Registering under the COSO Act

One of the central features of a cooperative registered under the COSO Act is that it is incorporated, which means that it is a distinct legal entity. That legal entity is created when the Registrar of cooperatives processes an application by a group wishing to become incorporated and registers the coop name on the Register of cooperative and business developments

Why choose COSO ?

The main benefits of registering under the COSO Act are that:

• The members can choose, when they register the coop, not to be liable for the debts of the coop
• The by-law that governs how the coop is run can take into account Ni-Vanuatu customs and traditions
• In some cases coops may be exempted from annual reports
• Profits of the cooperative can be distributed to members if the by-law allows for this
• Coops can access client assistance, support, and information and training programs, offered by the Registrar of cooperatives.

Steps to Register

You've decided to start a Cooperative under the Cooperative Act 1987 (COSO CAP 152) and you're ready to take the next step, but where do you begin? Here is some information to help you get started.

1. Fill in the application for registration form.
2. Complete your proposed rule book.
3. Hold a meeting of members to get their agreement to; apply for registration, approve the proposed By -Law, nominate the managers and nominate the contact person or secretary.
4. Send your application form, By-Law, and resolution to ORCBDS.

Below is a checklist of documents you will need to send to ORCBDS.

• Application for registration form
• A copy of the By -Law
• A resolution of members agreeing to apply for registration

You can download templates of registration application forms here.
A resolution can be either: a signed resolution from your group that at least 75 per cent of the members applying for registration have agreed to do so, OR if the decision to apply for registration was made at a meeting where the original members passed the required resolutions, the minutes of that meeting.
You can return your form and attachments either by email, or post. To email documents, you will need to scan them first.

Email: coops@vanuatu.gov.vu
Post: Office of the Registrar of Cooperative & Business Development Services
          PMB 9032 Port Vila Vanuatu

What happens when you return your application?

Your application will be checked to make sure it is filled in properly and that the requirements of the COSO Act are met. If it is not complete we will write to the applicant and the additional information will need to be provided before the application can be registered.
ORCBDS will then: send you a certificate of registration and a copy of the approved By-Law.

Cooperative governance must often be performed in conjunction with other types of governance. The size of the cooperative makes a big difference to how cooperative governance is practiced. In small cooperatives with very little funding and few liquid assets, informal arrangements can work well. Micro to small and medium cooperatives (that is, where income is over VT 10,000,000) need to formalize their practices more if they are to survive and be successful. The trend towards growth in the size coops means that the process of formalizing corporate governance practices as cooperatives grow is important and a key to improving governance in the near future. At the same time, small cooperatives should not be over-burdened with unnecessary red tape. The COSO Act allows for this by streaming cooperative for reporting purposes.

For Micro, Small and medium cooperatives, more formal arrangements need to be in place if the management are doing their job well. The focus of the directors should be on clarifying with members the direction (aims) of the cooperative, then deciding on the best roads to get there (goals) and driving to achieve these aims and goals. The challenge of mapping clearly the direction and the roads that a cooperative society will take is a big job and should not be underestimated. The management also needs to focus on overseeing the implementation of the goals through committee, including having a say in the employment and keeping a constant eye on risks and whether they are being managed well. Management for micro small and medium cooperative businesses need to avoid micromanaging (a common mistake); instead, they should steer. Most cooperatives under the COSO Act have limited liability, which means that members do not usually have to contribute to the debts of the cooperative if it fails. However, directors can be held liable if they have not fulfilled their duties. Other issues, which are increasingly being recognized as important to cooperative businesses, are:

• Respect for members' rights
• Agreement about and use of effective internal dispute resolution mechanisms for coops
• Availability of timely and accurate reporting to committee
• Self monitoring
• An agreement about to whom accountability is owed, which is put into practice
• Agreed decision-making principles
• The need for the directors to be equally representative of various interest groups, balanced with other requirements for skills and independence
• Transparency in structure and decision making
• Active and persistent conflict-of-interest management, particularly by the directors as a whole and individually
• Up to date and relevant goals and strategies for the coops

NFOsheet: Top ten practical tips for good cooperative governance

1. Keep register of members up-to-date Make sure the registers has the following information for every person who is or has been a member: • the person's name and address • the date that person became a member • the date that person ceased to be a member (if applicable) (Note: the register of members is a continuing record and if kept correctly, it will help to resolve any disputes about who is a member.)
2. Know your role and responsibilities Make sure the committee and management fully understand their role and responsibilities
3. Know your by-laws Know your rule book (by-laws). Encourage your members to learn about it.
4. Know your money position Make sure you know about the money position, or use your auditor more often (say every three months) to check that your staff are managing the money properly (a good auditor will do this for the management).
5. Taxes Make sure that tax matters are handled correctly, in particular the VAT Regulations), Pay As You Go (PAYG) and Fringe Benefits Tax (FBT). Make sure the severance payments are paid for all your staff.
6. Attendance Make sure a board members is at every meeting when the ORBDS come to visit.
7. Insurance (currently optional) Make sure the cooperative property is insured. Check that insurance policies are renewed on (or before) the due date.
8. Assets Be careful to only use the cooperative assets in line with conditions (most will say that personal use is not allowed). Better still, make a policy about this for everyone to see and use.
9. Minutes of meetings Make sure you keep minutes of every meeting of the cooperative. Minutes should say what type of meeting you had (AGM, general meeting or board member's meeting, what day it was held, who came, and what decisions were made).
10. Hold an annual general meeting (AGM) Make sure you have an AGM every year (usually before 30 November).

Meetings are an essential part of ensuring good cooperative governance. The cooperative ACT 153 sets the rules for meetings but there are some parts of the law that coop can change in their own by-law. This is because the COSO Act was designed to be flexible to accommodate the needs of coop. Sometimes holding meetings can be very difficult for coops in remote parts of Vanuatu, especially if members are located in a very isolated area.
There are two main types of meetings:

• General meetings—open to all members of a coop
• Board meetings—for the board members only

General meetings are open to all members of a cooperative. All the people on the current register of members can attend. A new coop must hold a general meeting within three months of registration. After that time a coop must hold a general meeting every year within five months after the end of the financial year. This meeting is called the annual general meeting (AGM).

Annual general meetings

The AGM is an important meeting held once a year to allow the board to formally provide the members with information of what has happened over the last 12 months. This includes giving the members reports and financial information. Has your cooperative held its AGM yet? The COSO Act says that the AGM must be held before the end of each year. An AGM, just like any other meeting, will flow much better if it is properly planned and if certain rules and procedures are followed. You should check your coop by-law for rules about your AGM and the business to be conducted at the meeting.

Board's meetings

The meetings of board are where decisions about the business of the coop are made. Coops need to set out in their by-law how often their board meetings will be held. ORCBDS recommends that board meet at least every three months.

What financial records must be kept by the cooperative?

As a chairman together with the other board members, the law makes you personally responsible for keeping proper cooperative business accounts and records. Board must ensure the cooperative keeps up-to-date financial records that:

• Correctly record and explain its transactions (including any transactions as a trustee) and
• Explain the coop's financial position and performance
• Even the smallest cooperative must have financial records so that:
• True and fair financial statements of the cooperative can be prepared if needed
• Financial statements can be conveniently and properly audited, if necessary and
• The cooperative must obey the tax laws and other legal obligations.

What are financial records?

The basic financial records that accountants might expect a coop to keep are:

• Income and expenditure information that records all the coop's transactions Cash records—e.g. bank statements, deposit books, cheque butts, petty cash records
• Creditor and Purchases records—e.g. purchase orders, invoices and statements received and paid, unpaid invoices, a list of all purchases, a list of all creditors and their balances
• Wages and severance pay records
• A register of property, plant and equipment showing transactions and balances in relation to individual items Inventory records
• Tax returns and calculations—e.g. income tax, fringe benefits tax and VAT returns and statements
• Deeds, contracts and agreements.
  Get professional advice if you have any doubt about the content or type of financial records to keep. The list above gives examples only, because the financial records you need will vary from coop to coop You may keep some financial records electronically, but you must be able to convert them into hard copy so that you can give them to anyone entitled to inspect them.

What if your coop can't pay its debts?

You must stop your coop trading if it is unable to meet its existing debts. You must prevent the coop from taking on new debt if that would mean it could not meet that debt and its existing debts. If you have reasonable grounds to suspect that the coop cannot meet its debts, or won't be able to if you take on more debt, stop and get professional advice. Your coop is 'insolvent' if it can't pay its debts. You would be breaking the law if you let the coop trade while insolvent. You could be sued personally by a liquidator or creditors for your own assets, not just the assets of your coop, and you could face civil or criminal action. Common signs of financial trouble are:

• Insufficient cash flow
• Problems paying trade suppliers and other creditors on time
• Trade suppliers refusing to extend further credit to the coop
• Legal action taken, or threatened, by trade suppliers or other creditors over money owed to them.

If your coop is having difficulties paying its debts, get professional advice quickly. Don't assume that you will be able to trade out of the problem. Delay could be damaging to the coop and to you personally.

What is required of a Board Member?

Board Member have a duty:

• Of care and diligence
• Not to improperly use their position or information
• Not to trade while insolvent
• Of good faith
• To disclose conflicts of interest

A Director's obligations

As a board member, you will control the cooperative business. The coop's by-law will set out the powers and functions of the board member. A board member has a common law right to inspect documents of the cooperative, if required, in order to assess the coop's performance. A board member must:

• be fully up to date on what the coop is doing
• find out for himself or herself how any proposed action will affect the coop's business performance, especially if it involves a substantial amount of the coop's money
• obtain outside professional advice when required to make an informed decision
• ask questions to managers and staff through the chair at board members meeting about how the coop is going
• Take an active part in the board's meetings.

Remember, only be a board member if you are willing to put in the effort.

Contact person or secretary

Micro, Small and medium size coops have a contact person. Large coops should have a secretary. You can contact ORCBDS for information on your coop current contact person or secretary details held by this office. If your coop has recently appointed or changed your contact person or secretary please let the officers under ORCBDS aware of this changes.

Dispute resolution

Well-managed disputes can strengthen your coop and improve member and community confidence. Unfortunately when disputes are handled poorly they can significantly affect a cooperative, its members and everyday business. ORCBDS dispute resolution service can help you sort it out. ORCBDS has staff who have expertise in good governance and dispute management. ORCBDS works with disputing parties to design a dispute response which is most suited to the coop's needs. Ways we can help manage disputes by providing:

• An advisory opinion—a formal letter giving an opinion about the situation in dispute
• Advice—by telephone, face-to-face or email to try to quickly fix issues that are not too complex
• Conferencing—facilitated informal meetings of parties involved in the dispute
• ORCBDS staff—to attend coops meetings as observers, to present information or provide advice.

Closing a Cooperative Society

When a cooperative is closed, it is deregistered on the Register of cooperatives and has no legal status. When and why it is closed depends on many things but closures usually occur because the members decide to end the cooperative business operation. ORCBDS needs to be involved in this process.

Closing a cooperative business registered with ORCBDS

• Closing a coop means the name of the coop is struck off from the Register of cooperative and effective from this date the coop has no legal status. The process to close a coop initiated by members is called voluntary winding up. (Note: a coop can be closed by other methods—refer to deregistration and winding up.)
• Voluntary winding up is suitable when a coop is solvent (the coop has sufficient assets to pay all its liabilities) but the existence of the coop is no longer required.
• If the coop is not subject to any other legal proceedings or any regulatory action by the Registrar, the members must pass a special resolution; that is, a resolution requiring a 75 per cent majority of eligible voters who vote at a meeting.
• The contact person or secretary of the coop will have to fill in a form notifying the Registrar that the coop has passed a resolution for voluntary winding up.

If you think there is a problem at a coop the first step is check what the cooperative by-law says about the matter. You should then talk to the coop or if your concern is serious you should put it in writing. When you do either of these:

• Be clear about what the problem is
• Explain what you want the cooperative to do
• Ask for a response within a reasonable time
• Be polite
• Keep a record—what happened, the date and the name of the person you spoke to, or a copy of any letters or emails you sent.

If you aren't happy with the coop's response you should consider lodging a formal complaint about the matter with the Registrar's office.