The Gazette 1986

INCORPORATED LAW SOCIETY OF IRELAND

GAZETTE

Vol. No. 80 No. 5

JUNE 1986

Building Societies Under Scrutiny

he recent publication of the Government's

'Discussion Document on Building Societies' is

welcomed. It had been a matter of concern that the

earlier report of the Interdepartmental Committee's

enquiry which had been announced with such a flourish

had not been published.

Much of the Discussion Document is naturally

concerned with the function and methods of operation

of building societies and contains many valuable

proposals. The increase in management expenses which

is documented gives cause for concern while other

practices such as redemption fees and tiered interest

rates come under deserved scrutiny.

The self-perpetuating oligarchical nature of building

society boards of directors is also referred to. In this

context and in the context of recent developments in co-

operative societies, all of which operate under similar

legal controls, the question of monitoring the

performance of their executives clearly arises.

The recent report of the Restrictive Practices

Commission on Insurance and Valuation Reports for

Building Societies also contains some criticisms of the

way in which the building societies act and the

individual societies' rules encourage the perpetuation of

control by virtually self-chosen boards of directors. The

absence of any statutory provision requiring the

maintenance of any register of members makes it

extremely difficult for any member, seeking to canvass

the membership either for support for election to the

board or for motions at general meetings, to identify the

electorate. Rules which permit retiring board members

to be automatically renominated but for new candidates

to have substantial numbers of nominators should not

be permitted. It must, however, be doubtful whether

such changes alone will provide the necessary

independent supervision which is desirable. There are

institutional

shareholders

whose

possible

intervention hangs over the heads of boards of public

companies. Independent non-executive directors might

provide a partial solution but recent Irish experience

casts doubt on this. Perhaps the best solution might be

an independent supervisory board, such as exists in

German Company law, with real authority over the

activities of the executive board.

However, it is the section of the Discussion Document

dealing with conveyancing and lending practice which

makes the document of most interest to the legal profes-

sions. Apart from a reference to the "introduction of a

standard form of contract" which suggests that the

information of the Committee which compiled the

document is years out of date, the recital of the

arguments in relation to the "third solicitor" are

unsatisfactory. There is no reference to the Law Society

having recommended that lending institutions should

accept the certificate of the purchasers' solicitors as to

title, nor is there reference to the principal argument

made in favour of that "certifying" practice, namely

that it has operated satisfactorily in England, Wales and

Scotland and Northern Ireland for many years.

The suggestion that the problem could be dealt with

by means of building societies' solicitors acting for the

purchaser is curious in a report which is otherwise

critical of "monopolistic" practices. The Committee

appears not to appreciate that a principal factor in the

appointment of firms to panels is not just their legal

expertise but their ability to provide funds for

investment in the societies.

It is disappointing that the work of the Committee

established by the Minister for the Environment on

delays and costs in house purchase transactions has been

itself delayed. It is to be hoped that the publication of

this Discussion Document will galvanize that

Committee into its report which hopefully will support

the position already taken by the Law Society on

certificates of title.

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