TOPIC:

I note from the share prospectus that there is an asset lock which prevents disposal of the building in the event of the business failing i.e. the co-op being dissolved.
Can anybody tell me what would happen to the building and who would own it, also how would investors get their money back?

Hi Towaho, Thanks for the question.

The 'asset lock' feature is a common feature of community companies. During the consultation we did with customers and supporters, asking what they wanted from community ownership, one of the strongest themes to emerge was the need to safeguard The Bell as the great pub it is well into the future, and to avoid personal gain being a motivation for .e.g. change of use or selling to unsympathetic new owners. This is what the asset lock is designed to do, because it puts an extra barrier in the way of people being able to dispose of The Bell in such ways. (It would stop Members voting to sell the place and share out the money for personal gain for example)

We do not believe that there is any risk of losing investment money as The Bell has such a strong track record and is going from strength to strength. HOWEVER, should circumstances arise in the future that might lead people to wonder about cashing in on the asset, removal of the lock is permitted in company rules with a 75% vote of Members. This ensures that any such move would be widely popular at that time, and seen by the majority as the right way to go.

General point about circumstances leading to people thinking about cashing in on building etc. in the future...Any investment in shares is always a risk and any business can fail. However I would point out again that a very good indicator of assessed risk in these cases is a bank's willingness to lend, and the rate they choose to lend at. Banks are old hands at calculating these things. In our case, the banks we visited said that we ticked all possible boxes for a 'good risk' and this is reflected in the 2.2% over base that we would initially be borrowing at, should that become necessary!... So the scenario where the asset lock becomes an issue is a very unlikely one.

Do ask more, if that doesn't cover it

Patrick

If the co-op was wound up with the asset lock in place - firstly all share investment would be paid back through sale of any assets (the building). Any other residual assets above this would then be transfered to another similar community organisation.

More detail on the asset lock in The Society Rules which are now available in the download section.

Thanks Tom.... very clear and more awake than I was when I wrote mine

Thanks Tom
Although comforting the prospectus reads exactly the opposite to that advice as it says "once shares and other liabilities are paid, residual assets (the pub) cannot be distributed amongst the members"
Tony

Our co-op advisor has confirmed my post on the asset lock :
As it stands with the asset lock in place (underlined part that confirms that assets can be sold to re-pay shares) as follows:

‘On dissolution of the organisation, the assets and interest in the assets are passed onto a third party organisation (invariably of a charitable nature or within the co-operative movement) which may be stipulated by the organisation. Effectively, the individuals involved with the organisation do not benefit.
Basically, this acts to prevent distributions of surplus to members, other than payments of interest on withdrawable shares or the repayment of withdrawable shares (and in this case any dividends) on solvent dissolution.
It has all of the hall marks of an asset lock, but it isn’t quite the same thing (indeed, the arm of the legal form you have chosen is not capable of having a ‘statutory’ asset lock. As you’ve stated, if the right number of members voted, this could be changed (and the members could choose that any surplus is distributed on some sort of equitable formula between the members).

In terms of the business failing, my guess is you mean “what if we had to sell the asset” – and this clause does not prevent this. It also does not prevent the money realised from the sale not being used to pay down the share capital issued. If the asset has appreciated in value, the amount left after all / any of its assets remain to be disposed of after its liabilities are satisfied, these assets shall not be distributed among the Members, but passed onto a third party organisation (invariably of a charitable nature or within the co-operative movement).’