Case law update: community benefit societies – the effect of conversion from a company

Posted: 13/10/2021

The process of converting from a company (registered under company law and regulated by Companies House) to a community benefit society (registered under the Co-operative and Community Benefit Societies Act 2014 (the Act) and regulated by the Financial Conduct Authority) is a useful and clean way to adopt a new legal structure.

Conversion to a community benefit society has been popular with social housing providers for several reasons, such as:

• the benefits of exempt charitable status (particularly in relation to disposals of assets);
• being a precursor to mergers or group consolidations (because there are statutory routes of merger available to community benefit societies that are not available to companies); and
• the structure being more suited to organisations with a social purpose.

The process for conversion is set out within section 115 of the Act and section 117 confirms the conversion has no effect on the liabilities of the organisation.

The recent High Court case of Mount Wellington Mine Ltd v Renewable Energy Co-operative Ltd [2021] EWHC 1486 considered whether, on conversion, the company became a different legal entity. The case emanated from a dispute where a party who granted a lease to the company asserted that, on conversion, the company to which the lease was originally granted became a different legal entity and, without an express assignment, the new entity was not entitled to exercise rights granted to it under the lease.

Helpfully, the case confirms the previously understood position that the converted entity was the same legal person who entered into the original lease. As such, the assets and liabilities attached to the company before the process took place continued to attach to the society when the process ended.

The case is useful because, whilst the effect of a conversion from a company to a community benefit society under the Act was understood to not impact on any assets or liabilities, this point had not been tested in the courts until this case. As such, it provides assurance to entities looking to take advantage of the conversion process.

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