has the right to ... acquire information including the societies internal …the societies minute books, the societies registers and any reports held by the society.
8. Every member is under obligation to observe and comply with the society’s by-laws and decisions.
9. In the event that the society’s register is a limited liability, then every member is liable to contribute the society’s liabilities in the event of insolvency.
THE RIGHTS, PRIVILEGES AND OBLIGATIONS OF COOP SOCIETIES
Every cooperative society once registered incurs the following obligations towards its members and also becomes entitled to certain privileges and rights from its members. In addition cooperative societies owe obligations to the public.
1st: The obligations as to the registered office
Every society must have a registered office at which any notices or communication may be served upon. A change in that office must be notified to the commissioner within 7 days.
2nd: Duty to keep documents
Every society must keep certain basic documents within its registered office. Those documents must be open to inspection to the members of the society as a well as the auditor. The members also have right to make copies of those documents. These documents include;
a. The 5 documents that were supplied to the society by the commissioner upon registration.
b. The minute books;
a. Minutes of all general meeting in the society
b. Minutes of meeting of any other management organ of the society
c. Register of members
d. Register of loans and any security for loans the society may have given
e. Register of assets of the society
f. Ledgers including personal ledgers of members and the cash register etc.
3rd: The accounting records and standards.
Every society is under obligation to keep and maintain proper books of accounts indicating any receipts or all receipts and payment by the society. Following the 2004 amendment the accounting record of the society are now required to be maintained according to the international accounting standards. Those accounts must be audited at least once every financial year by an auditorapproved by the commissioner, appointed at the general meeting of the society.
The auditor for purposes of auditing has very broad purposes of looking at … of any person who may deem necessary. In the event that the general meeting of the society fails to appoint an auditor, the commissioner shall have the power to do so. Once an auditor is appointed and becomes entitled to receive the 15 days’ notice …the society’s general meeting which he will be expected to present his audit report. Before an audit report is presented to the GM it must first be presented to the commissioner. (Introduced by the 2004 amendment)
NOTE:
Once the auditor’s report is deliberated upon at the general meeting it must be filed with the commissioner but if for any unjustifiable reason it is not filed by the commissioner and all the members of the management committee shall automatically lose their office and will not be eligible for reelection until the expiry of 3 consecutive years.
5th August 5, 2015
4thRIGHT TO CHARGE OVER MEMBERS PRODUCE
Available to all cooperative societies that engage in agricultural produce. Such society are permited under s. ...which the society may be given pledge as security for a loan.
Where that contract is entered into a member is under duty to market all his product...covered by the contract through the society. If he markets or disposes off the produce outside the framework of the society then it constitutes a wrong for which a member may be punished.
The law allows the society too make provisions within the contract entitling it to impose a liquidated sum of money as damages upon a member in breach. Although a the contract appears to be void, for being in restraint of trade, the cooperative society’s act has expressly exempted it by providing that it shall not be construed to be a contract in restraint of trade. That contract may either be embodied in the society’s by-laws or in a separate contractual document between the society and the member.
5th Right to fast charge
That right is available to every society that may have given loan or lent money or even agricultural input to members which the members have used to produce certain agricultural produce or to invest in some other material value.
Such instances, for as long the loan is not repaid or the value of the equipment has not been recovered by the society, the society has the right of fast charge over whatever agricultural produce or material investment that the member may have acquired through the aid of the loan or the equipment of the input.
That is to say that the societies claim or interest over such produce or material shall run first in priority.
6th the right to sue over a member’s contribution
That right applies in situation where a member of a cooperative society has entered into an arrangement with his employer instructing the employer to effect deductions on the members monuments of salary then omit those deductions to the cooperate societies as members contribution or savings in the society.
The law requires that such deductions must be emitted within 7 days after they have been deducted. if the employer fails to emit them then the society shall have the right to sue the employer to recover those deduction with compound interest.
7th right to charge the member’s pay/duce
In that light accrues to the cooperate society that is owed money by a member. In such situations a cooperative society has the right to charge any money payable from the society to the member. By reducing that money bay an amount equivalent to what the member owes the society.
That essentially means that a members money that is held by the soceity is considered to be security that the society looks upon to recover money from the members...it is for that reason that the law protects members’ savings in cooperativesocieties. And scuh savings cannot be a tached even by a order of court and they cannot be touched bya member’s trustee in bankruptcy.
N/B - Order 22 of the civil procedure rules
8th right to impose fines
Every coperative society has the right to impose fines upon a member who contravenes any provision of the by-laws or who fails to observe the decision of the relevant organs of the society management.
Before the fine may be imposed the members in question must be giventhe notice of intention to do so and the opportunity to defend himself with or without a witness.
Once the fine is imposed it becomes a civil debt recoverable on …s. 13
AMULGAMATION AND DIVISION OF COOPERATIVE SOCIETIES
Acquisition and miles
The law gives cooperative societies the freedom to amalgamate or merge with each other or to subdivide themselves into two or more smaller societies.
By their very nature, amalgamation and division have the potential of either increasing or reducing the responsibility of the management organs of the societies.
They also have the potentiial of affecting the rights and iterestes of members,creditors and other interested third parties.
For those reasons, s. 29 and 30 of the cooperative societies act have put in place elaborate procedures that must be followed by any society seeking to reemerge or subdivide itself.
Procedures are signed to protect the interests and rights of members, creditors and other interested parties.
The procedures require that every society proposing to amalgamate or subdivide itself must hold at least two general meetings and the first general meeting must pass a special resolution that is known as preliminary resolution.
The second general meeting must pass another special resolution that is known as secondary resolution.
In case of a decision the preliminary resolution must be sent out to the members as well as the creditors and other interested parties informing them of the proposed division and giving them an opportunity to make their representations or express their views on the proposed division.
Members who wish to not join any of the proposed new societies will express that intention, creditors who wish to demand payment of their monies before the division should also express that intention and other interested third parties who have objections should also express those objections
The secondary resolution must then detail how the society proposes to address the representations that will have come from the members, creditors and the other third parties.
That secondary resolution must then be filed with the commissioner. If the commissioner is satisfied that the law has been complied he will register the resolution and the following consequences shall follow:
(i) The society that has divided itself will be deemed to have dissolved and its registration cancelled
(ii) The new smallers cosieties will be issued with their certificate of resgistartion
(iii) The members who did nott express intention of joining the new societies will automatically become mebers of the new society in accordance with the provision of the secretary of resolution .
(iv) Any members or creditor or third party who is not satisfied in the manner on which the secondary resolution has dealt with the representation will be at liberty to elect any of the new societies against which he will be passively disclaim.
Amalgamation also follows the same procedures described above most importantly the preliminary resolution must avail an oopportunity to the members, creditors and third parties to make their represenatations and the secondary resolution must address those representations.
If the commissioner is satisfied he will register the secondary resolution and the following consequences shall follow:
a. All the societies which will have merged will stand dissolved and their registration cancelled
b. The members of the societies who will not express intention not to join the new society willautomatically become members of the new society.
c. The new society will be issued with the certificate of registration in its new proposed name.
d. Any member or creditor or third party who is not satisfied without the secondary resolution as addressed to his representation may pursue his claim against the new society.
ENQUIRY AND INSPECTION
These are two procedures through which the law allows the commissioner to get a view into the manner in which the operations of the cooperative societies are being run.
As regards enquiry the commissioner may conduct an enquiry either on his own motion or upon receiving a demand from ¾ of the members of the society.
The enquiry will investigate how the society has been managed in light of its by-laws and the act. The commissioner will then prepare a report a report of his findings and he may make recommendations on how the society may be better managed and in the event he finds any member or officer guilty of mismanagement he may recommend that that member or officer be surcharged.
The report will then be tabled before the society’s general meeting for the society to determine the necessary measures to address the outcome of the enquiry. If it recommends a surcharge and the enquiries are locked at the general meeting the amount of the surcharge becomes a civil debt recoverable at …
In practice enquiries are conducted when the commissioner receives an indication that the society is being mismanaged.
s. 58
As regards inspection the commissioner has the power to inspect the society’s books of account determine whether it has the ability to repay its debts. For an inspection to be conducted the commissioner must have been mover by a creditor.
The creditor must satisfy the commissioner that his debt has become due for repayment, that he has demanded for the debt to be paid but the society has failed to repay the debt.
Disputes of coperatoves are sett;ed in accordance to sections 76-78 of the act.
Section 76 directs that all disputes concerning the dispute of a cooperative society shall be refered to the cooperative ttribunal. The section therefore gives the cooperate tribunal exclusive jurisdiction over all disputes that fall under that section.
Section 77 then establishes the cooperative tribunal with 7 members including the chairman and the deputy chairman.
The tribunal is deemed to have quarum wjhen the chairman and deputy chairman sits with atleast two other mebers.
Any part that disagrees with the tribunal has the right o appeal to the high court whose decision is final.
Under the cooperative societies act, the term dispute has not been defined just as ot was not defined under the tribunal act
That absence of the definition has triggered extensive litigation in the court as parties seek what exactly the term means.
Under the act s. 76 marely list two categories of disputes that may be reffered to the tribunal namely a claim bya member or a first member or indidst memberagainst a cooperative society or second claim by the society againsta a member, firsm member or a deceased member.
Thec oruts have howebver made it clear that the term dispute is not a technical terma dn it should not htrefore not be given a technical meaning
The case of gatanga coffee grwoers coop society v. gitau
Lukenya ranching v. kavolotu
The courts held that the term should be given its ordinary meaning
The court expanded the meaning in the case of ruakiro by explaining that the term dispute should be under stood to include any matter that can form the matter of subject ltigation and which may give rise to some form of civil liability
Note
The foregoing procedure for settlement of disoutes is radicaly different from the procedure that existed under the old law where disputes wre to be refered to the commsioner who upon being satisfied that it was a dispute worth determining would then refer it to an arbitrator(s) appointed by himself.
That whole system made it possible for cooperative societies disputes to benefit from the many adavantages that arbitration enjoys over litigation in the court.
The current system may be criticized for introducing the possibility that matters of ccoperative may end up being bocked doen the complex system of ltigation
DISOLUTION OF COP SOCIETIES
The coop soceities act recognoises only one way through wchich coop societies may be dissopved
s. 61(5) highlighst that coop societies may be disoolved only by a pursuant order of disoolution by which the commissioner cancels the registration of the society
if any party is aggrieved with that order the right of appeal lies to the minister and the final appeal lies to the high court
The grounds for dissolution are only 5 namely:
(a) If the commissioner forms the opinion that the society should be disowned on the basis of defiance or enquiry or inspection under s. 58 and 59
(b) If the commissioner forms the opinion that the society should be disowned on the basisi of the representation made to him by at least ¾ of the members.
(c) Where the number of members of the society has fallen below the prescribed minimum as 10 for primary societies and two for other societies.
(d) If the society has failed to file its annual returns to the commissioner for a period in excess of three years.
(e) If the society has been unable to achieve its objectives
This mode of dissolution does not leave room for the members if the society to directly bring to an end the life of their own association. They may only directly participate by petitioning the commissioner.
After an order of dissolution the cooperative society must then go thorugh the process of liquidation which involves the winding up of the ….
During liquidation only the liquidator and the minster have direct roles to play
The liquidator is appointed by the commissioner normally at the time he makes his order of cancellation.
His power includes the folloing:
(a) He tajes custody of all the societies record and assets
(b) He has the powers to dispose the soceities’ assets either by public auction or private treaty
(c) He has the power to institute and fefend legal oroceedings on behaklf iof the society and appoint an advocate to assist him
(d) He has the power to determine the amount of contribution that any member of the scoeity will contribute towards the societies debts and liabilities.
(e) He has the power to refer a question to the cooperative tribunal for determination.
the minister has the following powers among others:
(a) To re3scind or bury the decision of the liquidator
(b) The power t o determine the liquidators remuneration
(c) The power to remove the liquidator and replace him with another one
(d) The power to discharge the liquidator
N/B
During the period of litigation any orders or directives issued by either the minister or liqudator may be registerd ina court of alw and they will operate as though they were decrees issued by the court.
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