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Charities

Commission's poor handling of a case amounted to 'maladministration', says ombudsman
Friday 20th May 2016

The Charity Commission’s handling of a case over more than 20 years was “so poor as to amount to maladministration”, according to an ombudsman’s report published this week.
 
The report, from the Parliamentary and Health Service Ombudsman, upholds a number of complaints by the Coal Industry Social Welfare Organisation (CISWO), which delivers welfare services for miners. It upholds a number of complaints relating to lack of clarity, unhelpfulness and delays, and recommends that the Commission apologise to CISWO and pay around £20,000 to compensate the charity for legal costs, staff time spent, and travel expenses.
 
The report was handed down in September last year, but made public earlier this week by law firm Brabners, who acted for CISWO.
 
The ombudsman assesses complaints about the management of cases by public bodies. It does not judge whether complaints have merit in law, but assesses whether an organisation has not acted properly or fairly or has given a poor service and not put things right.
 
Its 29-page report covers the Commission’s handling of a dispute between CISWO and the Newbold Verdon Institute, another miners’ charity, over the closure of Newbold and the sale of its property. The Commission was involved in handling the issue between 1992 and 2014.
 
CISWO sought advice on whether Newbold needed its permission to sell property, and the ombudsman judged that the Commission had not fulfilled its role properly.
 
“It is clear to us that the Commission failed to explain their views and reasons for their decisions properly,” the report says.
 
“They contradicted themselves, they sent confusing letters, they refused to clarify issues and they sent mixed messages to CISWO on a continuous basis. We consider that the Commission’s service was so poor that it amounts to maladministration.”
 
The report says that the Commission provided advice to CISWO on several occasions, but that this advice was frequently unclear, and contradicted what it had previously said.
 
It said: “The way the Commission conveyed its views was extremely poor and so unclear as to have caused CISWO a decade of dissatisfaction.”
 
It said the regulator’s actions “could go against the Commission’s core role to protect the public’s interest in the integrity of charity and the public benefit”.
 
It also said the Commission lacked a “corporate memory” which allowed it to understand how it had reached legal decisions in the past. The report said the regulator took too long to respond to queries and did not provide clear reasons for its decisions.
 
However the ombudsman did not uphold a CISWO complaint that the Commission had allowed the proceeds of the sale of Newbold’s property to go to an organisation CISWO did not approve of.
 
Commission response 
 
The Commission has apologised and said it has already changed its systems to avoid a similar situation and has agreed to compensate CISWO.
 
A Commission spokesman said: “We welcome the ombudsman’s thorough and careful report. We accept that our service in this case fell well below our usual standard and was unacceptably poor. The substantive part of this reports relates to actions taken by the Commission some considerable time ago, but we would like to repeat our apologies to those involved and reassure charities and the public that we have already changed our systems and processes to avoid similar problems arising again. When customers request us to reconsider our position, we now conduct quicker internal reviews led by non-conflicted senior staff members, and no longer operate the outcome review panel, which we accept was sometimes slow to respond to the customers’ needs.
 
“More generally, we are focused on improving the Commission’s service to customers and we are confident that the changes we are introducing, including to prioritise complex and high risk work and automate lower risk work, will improve charities’ and the public’s experience of our services. Indeed, we hope that charities are already noticing these improvements. The most recent NAO report, published in January 2015, acknowledged the Commission’s 'positive first steps' in regulating more effectively and we continue to build on that.
 
“We are working closely with the Coal Industry Social Welfare Organisation (CISWO) and all cases involving coal community charities and CISWO are now dealt with by a specialist senior case manager to ensure consistency and speed.
 
“We have agreed the consolatory payment and recompense for wider costs incurred by CISWO, as the Ombudsman recommends.”
 
Article taken from civilsociety.co.uk

Author:

The Fundraising Regulator
Thursday 5th May 2016

Those who attended our Charity Law Annual Update seminars back in February may recall that I spoke at some length about the headlines generated throughout 2015 as a result of the fundraising practices of a number of high profile charities.

A very detailed account of this can be found in Issue 20 of our Charities and Social Enterprise newsletter, available via the following link: http://www.brabners.com/articles/charities-and-social-enterprise-news.

The various incidents and subsequent reports resulted in the establishment of a new regulator for charity fundraising, The Fundraising Regulator, and since the turn of the year steps have been taken to get the new regulator up and running, with a view to it being fully operational by the summer.

Last week, the new Fundraising Regulator launched its website and branding. The new website can be accessed via the following link: http://www.fundraisingregulator.org.uk/.

The website contains some very useful information for charities, including a helpful FAQs section which provides answers to some of the questions that charities might have in relation to their existing memberships of the Fundraising Standards Board (FRSB) and some introductory information about the proposed Fundraising Preference Service.

Comment

The current chief executive of the new regulator, Stephen Dunmore has described the new logo as being a “clear and straightforward design which reflects the way we intend to work with all of our stakeholders”. Having little by way of brand design experience,

I have no particular view upon the logo or its effect but it the commitment to a clear and straightforward approach is promising given the very muddled and complicated regulatory landscape that has previously been in place.

As stated in our seminars and other publications, we at Brabners are actively keeping tabs on developments relating to the Fundraising Regulator and the next couple of months are likely to be an interesting period, particularly for charities that engage in public fundraising.

In our next issue of CSE News, I will include an article looking into recent developments more closely along with suggestions as to the steps that charity trustees should take in respect of their organisation’s fundraising activities.

The range of services offered by the Charities and Social Enterprise Department can be viewed here: http://www.brabners.com/practices/charity-law.


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Kids Company – The fallout continues…
Friday 29th April 2016

The government has published its response to the PACAC Report on the collapse of Kids Company and as expected, the majority of the recommendations of the Committee have been accepted. One such recommendation catching headlines this week is that the government has committed to undertaking greater scrutiny before making grants to charities.

As most will be aware, the government came in for heavy criticism in the aftermath of the Kids Company collapse, mainly as a result of a £3 million payment made to the charity shortly before its collapse.

The government has announced that it intends to introduce a register recording all grants it makes and increase transparency about which charities it is funding. An annual report to Parliament will also be provided setting out the government’s grant making activity.

In addition to this, a Grants Efficiency Programme has been launched and those responsible are currently in the process of consulting with departments upon the establishment of new guidance designed to ensure that a grant “represents value for money”. Efforts are also being made to ensure that government departments are aware of each other’s grant making activity – leading to a more joined up approach.

Comment:

Given the criticism levelled at the government (and indeed senior political figures who appeared to override the advice of civil servants), this news comes as no surprise.

Charities in receipt of government funding can now expect to be more closely scrutinised than ever before and it has been suggested that comprehensive annual reviews will become a requirement attached to grant funding.

The government is also considering requiring charities in receipt of grant funding to be able to demonstrate the existence of a minimum level of reserves. Rob Wilson, the current Minister for Civil Society is in the process of a review of the PACAC findings and this, along with other recommendations are expected to follow later this year.

If you would like to discuss any of the points raised in this blog please do not hesitate to contact David on 0151 600 3180. 

The range of services offered by the Charities and Social Enterprise Department can be viewed here: http://www.brabners.com/practices/charity-law.


Author:

Charities and the Freedom of Information Act
Monday 7th March 2016

As reported in our most recent Charities and Social Enterprise Newsletter (available to view here: https://t.co/Ixfrav0uBG), the extension of the Freedom of Information regime to charities has been under consideration by an independent cross-party commission tasked with reviewing the Freedom of Information Act 2000.

The extension of the FOI regime to charities could result in charities being required by law to release information that was otherwise considered to be internal or confidential to the trustees.

The cross-party commission has now released its final report and the commission’s comments in respect of this point are interesting.

The commission has refrained from making any explicit recommendation. However, it has stated that in their opinion that the FOI regime should apply to all providers of public services, including charities with:

  • one, single contract worth £5m;
  • multiple contracts with a single public authority that total £5m in value over one financial year. 

The commission also stated that it “has not received persuasive evidence that the Act should be extended to charities in their own right”.

Small and medium sized charities can be heartened by the commission’s comments ahead of any debate that might occur in Parliament as a result of the ten minute rule bill previously discussed (https://t.co/Ixfrav0uBG).

However, larger charities that deliver public services under contracts with local authorities should keep a careful eye on developments. The commission has stated that any changes should only be applied to future contracts and therefore charities may consider seeking to factor in and budget for any additional costs that a change might cause.

Comment

It has been suggested on a number of occasions that charities should be susceptible to FOI requests because they receive public donations and enjoy tax benefits, including Gift Aid. It appears that there is very little appetite to extend the FOI regime to charities simply because they are charities and this is good news for the sector.

However, for larger charities providing public services under contracts with local authorities it seems that a change might be on the horizon. Further developments can be expected during the year but at some point, large charities may wish to consider seeking advice upon what the impact of a change to the legislation might mean to them.

The range of services offered by the Charities and Social Enterprise Department can be viewed here: http://www.brabners.com/practices/charity-law.


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Regulatory charges? Charity Commission to consult
Tuesday 1st March 2016

As discussed in earlier blogs (see the following from 2014 and 2015: http://www.brabners.com/blogs/charities/charities-pay-charity-commission’s-services; http://www.brabners.com/blogs/charities/charity-commission-charges-continue-be-discussed), the prospect of the Charity Commission imposing charges on charities for the regulation of the sector remains on the Commission's agenda and it was reported yesterday that the Commission will begin a consultation process in the spring.

The Commission has suggested that a fixed fee of £140 a year for very small charities will be consulted upon, with a higher charge of £265 for registered charities with annual incomes exceeding £10,000. The Commission hopes that this will raise £23 million in funding for the regulator every year.

Previous proposals to impose charges for charity regulation have been met with signigficant opposition and it has been reported that yesterday's announcement, in a public meeting in Southampton, saw a number of objections raised. Concerns focused upon the level of fees for small charities and the independence of the Commission.

William Shawcross, the chair of the Commission, responded by expressing his concerns over further funding cuts to the Commission, stating that if the Commission's budget was to be cut further "the Commission would simply not be able to do its job".

It is expected that once the consultation process is complete, a proposal will be put to ministers with a view to having any new system in place during 2018 / 19.

Comment:

The Commission has previously stated that progress on this issue will move “at the speed of glacier” and this has certainly been the case.

The consultation can be expected to reflect the charity sector's current resistance to the imposition of charges - previous surveys showed that almost 90% of respondents were opposed to regulatory charges - and it is difficult to see how such an unpopular proposal could come to fruition in the suggested timescales.

Furthermore, should the Commission succeed in introducing charges for its services, might it follow that the next government (quite possibly one still wedded to austerity) will reduce the Commission's budget by the amount that the Commission manages to raise leaving the Commission in exactly the same position that it is now - only with the added burden of collecting between £140 and £265 from the 165,000 charities on the Register!?

The proposals have never been met with anything but strong opposition from the charity sector yet the Commission continues to raise the question on a fairly regular basis. Progress can be expected to be slow however the Commission is very clearly in favour of, at the very least, further investigation into whether charges can be introduced.

The range of services offered by the Charities and Social Enterprise Department can be viewed here: http://www.brabners.com/practices/charity-law.


Author:

Don't gamble with your duties as charity trustees
Wednesday 24th February 2016

The Responsible Gambling Trust (“RGT”) is the latest charity to hit the headlines for the wrong reasons.

A number of concerns have been raised against the RGT, including:

  • being sympathetic to the gaming business as a result of it receiving funding of approximately £5 million funded from bookmakers;
  • commissioning research from a company with a commercial interest in gambling; and
  • accusations of a conflict of interest after the husband of a senior executive was awarded a contract to conduct research.

A “dossier” detailing these concerns has been submitted to the Charity Commission. The Commission has said: “We are aware of the concerns in the media and have subsequently received a complaint relating to the Responsible Gambling Trust. The Commission is assessing those concerns to see if there is a regulatory role for the Commission. The charity has been in contact with the Commission and is co-operating with our assessment”.

Whether or not the concerns raised lead to any regulatory action remains to be seen but the case does highlight a number of issues that charity trustees should be aware of.

 

The trustees’ duty to act in the charity’s best interests

In carrying out his or her responsibilities, a trustee must act solely in the interests of the charity. Charity trustees should not represent or promote the interests of a third party, whether that third party is an organisation that funds the charity, the body that has appointed a particular trustee, or a body of which the trustee is a member or employee or in which he or she has some other interest.

Whilst funding for charities is an important issue, trustees cannot take the commercial interest of a funder into account when determining how the charity’s activities should be carried out.

An example of this has been highlighted by the so called “anti-advocacy clause” that the government is seeking to include in all of its funding contracts – the trustees of charity funded by government might take the view that the most effective means of carrying out the charity’s purpose is to lobby government in respect of a particular issue that falls within the charity’s purposes (otherwise known as objects) – the trustees of such a charity might not be acting in the best interests of the charity by refraining from lobbying on the basis that they did not want to lobby its funder.

The position is the same with commercial organisations. So for example, a charity whose objects are to promote good health through a healthy diet would be open to suggestions that its independence had been impinged if it suddenly abandoned a campaign highlighting the risks of a diet high in sugar following the receipt of funding from a Swiss chocolatier!

The trustees’ duty to avoid conflicts of interest

Charity trustees can only act in the best interests of their charity if they prevent conflicts with their own personal interests.

As stated in the Commission’s guidance “A conflict of interest is any situation where your personal interests could, or could appear to, prevent you from making a decision only in the charity’s best interests”.

Problems in this area are quite common. Conflicts of interest can arise in the following circumstances where a trustee or a connected person:

  • receives payment from the charity for goods or services, or as an employee;
  • makes a loan to or receive a loan from the charity;
  • owns a business that enters into a contract with the charity;
  • enters into some other financial transaction with the charity.

In most of these cases where a trustee is concerned the conflict is clear but in cases involving connected persons.

The term “connected persons” is defined in section 188 of the Charities Act 2011 and includes family members, business partners, and institutions or body corporates controlled by trustees or in which they have a substantial interest.

Trustees do need to be careful that they do not fall foul of the legislation when employing staff or entering into contracts with third parties.

Where conflicts of interest are identified, trustees must follow any specific conflict of interest provisions in the charity’s governing document. If a trustee (or a connected person) has an interest in a particular arrangement, he or she should declare the interest and withdraw from the discussion and decision making process.

Comment

It is of course possible that the Commission may consider that the information it has received raises no concerns from a regulatory perspective but at the very least, RGT has seen its name and reputation dragged through the mud.

Liberal Democrat leader Tim Farron has commented that the RGT cases raises “serious questions” and other political figures have suggested that RGT should be disbanded if the complaints have any substance.

Charity trustees should at all times ensure that are acting in the best interests of their charity and its beneficiaries and if any concerns arise in respect of conflicts of interest or loyalty, trustees should hedge their bets and take advice on the particular circumstances.

The range of services offered by the Charities and Social Enterprise Department can be viewed here: http://www.brabners.com/practices/charity-law.


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Charities and statutory warnings - an update
Thursday 17th December 2015

The Charities (Protection and Social Investment) Bill is continuing along its path to becoming law and earlier this month had its seconding reading in the House of Commons.

The Bill extends the regulatory powers available to the Charity Commission and its contents has been discussed extensively in earlier blogs. Please see in particular http://www.brabners.com/blogs/charities/charities-and-statutory-warnings.

The Bill was widely supported during the Second Reading and is now at the Committee stage, following which it will move to the Report stage which provides the opportunity for MPs, on the floor of the House, to consider further amendments to the Bill.

The Charity Commission was clearly very happy with the manner in which the Bill was received in the Commons and the following comments of William Shawcross, the Chair of the Charity Commission have been published:

“I am delighted that the Charities Bill received strong support at [the] Second Reading debate. The Bill will fill key gaps allowing the Commission to take robust action where serious mismanagement occurs. I am glad it has received cross-party support.

“The Bill will help the Commission maintain public trust and confidence in charities. It will do so by ensuring that charities and their beneficiaries are protected from individuals who are unsuitable to be trustees. It will also close the loophole whereby trustees can resign before being removed, thus leaving them free to take up a position to abuse other charities.

“A number of safeguards are included in the Bill, including a general duty for the Commission to act proportionately. The Commission is determined to strike the right balance between firm regulation and proportionate action”.

Further updates will follow as the Bill continues its journey to becoming law.


Author:

Charities and statutory warnings
Wednesday 21st October 2015

The Charities (Protection and Social Investment) Bill is continuing along its path to becoming law and at the time of writing is awaiting a second reading in the House of Commons.

As explained in earlier blogs (see: http://www.brabners.com/blogs/new-powers-and-extra-funding-charity-commision-announced and http://www.brabners.com/blogs/charities/charity-law-makes-queens-speech), the Bill extends the regulatory powers available to the Charity Commission.

One of the most (if not the most) controversial elements of the Bill is the inclusion of a new power for the Charity Commission to issue warnings to charities or charity trustees. The new power appears in section 1 of the Bill and reads as follows:

The Commission may issue a warning – 

  1. to a charity trustee or trustee for a charity who it considers has committed a breach of trust or duty or other misconduct or mismanagement in that capacity; or
  2. to a charity in connection with which it considers a breach of trust or duty or other misconduct or mismanagement has been committed"

A range of concerns have been raised in respect of this new power. Most notably, there is no right of appeal so the Commission can issue a warning to a charity or trustee without there being an appropriate means of challenge in the charity tribunal. Judicial review would be available to the recipient of a warning but this can be a slow and expensive route.

In addition to this, concerns have been raised as to the exercise of this power by the Commission. There are currently no guidelines as to how or why warnings will be issued. Warnings may be issued to charities who fail to file their annual reports to the Commission within the prescribed deadlines but could also be issued to charity trustees who the Commission considers have been guilty of misconduct or mismanagement – at present we are unclear as to whether warnings would only be issued in serious cases or whether they might be applied on a wider basis.

The Bill does contain provisions that enable those subject to a possible warning to make representations before a warning is issued. However, whilst the Commission is obliged to take into account any such representations, the power remains largely unfettered.

Furthermore, the Bill states that the Commission may publish warnings and at the Charity Law Association annual conference earlier this month it was suggested that the Commission’s approach would be to publish all warnings in the same way as it currently publishes the results of many of the regulatory steps that it takes. This could result in a very negative impact upon a charity’s reputation.

Comment:

At the Charity Law Association’s annual conference this month it was suggested that the Commission would exercise this power only moderately and that guidance as to its use would be made available in due course.

Furthermore, a Joint Parliamentary Committee of both the Commons and the Lords acknowledged last year that the new power is not necessarily intended to contribute significantly to the Commission's regulatory armoury.

It is perhaps to be expected that double defaulting charities (see: http://www.brabners.com/blogs/charities/charity-commission-continues-come-down-hard-double-defaulting-charities) will find themselves on the end of statutory warnings but it will be very interesting to see how the Commission makes use of this power in respect of wider issues.

The Charities (Protection and Social Investment) Bill will form part of the discussions at our upcoming seminar on 4 November at our Liverpool office. For further details and to sign up, please go to: http://www.brabners.com/events/charity-law-update-essential-trustee.


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Charity law reform - Law Commission consultation
Monday 15th June 2015

On Wednesday, 10 June 2015 I attended an event put on by the Law Commission in Bristol to consider its consultation on various technical issues in charity law and proposed charity law reforms.

The consultation is very wide ranging. The Law Commission has already made a number of recommendations relating to charities’ social investment powers and these have been implemented as part of the Charities (Protection and Social Investment) Bill announced in the Queen’s Speech last month.

This particular event covered three main areas, namely: (i) the means by which charities can amend their governing documents; (ii) the regulation of dealings with charity land; and (iii) permanent endowment. Each of these issues is discussed further below.

Amending the governing documents of charities

The Law Commission is considering the extent to which existing powers available to trustees of charities to amend their governing documents are appropriate.

The existing regime for charitable companies limited by guarantee and charitable incorporated organisations, whereby amendments can only be made by way of a special resolution of the members is considered to be appropriate. The process for charitable companies originates in company law and this was replicated for CIOs when they were introduced. The process is quite straightforward, providing of course that the trustees of a charitable company or association model CIO know who the members are!

The requirement for charitable companies and CIOs to secure the prior written consent of the Charity Commission under section 198 of the Charities Act 2011 for “regulated alterations” (that is amendments to a charity’s objects, its dissolution clause and trustee benefits provisions) are also considered to be suitable.  No changes are therefore proposed in relation to these incorporated forms of charity.

In respect of unincorporated trusts and associations, however, there was substantial discussion concerning the powers contained in section 275 and section 280 of the 2011 Act.

Section 275 permits small charities to amend their purposes without seeking any prior consent from the Charity Commission. A small charity for these purposes is one whose income in its last financial year did not exceed £10,000.

It was suggested that this income threshold should either be quite substantially increased or removed altogether so that the section 275 process is available to all unincorporated charities. The rationale for this is that under section 278 of the 2011 Act the Charity Commission has the power to object to a resolution amending an unincorporated charity’s purposes and there is, therefore, regulatory oversight in respect of this particular power.

An alternative might be to redraw this power in a manner that requires unincorporated charities to seek the Charity Commission’s prior written consent, thus avoiding circumstances where time and effort is put into a resolution to amend an unincorporated charity’s purposes and the Charity Commission subsequently objects. This would bring the regime applicable to unincorporated charities more in line with charitable companies and CIOs.

Section 280 of the 2011 Act provides a power for the trustees of an unincorporated charity to “modify” the powers or procedures set out in its governing documents. It was suggested that the term “modify” does create some uncertainty, particularly when unincorporated charities seek to introduce new powers or do away with existing ones.  The basis of this uncertainty concerns how far “modifications” can go, i.e. is this power restricted to simply adjusting existing powers in an unincorporated charity’s governing document or can it be used to introduce new powers and procedures?

Whilst attendees at the Law Commission’s event were satisfied that the power in section 280 is very useful, it was recommended that its terminology be clarified and perhaps a more general power to amend subject to the Commission’s oversight of “regulated alterations” should be introduced that more closely reflects the existing regime for charitable companies and CIOs.

The Law Commission is also considering the making of amendments to statutory charities and Royal Charter bodies.

Statutory charities are charities that are governed (and in some cases established) by an Act of Parliament. Royal Charter bodies are charities are governed by Royal Charter.

The processes involved in making amendments to the governing documents these charities is very onerous and time consuming. For example, the Royal Charter governing a Royal Charter charity can only be amended by way of an express power contained in the Charter (subject to the approval of the Queen in Council), by a supplemental charter made by the Queen in Council, by an Order of the Queen in Council giving effect to a scheme or by an Act of Parliament. To pursue any of these available routes is an expensive process.

The Law Commission is therefore recommending that a new statutory power of amendment be established that overrides anything within the Statute or Royal Charter governing a charity.  It is suggested that this power might also be extended to the bye laws of a Royal Charter charity.

There was, however, substantial uncertainty as to how this might be applied in practice and the Law Commission is grappling with the role that the Privy Council and Charity Commission might play. There are also more fundamental concerns as to the trustees’ ability to amend Statutes and Royal Charters without any recourse to Parliament or the Queen.

This is a very complex area of charity law and the recommendations of the Law Commission when published will be very interesting.

The regulation of dealings in charity land

The second area discussed at the consultation event was the regulation of dealings with charity land.

Under the current law, charities are not permitted to dispose of charity land (other than leases which are for seven years or less) unless a surveyor’s report that complies with the Charities (Qualified Surveyors Reports) Regulations 1992 is obtained and considered by the trustees. The Report must contain a range of information including recommendations as to the marketing of a property and the trustees must be satisfied that the terms of a disposal are the best that can be reasonably obtained for the charity.

There are also additional requirements were there is a proposal to dispose of “designated land”. Designated is land required to be used for a particular charitable purpose (examples include some village halls, community centres, etc). Where trustees of designated land do not intend to replace the land there is a requirement for public notice to be given.

The Law Commission has consulted widely on this issue and it was noted, for example, that the charity Cancer Research UK spends around £100,000 per year complying with the requirement to secure a surveyor’s report. In addition to this, the requirement to obtain a sometimes costly report applies regardless of the value of the land and the Law Commission has also considered why land should be treated any differently to other assets.  It was noted, for example, that there is a charity in England whose collection of artwork and wine stock is just as valuable as any property it owns, yet the requirements do not apply to those assets.

There was some support for the requirement to obtain surveyors’ reports to be abolished in its entirety and require trustees to simply comply with their general duties (for example, their duty to act in the best interests of the charity and their duty to obtain best value) when disposing of land. 
 
It was also suggested that there may be scope to introduce a more vigorous internal process when disposing of charity land that involves membership approval, similar to the making of amendment to the governing documents of charitable companies and CIOs. However, given that many charities do not necessarily engage with their members on matters relating to asset management, this could present practical problems.

Alternatively, some are in favour of the extension of the requirements to acquisitions of land, as well as the extension of the regime to other assets, such as a valuable collection of artwork.

Some were of the view that the existing arrangements are appropriate but it was noted that in some cases a surveyor who is a member of the Royal Institute of Chartered Surveyors, may not necessarily always be the best person to advise on a disposal. The example was given of agricultural land where there are other professional bodies who are better placed to provide such advice.

The additional requirements that apply in respect of designated land were discussed and it was generally agreed that the public notice requirement does not add a great deal in terms of additional protection.  It was suggested, therefore, that this requirement should be abolished and replaced with Charity Commission guidance on community consultation where designated land is being disposed of.

Permanent endowment

The third topic covered was permanent endowment. Permanent endowment is property of a charity which the trustees may not spend as if it were income. It must be held permanently, sometimes to be used in furthering the charity’s purposes, sometimes to produce an income for the charity. The trustees cannot normally spend permanent endowment without Charity Commission authority.

Permanent endowment occasionally takes the form of a capital sum that a donor gifts to a charity on the basis that the capital is used to generate an income. So a charity might exist as a result of a donation of a capital sum made many decades ago that whilst at the time was substantial and able to generate high returns is now relatively small generating very little by way of income. The Law Commission was careful to emphasise that it is keen to protect donors’ wishes, but it was noted that the world today is perhaps outside of the contemplation of permanent endowment donations made many years ago.

Sections 281 and 282 of the Charities Act 2011 Act include a power for charities to pass resolutions lifting the restrictions on permanent endowment. Section 281 permits the lifting of restrictions without any Charity Commission oversight where a permanent endowment fund does not exceed £10,000 and the charity’s gross income does not exceed £1,000. Where these figures are exceeded, the Act sets out a procedure for notifying the Commission of the resolution and securing its concurrence.

Again, the financial thresholds are relatively low and it was argued that these should be substantially increased or abolished altogether. There was also suggestions that the sector should move away from permanent endowment and that the trustees, via Charity Commission guidance, should be given greater freedom to determine issues such as the maintenance of capital funds amongst themselves.

There was a suggestion that a new, more flexible type of permanent endowment could be created however, there was substantial concern that this would add an additional layer of complexity to an already complicated area of charity law.

Additional issues

Some other smaller issues were also discussed.

The law concerning failed charity appeals is under review and the Law Commission is proposing that, for very small funds, trustees should be given a power to apply funds raised during a failed appeal cy-pres.  Under the existing law where a charity runs a failed appeal, it is required to return donations to donors, however, it was noted that under the new Gift Aid Small Donations Scheme there is a real possibility that Gift Aid might have been claimed on those donations, which would be a concern for HMRC.

The issue of ex gratia payments was also discussed and it was suggested that trustees should be allowed greater freedom to decide whether or not to make ex gratia payments without involving the Charity Commission. It was noted that the Commission receives between only 40 and 60 applications for approval for ex gratia payments in a year and that the existing law might therefore be appropriate.

Summary

The full consultation document is almost 300 pages long. This reflects the complexity of the various issues under review, but also the mammoth task that the Law Commission is undertaking in order to reform certain aspects of charity law.

The general feeling when listening to the consultation was that the proposals represent further moves towards deregulation in governance and administrative matters, permitting trustees greater freedom to make decisions without involving the Charity Commission.

The consultation closes on 3 July 2015. The full consultation document and details of how to respond are available here: http://lawcommission.justice.gov.uk/consultations/charity-law-technical.htm.


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Charity law makes the Queen's Speech
Friday 29th May 2015

The Queen’s Speech this week announced the Charities (Protection and Social Investment) Bill which, as its name suggests, contains new laws relating to both the regulation of charities and the growing area of social investment.

The effective regulation of charities has been an issue under scrutiny for some time now. A number of controversies ranging from the Cup Trust scandal to the ITV documentary earlier this year entitled “Charities Behaving Badly” (see an earlier blog on this here: http://www.brabners.com/blogs/charities/charities-behaving-badly) have resulted in the Commission pressing for a more comprehensive set of regulatory powers.

The additional powers being introduced will include:

  • A ban on people with convictions for offences including terrorism and money laundering from acting as charity trustees;
  • A power to disqualify a trustee where the Commission considers them unfit to act;
  • A power for the Commission to require a charity to shut down after a statutory inquiry;
  • A power to issue official warnings and to record such a warning against the charity’s records;
  • Tackling some loopholes that have previously prevented the Charity Commission from taking enforcement action.

The Charity Commission hopes that these additional powers will assist in its efforts to maintain and improve public trust and confidence in the effective regulation of charities.

In respect of social investment, the Bill would give charities a new specific and simple power to make social investments.

Social investment is an investment that aims to achieve both a financial and a social return. The issue has been under review by the Law Commission which recommended the introduction of a new legal power for charities to make social investments.

In addition, the Bill will also include clear duties for trustees when making social investments.

William Shawcross, the Charity Commission chair has said that he is “very pleased that the Charities Bill has been included in the Queen’s Speech. This is a vital piece of legislation if we are to have the powers that we need to stop individuals abusing charities. We must be able to take action where abuse occurs. The public, who give so generously of their time and money, would expect nothing less”.

Rob Wilson MP, the Minister for Civil Society, has added that he is “pleased that the Bill will take forward the Law Commission’s recommendation for a social investment power for charities. Bringing clarity to the law in this area will make it easier for charities to participate and achieve a positive social impact with their investments”.

Comment:

The Commission has ridden the crest of a wave in achieving the additional regulatory powers in the Bill by emphasising, on the back of negative press, that it needs the tools to effectively regulate the sector.

The extent to which these new tools will be used given the Commission’s limited resources remains to be seen but it will in particular be interesting to see how the Commission makes use of the power to issue official warnings. Double defaulting charities continue to make the headlines and one wonders whether official warnings could be issued in these cases.

The new power to make social investment will be helpful. There has been some uncertainty over charities’ ability to make social investments and this new power should dispel these concerns.

Graeme Hughes is a solicitor in the Charities and Social Enterprise Department at Brabners LLP. If you would like to discuss any of the points raised in this blog please do not hesitate to contact Graeme on 0151 600 3079 or graeme.hughes@brabners.com.


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