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A B C D E F G H I J K L M N O P R S T V W Y

Charities and statutory warnings

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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