Specialist Insolvency Support for Friendly Societies

Friendly Societies are unique financial and social organisations that exist to support their members rather than generate profit.

Their influence could be said to have helped shape modern social insurance schemes, including the foundation of the National Insurance Act 1911, which later evolved into the UK’s welfare system. When Friendly Society faces insolvency, it can be a very concerning time for members, trustees, and stakeholders. Not just because of the financial situation but also because of the role they play in supporting their members.

When you need us our specialist insolvency practitioners provide expert, empathetic support. We will help with ensuring that the process is handled legally, transparently, and with the best interests of members in mind.

Insolvency for Friendly Societies

A Friendly Society can become insolvent if:

It cannot meet its financial obligations – known as cash flow insolvency.

Its liabilities exceed its assets, making it financially unsustainable – this is technically called balance sheet insolvency.

Because Friendly Societies often provide financial services, insurance, pensions, or social benefits to members, insolvency requires careful legal and regulatory compliance. Seeking advice from a licensed insolvency practitioner (IP) early can help protect members’ interests, manage liabilities, and ensure the best possible outcome.

What Are Friendly Societies?

A Friendly Society is what is known as a mutual organisation. Its core objective is to provide financial, insurance, or social benefits to its members. These societies were originally often created to offer sickness, unemployment, and funeral benefits. Many of them therefore started before the creation of the modern welfare state to provide for the needs of communities. Today, they continue to operate, often offering:

• Life insurance and savings plans with tax benefits.
• Healthcare schemes and sickness benefits.
• Pension and investment products.
• Social and fraternal benefits, including member support funds.

Friendly Societies operate as 'not-for-profit' organisations. That means any surplus income is reinvested for the benefit of members rather than external shareholders. They are regulated separately from standard companies under the Friendly Societies Act 1992 and must comply with Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) requirements.

What Are the Legal Requirements for an Insolvent Friendly Society?

When a Friendly Society is severely financially distressed, it must follow strict procedures to ensure compliance with financial laws and the protection of members' interests.

1. Regulatory Oversight and Compliance for Friendly Societies

Friendly Societies are subject to financial and insurance regulations, meaning insolvency must be reported to and managed under the oversight of:

• The Financial Conduct Authority (FCA) – Ensures compliance with financial and consumer protection laws.
  The Prudential Regulation Authority (PRA) – Regulates the solvency of financial institutions, including Friendly Societies that provide insurance products.

2. Trustees' and Directors' Duties

Under the Friendly Societies Act 1992 and Insolvency Act 1986, those responsible for managing a Friendly Society must:

• Cease trading if insolvency is likely, unless advised otherwise by an insolvency practitioner.
• Seek professional insolvency advice to comply with legal obligations.
• Prioritise creditors and members’ financial interests over the organisation’s ongoing operations.

Failure to follow these legal requirements could result in personal liability for directors, legal action, or disqualification from managing financial organisations.

3. Informing Members and Stakeholders

Because Friendly Societies exist for their members, insolvency must be managed with absolute transparency. Members, policyholders, and regulators must be notified of the situation.

You must also ensure that financial obligations to members are met as far as possible under the circumstances, and that regulatory requirements are followed to protect savings, pensions, or insurance benefits.

Early discussion and advice from an Insolvency Practitioner will help you know where you stand and may also help protect assets and minimise financial loss.

What Will Insolvency Involve for Friendly Societies?

If insolvency cannot be avoided, a Friendly Society must follow a structured legal process to ensure debts are settled fairly, regulatory obligations are met, and member interests are protected.

1. Financial Assessment and Viability Review - An insolvency practitioner will review the society’s assets, liabilities, and contractual obligations to determine the best course of action.

2. Seeking Advice from an Insolvency Practitioner - A licensed insolvency practitioner (IP), such as Smart Business Recovery, will explore options including rescue and restructuring or formal insolvency procedures if closure is unavoidable.

3. Notifying Regulators and Members - Friendly Societies have a legal obligation to report financial distress to the FCA and PRA and keep members informed.

4. Choosing the Right Insolvency Procedure - Depending on the circumstances, the following insolvency options may apply:

• Solvent Restructuring or Transfer to Another Friendly Society - If financially viable, the society may merge with or transfer its operations to another Friendly Society. The FCA and PRA must approve a transfer.
• Creditors' Voluntary Liquidation (CVL) - Used when the Friendly Society can no longer trade sustainably. An insolvency practitioner sells assets and distributes funds to creditors and members.
• Scheme of Arrangement - A structured debt repayment agreement approved by the court. The Society has time to settle its debts while continuing to provide limited services.
• Administration - The society is placed under the control of an administrator to restructure and potentially rescue the organisation. Any legal actions against the society are temporarily halted, giving time to find a solution.
• Compulsory Liquidation -If creditors petition for winding up, the society is forcibly liquidated under a court order.

5. Closing or Restructuring the Society - If insolvency is inevitable, the society's remaining assets are distributed to creditors and, where possible, members.

Because Friendly Societies often handle member savings, pensions, or insurance funds, the FCA and PRA closely monitor the insolvency process to prevent financial misconduct or unfair treatment of members.

How Smart Business Recovery Can Help with Friendly Society Insolvency

Friendly Societies are built on trust, serve the community and at their core, they are about financial security. Facing insolvency can feel overwhelming, especially when the members finances and their families' well-being are at stake. The unique nature of Friendly Societies means the best option is a tailored, professional, and compassionate solution. That way you are ensuring that the process is fair, legally compliant, and member-focused.

We offer:

• Specialist Friendly Society Insolvency Advice – Understanding FCA and PRA regulations.
• Rescue & Restructuring Solutions – Exploring ways to keep the society operational.
• Creditors’ Voluntary Liquidation (CVL) – Managing a structured wind-down process.
• Scheme of Arrangement Support – Negotiating debt repayment plans with creditors.
• Compliance Assistance – Ensuring full legal and financial compliance.
• Compassionate, Transparent Support – Recognising the emotional impact on members and trustees.

If your Friendly Society is struggling financiallys early action can only help you find the right solutions.

We are here to help Friendly Societies navigate insolvency with integrity, professionalism, and a commitment to protecting members’ interests. Contact and let’s discuss the best solution for your organisation. Your first consultation is free and the sooner we make a start, the better for everyone.