Saccos to have independent directors in proposed new law
The Co-operatives Amendment Bill (2021) proposes to introduce radical changes that will usher in a new regulatory regime for all players in the co-operative sector.
The Bill proposes that a cooperative shall, where required by law, or where at the option of members by a special resolution of the general meeting, have independent directors.
Clause 57 of the Bill proposes to introduce positions of independent directors to sit at the Boards of Saccos as a way of improving the quality of decision making, especially on professional matters that touch on the co-operative society.
Members of the Board of Directors, other than the independent directors, shall be elected for a term of three years and shall be eligible for re-election. Independent director is regarded asa member of a board of directors of a cooperative who is not a shareholder and does not have a material or pecuniary relationship with the cooperative or related persons
The Bill states that every cooperative shall have a Board of Directors consisting of not less than five and not more than nine members who shall be elected by members at the general meeting, excluding any independent directors where applicable.
The Cabinet Secretary shall by regulations prescribe the – cooperatives in respect of which it shall be mandatory to have independent directors, taking into account the size of the cooperative, the diversity of membership, the complexity of the business among others; and procedure for appointment and terms of office of the independent directors.
In the appointment of independent directors, the cooperative shall take into account any existing skills gaps in the board, the need to mainstream affirmative action, diversity, and compliance with any existing laws.
The members of the Board of Directors shall elect a chairperson and a vice-chairperson from among their members. The bill had proposed that a person elected by the Board of Directors to serve as a chairperson not to serve as chairperson for more than three consecutive terms of three years each, provided that the person may become eligible for election as a chairperson after a break of a minimum of six years.
This proposal hit a brick wall especially in rural farmers Saccos where directors wield enormous clout based on their shares, tea bushes, or even coffee trees.
Employers face stiff penalties for
defaulting on remitting members’ funds
The Bill has also attempted to deal with the issue of delayed or failure to remit members’ funds to Saccos.
Where an employer of a person who is a member of a cooperative has, under the instructions of the employee, made a deduction from the employee’s emoluments for remittance to the cooperative concerned but fails to remit the deductions within seven days after the date upon which the deduction was made, the employer shall be liable to pay the sum deducted together with compound interest thereon at a rate of not less than five per cent per month.
The Commissioner may, on behalf of the cooperative, institute legal proceedings in court for recovery of the sum owed without prejudice to any other mode of recovery and such sum shall be a civil debt recoverable summarily.
The Commissioner can also appoint any person, bank, or institution to be an agent of the cooperative for the purposes of collection and recovery of a debt owed to the cooperative through a written notice. The agent then pays the amount specified in the notice.
Where an agent claims to be or to have become unable to comply with the provisions of the Bill because of lack of money held by or due from him, he shall give written notification to the Commissioner stating the reasons for his inability, and the Commissioner may— accept the notification and cancel or amend the notice accordingly; or he is not satisfied with the reasons, reject the notification in writing.
“Where an agent fails to notify the Commissioner or the notification is rejected, it shall be presumed that the agent has sufficient money for the payment of the amount specified in the notice,” the Bill states.
If an agent fails to pay the amount specified in the notice within thirty days from the date of service or the date on which any amounts of money come into his hands for or become due to him from the employer, the agent is liable for the amount specified in the notification as if he were the employer.
“In any proceedings for the collection or recovery of the amount specified in the notice, it shall not be a defense for the agent to claim lack of the money.”
This section shall apply notwithstanding that the failure to remit the sum deducted and may constitute an offense under some other law for which the employer has been prosecuted or is likely to be prosecuted.
In this section “employer” includes any person, firm, or organization holding remuneration or payment for the produce of a member of a cooperative, and the term “employee” includes any person who receives remuneration or payment for products from such persons or firm or organization.
Subject to section 67 of the Bill, the share or interest of a member in the capital of a cooperative shall not be liable to attachment or sale under any decree or order of a court in respect of any debt or liability incurred by such member, and a trustee in bankruptcy under the law relating to bankruptcy shall not have any claim on such share or interest.
Withdrawing membership
A member may at any time withdraw from a cooperative by giving at least sixty (60) days’ written notice to the board of directors of a cooperative.
Upon giving notice of withdrawal from membership of a cooperative, the member shall be refunded any deposit held by the cooperative on his behalf or any accrued interest on such deposits; be paid any accrued dividends to the member before the date of notice of withdrawal; the member’s share shall continue to earn dividends in favour of the member or the members’ nominee or transferee, whenever such dividends are declared; and refund any other sums of money held by the cooperative on the member’s behalf after deduction of any sum owed to the cooperative.
A member who has given notice of withdrawal from membership of a cooperative shall continue being a member of the cooperative until the members’ share is transferred to another member or otherwise purchased by the cooperative as an institutional capital.
Where a cooperative fails to make a refund of members’ deposits or any other dues as provided in the section, the cooperative shall be liable to pay compound interest on the outstanding deposits or other dues to the member at the rate of five-per-cent per month for every month that the deposit or other dues remain unpaid.
Where a cooperative fails to refund a member’s deposits or other dues, the Commissioner may, at the request of the aggrieved member, issue an agency notice to the bankers of the defaulting cooperative to recover any such outstanding refunds or other dues together with any interest accrued thereon.
Inter-governmental cooperatives relations technical forum
To manage the devolved functions of co-operatives, which have been moved from the national government, the Bill proposes to establish an inter-governmental cooperatives relations technical forum- to coordinate cooperative activities between national and county governments.
The Bill provides for affirmative action and proposes that the composition of the boards should comply with the constitutional provisions on gender equity and inclusivity. While the principles of co-operatives require that democracy be upheld, it’s imperative to note that it is a herculean task for Saccos to achieve gender equity through the ballot.
It would be prudent to amend Sacco’s by-laws to achieve gender balance and inclusivity. Saccos are governed by the Cooperative Societies Act (No.12 of 1997) and the Sacco Societies Act (No. 14 of 2008).
The Co-operative (amendment) Bill is part of Dr. Nelson Kuria’s Ministerial task force agenda on the operationalization of the national co-operative policy that underwent stakeholders’ validation.
Cooperative courts
For the first time, Clause 142 of the Bill proposes the establishment of specialized cooperative courts to adjudicate disputes in the sector.
The co-operatives court will be presided over by a magistrate of at least the rank of a senior principal magistrate, with unlimited geographical and pecuniary jurisdiction in matters of cooperative disputes.
Parties aggrieved by the decision of the court have the right to appeal to the High Court. Clause 156 of the Bill provides an avenue for parties to utilize the alternative dispute resolution mechanisms in court as per Article 159 (2) (c) of the Constitution.
The Bill proposes that each co-operative should have a nomination committee with members drawn from professional institutions, religious groups, and government officials.
The sole purpose of the committee would be to vet and clear potential candidates for the director or supervisory roles in line with Article 73 of the Constitution on Leadership and Integrity.
On the supervisory board, the Bill proposes its members will only be eligible to vie for board positions only after three years of vacating the supervisory board. This was meant to cure the “push and pull” that may arise between directors and the supervisory boards.
A plausible option would be to clearly define the duties and reporting structure of the supervisory board to minimize conflicts with the board. Clause 57 of the bill has proposed positions for independent directors in the Sacco boards as a way of improving quality decision making, especially on professional issues about the cooperative.
Delegates system
The Bill provides for the adoption of the delegates system. Cooperatives are encouraged to amend their by-laws to provide for delegated or proxy representation at the general meetings. In the light of Covid-19 measures, the Bill proposes the use of virtual or both virtual and physical meetings under the supervision of the regulator to ensure the virtual meetings and voting platforms are transparent, verifiable, and inclusive.
