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Charities

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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Charity Commission continues to come down hard on double defaulting charities
Monday 18th May 2015

Two new statutory inquiries opened this year by the Charity Commission further demonstrate its ongoing approach to charities who repeatedly fail to submit regulatory reports.

The inquiries were opened into the Chevras Machzikei Mesifta (registered charity number 1104022) and the Bfon Trust (charity registration number 1112466) for repeatedly defaulting on the submission of annual accounting information.

In both cases, the charities concerned had a history of late filing and despite bringing their records up to date, their most recent accounts for the last financial year were not filed on time.

As part of its recent stance as a robust regulator, the Charity Commission has for some time now made it clear that charities who fail to file accounts and reports on time on multiple occasions will be the subject of regulatory action. Late filing is itself an offence under section 173 of the Charities Act 2011 but the Commission also considers that it might be symptomatic of more serious abuses within a charity.

Comment:

In many cases, double defaulting charities do appear to be able to shake off a statutory inquiry by simply ensuring that their records are brought up to date.

However, the opening of a statutory inquiry can do damage to a charity’s reputation. Equally, the Protection of Charities Bill includes a greater range of regulatory powers exercisable by the Charity Commission. So for example, the Bill includes a power for the Commission to impose official warnings on a charity that will appear against its entry on the Register – it is possible that the Commission will make use of this particular power in cases of double defaulting charities. Such a warning, visible to the general public, might impact upon the level of funds a charity can attract from both funders and general donations.

Our advice therefore is to ensure that your charity’s reports, returns and accounts are submitted to the Charity Commission on time.


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Charity Commission kept busy during GE2015 period
Friday 8th May 2015

The election period has been very interesting from a charity law perspective.

The impact of the Lobbying Act on the campaigning activities of charities has been a hotly discussed issue and we can expect this debate to continue now that the results of the election are in and the Act is certain to remain in force.

The Charity Commission’s activities over the past month have also been interesting and it has been kept busy dealing with a number of cases of charities stepping outside of the rules that apply to the political and campaigning activities of charities.

The law states unequivocally that a charity cannot exist for a political purpose. This includes any purpose directed at furthering the interests of any political party. A charity must not declare its support for a particular political party or candidate and whilst it is permissible for charities to support specific policies, charities must do so in a balanced way, stressing their independence in political matters.

The Charity Commission published specific guidance on these issues in the lead up to the election period (see https://www.gov.uk/government/publications/speaking-out-guidance-on-campaigning-and-political-activity-by-charities-cc9). Despite this, the Commission has had to intervene in a number of cases, including the following:

  • The Charity Commission wrote to four charities that signed a letter supporting the Conservatives in The Daily Telegraph. One charity in particular was named on the front page in a list of small business owners who support the Conservative Party. The charity in question stated that it had been included by mistake and steps were taken to remove its name.
  • The Commission contacted the National Council of Hindu Temples after it published an open letter on its website in support of David Cameron and the Conservatives. The letter was subsequently removed and the Charity Commission is currently determining what further action to take.
  • The UK Islamic Turkish Trust was required to remove a political slogan from the dome of one of its mosques which urged people to vote for Nigel Askew of the Reality Party. The Commission is assessing whether any further action is necessary.
  • The Charity Commission is now investigating the Plymouth Brethren Christian Church after it was claimed that it provided campaigning and leafleting support for Conservative candidates, as well as holding prayer services for a Conservative victory.

Comment:

As these cases demonstrate, the Charity Commission will intervene where charities give their support to political parties and candidates. The extent to which the Commission takes further action remains to be seen but given its current stance as a robust regulator it is possible that the Commission may very closely scrutinise the activities of the offending charities.

The real implications of the Lobbying Act remain to be seen. Charities have talked of a “chilling effect” – a reluctance or toning down of campaigning activities due to the uncertainty created by the Act – and it will be interesting to see if this is reflected in the research that follows the election.

Charities have been asked to respond to a review of third party campaigning which assess the effect of the Lobbying Act on the voluntary sector. The Review is being carried out by Lord Hodgson and will include an assessment of whether charities who undertake campaigning activities have fully understood and complied with the Act.


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Bridge: The Charity Commission vs Sky Sports viewers!
Wednesday 29th April 2015

Last night whilst flicking through the sports channels, I came across a poll being run by Sky Sports on whether or not the card game Bridge should be classified as a sport.

The poll had been prompted by a High Court decision to grant the English Bridge Union permission for a full judicial review of its status following Sport England’s refusal to recognise the credentials of Bridge as a sport. The English Bridge Union sought recognition from Sport England in order to qualify for lottery funding but Sport England stated that Bridge is no more a sporting activity than “sitting at home, reading a book”.

The result of the Sky Sports poll (which asked “Is Bridge a sport?”) was that 74% of its viewers did not consider Bridge to be a sport.

I suspect however that many voters were unaware of the Charity Commission’s decision to register the Hitchin Bridge Club as a charity in 2011 in which the Commission took the view that the game of Bridge falls within the definition of “sport” contained in the Charities Act 2011.

The Hitchin Bridge Club applied for registration with the Charity Commission in part on the basis that it was established for the charitable purpose of the advancement of amateur sport (the advancement of amateur sport is listed as a description of a charitable purpose in section 3(1)(g) of the 2011 Act).

Section 3(2)(d) of the 2011 Act defines “sport” as meaning “sports or games which promote health by involving physical or mental skill or exertion”.

In reaching its decision to register the Hitchin Bridge Club, the Commission confirmed that it was satisfied that Bridge was a game that involved mental skill or exertion. The Commission was presented with evidence of the health benefits of playing Bridge – the risk of developing Alzheimer’s and other forms of dementia is reduced by up to 75% by regularly playing Bridge – and also accepted that Bridge involves a high level of mental skill – a point emphasised by the fact that Bridge is one of the five component games of the World Mind Games (along with Chess, Draughts, Go and Xiangqi).

As a result of this, the Commission accepted that Bridge was a sport for the purposes of the Charities Act 2011 and that the Hitchin Bridge Club (and indeed other Bridge clubs) could be registered as charities on the basis that they were established for the advancement of amateur sport.

Comment:

The Charities Act definition of sport and the definition used by Sport England do differ. Sport England states that it uses the Council of Europe’s European Sports Charter 1993 definition of sport and also considers if the sport is well established and organised within England. As such it is possible for the Charity Commission and Sport England to take alternative views.

In granting permission to the English Bridge Union for judicial review, Mr Justice Mostyn did however refer to the mental exercise undertaken when playing Bridge – an approach akin to that taken by the Charity Commission – and it will be very interesting to see how this case develops and the extent to which the Charity Commission’s 2011 decision is highlighted.


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New guidance for charity trustees on the way
Tuesday 14th April 2015

Towards the end of November last year, the Charity Commission published a consultation on a replacement for its core guidance for trustees, “CC3, The Essential Trustee”. The consultation ran until February of this year. 114 responses were received.

Putting that into context, there are approximately 165,000 charities registered with the Commission as well as an estimated 190,000 unregistered charities (exempt or excepted from registration). There are an estimated 900,000 charity trustees in England and Wales. Approximately 40 of the 114 respondents to the consultation identified themselves as being trustees.

Of the 114 responses, 53 said the guidance was an improvement on the existing CC3. The Charity Commission has taken the view that the results of its consultation (available as an infographic via the following link: https://www.gov.uk/government/consultations/the-essential-trustee-cc3-new-version) demonstrate that the revised guidance is “overwhelmingly welcomed by the people for whom it is designed – trustees”. It is not entirely clear how a response rate amongst trustees of less than 0.05% corresponds with this view.

Despite the Commission’s upbeat mood, the guidance was not universally liked. Umbrella organisations such as NCVO, the Association of Charitable Foundations and the Charity Finance Group have been critical of the revised guidance stating that it “takes an excessively prescriptive tone in various sections, and misrepresents the scope and nature of the duties that in fact apply to trustees”.

Particular concerns have been raised in relation to the Commission’s approach to the distinction drawn between the must do’s, being legal requirements; and the should do’s, which are simply standards of good practice.

In the existing guidance, “must” means legal requirements that charities or trustees have to abide by. “Should” means good practice that they should follow unless there is a good reason not to.

In the revised CC3, “should” now means good practice that trustees are expected to follow. Trustees are warned that if they do not follow the stated good practice they may be in breach of their legal duties, and be guilty of misconduct or mismanagement.

In relation to this, the Commission has stated that trustees need to understand “that ‘should’ means ‘really should’ - not ‘maybe, if you feel like it’”.

In addition to this, concerns have been raised as to the negative tone of the revised guidance and the impact that this may have on the numbers willing to become charity trustees.

The final version of the guidance is expected in the summer,

Comment:

The Commission has a very difficult job putting together accurate, concise and readable guidance on matters behind which there are a great many legal principles, cases and pieces of legislation. However, the publication of such guidance is a key element in the delivery of its general functions, as set out in section 15 of the Charities Act 2011.

The Commission has moved away from providing charity trustees with advice and has now positioned itself as the sector’s “policeman” and the revised CC3 is a further indication of the very different regulatory landscape.

The new regulatory powers to be introduced by the Protection of Charities Bill (http://www.brabners.com/blogs/new-powers-and-extra-funding-charity-commision-announced) will reinforce the Commission’s position further and it will be interesting to see the effect of this on the numbers of both trustees and charities.

40 responses from charity trustees to the Commission’s next consultation might represent a much better percentage return.


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"Charities Behaving Badly..."
Wednesday 4th March 2015

Many readers will have seen the ITV documentary that aired last month under the title “Exposure: Charities Behaving Badly”. The documentary featured footage filmed by undercover journalists and focused on three organisations, revealing what was described as “shocking evidence of racism and admiration for terrorism”.

The Charity Commission appeared in the documentary and its Director of Investigations, Monitoring and Enforcement was interviewed in relation to the organisations concerned and the matters raised.

The documentary did raise very important issues and a quick look on social media reflects the range of opinion and in some cases reveals the difficulties the Charity Commission faces when engaging as a regulator.

However, we did find the Charity Commission’s comments in respect of its regulatory powers to be misleading. This could be put down to the editing of the documentary but at times, an impression was given that the Commission was powerless to effectively intervene in the circumstances featured.

The Commission does in fact has a range of regulatory powers available to it. Most relevant for the purposes of this blog are what are known as “temporary protective powers”. These powers can be exercised once the Commission has opened a statutory inquiry. The opening of a statutory inquiry has the effect of “enabling” the use of protective powers for the benefit of a charity and its beneficiaries, assets or reputation.

The Commission may open a statutory inquiry where the regulatory issue in question is serious and in circumstances where there is evidence or serious suspicion of misconduct or mismanagement or where the risk to a charity or to public confidence in charity more generally is high.

These temporary protective powers include:

  • suspending a trustee, charity trustee, officer, agent or employee of the charity from their office or employment while the commission consider removing them from that position;
  • restricting the transactions a charity can enter into or the nature or amounts of payments that can be made, without commission consent, in the administration of the charity; and
  • appointing an interim manager to manage the affairs of the charity alongside or instead of the trustees.

The Charity Commission’s own guidance on the use of these powers states that it “must be satisfied that there is or has been misconduct or mismanagement in the administration of the charity ‘or’ that it is necessary or desirable for them to act to protect the property of the charity”.

Statutory inquiries into two of the organisations that were featured in the documentary have been opened by the Charity Commission. In both cases, the focus is upon the trustees’ management and oversight of activities as well as upon comments made by speakers at charity events.

The Commission’s guidance also states that it may use its temporary protective powers "to act urgently or for a limited time to protect the charity and so the amount and strength of evidence being relied upon by them would be different from when exercising a power that has a more permanent effect”. It follows therefore that in both cases, the Commission could immediately appoint independent interim managers to manage the affairs of the charity alongside or instead of the trustees. Whilst there would be practical obstacles for an interim manager to come to terms with, the activities of the organisations that were causing so much concern could be very quickly curtailed.

As for the third charity, the Commission has stated that as it was not established for exclusively charitable purposes, it “is not a charity and has been removed from the register of charities”.

The documentary was interesting but I did however find it to be far too sweeping in its comments on the sector as a whole and potentially quite damaging. This is reflected in a number of posts on our departmental Twitter account on 19 February 2015 (see https://twitter.com/BrabnersCharity) but for example, the presenter referred to the number of charities on the Central Register of Charities without recognising that many registered charities are very small, local organisations whose purposes and activities are entirely different from those featured in the documentary.

The Charity Commission also used the documentary as an opportunity for it to press its case for greater powers, as proposed in the draft Protection of Charities Bill (for further information see: http://www.brabners.com/blogs/new-powers-and-extra-funding-charity-commision-announced). The Commission states “it is important for the regulator to have the right tools to do the job” and only last week it was reported that the parliamentary had offered broad endorsement for powers set out in the draft bill, as well as recommending the inclusion of further statutory provisions requested by the Commission.

The joint committee’s report can be seen here: http://www.parliament.uk/business/committees/committees-a-z/joint-select/draft-protection-of-charities-bill/publications1/.


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Charity trading, Barnardo's and Binky Felstead
Monday 16th February 2015

Barnardo’s, the 13th largest charity in England and Wales with an annual income in the region of £250 million, has attracted media controversy today for a payment made by its trading subsidiary to Alexandra “Binky” Felstead, one of the stars of reality TV show Made in Chelsea.

The payment was made as part of a retail campaign designed to promote Barnardo’s retail shops and featured Miss Felstead appearing on her own Instagram account with a handwritten sign urging her fans to “Please follow @barnardosretail on Instagram”.

It was reported this morning that a fee of £20,000 had been paid to Miss Felstead although it has since been stated that the correct figure is £3,000.

The payment was reported in the national press and it highlights the reputational risks that charities can be exposed to as a result of activities carried out by their trading subsidiaries.

Barnardo’s has issued a statement in response to the reports confirming the £3,000 figure and noting that this was the first time a payment has been made to a celebrity for a retail campaign and that it was “a way of testing the impact of a popular celebrity in order to appeal to a new, wider audience”.

The statement continued: “Barnardo's retail shops are part of the charity's trading arm and as such operate in a commercial environment…we took a business decision to acquire the support of Alexandra (Binky) Felstead using retail profits to bring the appeal to a new and wider audience. We expected the campaign to increase our retail stock significantly and will be monitoring its impact on our sales”.

It should be stressed here that neither Barnardo’s nor its trading subsidiary are in breach of charity law by running this campaign. Many charities do operate retail shops through wholly owned trading subsidiaries, which are always distinct legal entities managed by a board of directors separate from the charity.

As the Barnardo’s statement reads, trading subsidiaries operate in a commercial environment. They are there to trade and make money with surplus profits being donated to their parent charity. However, it is the perception created here that can do damage to a charity’s reputation.

A quick trawl through Twitter shows that in most cases, the backlash is directed towards Binky Felstead for agreeing to be paid for being involved in the campaign (she has since waived her fee). However, there are a number of posts that are highly critical of Barnardo’s, questioning the application of charitable funds. It is likely that the majority of those critical posts have come from users who are perhaps unaware of the charity – trading subsidiary relationship but the damage could be done.

This story highlights how charities and their trading subsidiaries do need to be careful when carrying out trading activities. Whilst a trading subsidiary is a separate, non-charitable entity, the use of a charity’s brand can in certain circumstances cause reputational damage. Nobody bats an eyelid at the amounts paid to celebrities to advertise the products of commercial organisations, but where a charity’s name is involved the attitude changes.

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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Charity Commission charges continue to be discussed...
Monday 9th February 2015

Regular readers of our charity law blogs might recall reading a previous blog back in November about the proposal that the Charity Commission might introduce charges for its services on a similar scale, it is assumed, to the charges imposed by Companies House (the earlier blog discussed can be viewed here: http://www.brabners.com/blogs/charities/charities-pay-charity-commission’s-services).

Whilst Paula Sussex, the Charity Commission's chief executive, acknowledged in October last year that this matter would progress “at the speed of a glacier” the issue has been mentioned again, this time during a House of Commons Public Accounts Committee session at which Paula Sussex appeared in order to discuss the recent progress made by the Commission (the Commission's progress is discussed in the most recent issue of our newsletter: http://www.brabners.com/articles/charities-and-social-enterprise-news/charity-commission-road-recovery)

The Commission is reported as remaining cautious on the issue, but less so than it has been in the past. It has said that if the proposal to introduce charges is feasible, we might see charges in operation within the next couple of years.

Comment:

Looking from the outside in, there are a number of practical issues that might stand in the way of this becoming reality. However, the proposal is supported by the recently reappointed Charity Commission chair and it is clearly something that is being taken seriously. We will post further updates as and when we become aware of them.


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