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Charities and Social Enterprise News

A quarterly newsletter which aims to keep clients and contacts up-to-date with the latest legal developments in the world of charities and social enterprises.

Latest Issue

In the latest edition of our Charities and Social Enterprise News we look at report from the Parliamentary and Health Service Ombudsman, about the Charity Commission's poor handling of a case over a 20 year period. We also have a feature on the importance for trustees to file accounts on time and other updates from the Charity Commission as they strive to make changes.

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Client feature: So the Child May Learn

Monday 14th August 2017

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Charity & Social Enterprise News - Issue 23 - August 2017

In this and future versions of CSE News we will be including a client feature discussing the charitable activities of one of our many charity clients.

In this issue, we are delighted to introduce So the Child May Learn – a charity set up by the charity team at Brabners in 2015.

So the Child May Learn is a charity registered in England and Wales working alongside local schools and communities to improve the educational prospects of children living in the remote and often overlooked middle hill regions of Nepal.

When the then Headmaster of Birkenhead School, John Clark, first went out to Nepal in 2012, his guide was Binay Lama who, as it happened, had already visited Birkenhead School. Binay took him to the village where he had been brought up, some 100 km east of Kathmandu. Visiting one of the local schools, located at around 6000 ft, John was struck by the warmth of the welcome but also by the dire condition of the classrooms and the severe lack of resources. It became clear that much could be achieved here with relatively little money and so the seeds for So the Child May Learn were planted. He and Binay worked informally for the next couple of years, making small improvements to the fabric and facilities of two local schools.

In 2015, Mark Feeny, Head of Brabners’ Private Client Department, introduced John to Stephen Claus, who heads up the Charity and Social Enterprise Department at Brabners. He, along with Graeme Hughes, provided invaluable advice and the necessary expertise and support to set up a charitable trust and obtain Charity Commission registration. John Clark, now Chairman of the Trustees, commented: “We were working on such a small scale and yet I felt that Stephen and Graeme had a genuine interest in what we were trying to achieve.  It was a huge breakthrough for us when we gained charitable status, giving an injection of confidence to our fundraising and a significant financial boost in the form of Gift Aid.  We were able to start planning more ambitious projects and have now ‘adopted’ another school.” 

The charity remains small, currently working with three schools in the Bhimkhori Village Development Community (Kavre District), 100km east of Kathmandu. The charity typically requires approximately £30,000 a year in order to achieve its aims – £5,000 builds a new classroom, £250 will furnish it with a blackboard and desks, £150 a month pays for one of the three English teachers supported by So the Child May Learn (one in each school).

An important principle – and one perhaps only possible when working on such a small scale – is that 100% of every donation goes directly to support the schools, with trustees covering all travel and administrative expenses themselves. John visits Nepal twice a year, sometimes joined by other trustees, witnessing projects first-hand. Binay Lama remains the charity’s eyes and ears on the ground and provides the local knowledge essential to ensure good communication and the reassurance that funds are going exactly where they are required.

Mark Feeny continues to show a keen interest in the charity and has provided invaluable contacts with grant-making trusts, etc. In April this year, whilst on a trekking trip to Nepal, Mark visited two of So the Child May Learn’s projects and saw first-hand both the challenges faced and the progress achieved by the charity over the past couple of years.

Projects so far have included:

  • three new classrooms at Krishna Lower Secondary School (2013);
  • employing English teachers at schools which previously did not have any; and
  • rebuilding the main classroom block at Jugeshwor Lower Secondary (2015).

Following the devastating earthquakes of 2015, building work at Jugeshwor Lower Secondary was suspended and the charity briefly changed its focus to provide emergency shelter for 276 local families who had lost their homes.

In 2016 work started on the construction of six classrooms at Pokra Secondary School, which were completed shortly after Mark Feeny’s visit.  Autumn 2017 will see further developments at Krishna to provide six new classrooms, including the first science and IT room at any school in the district. Alongside  this are ongoing initiatives to improve standards of teaching and learning.

The charity’s emphasis throughout is on close cooperation with local communities and there is a jointly agreed development plan for all three schools. John Clark commented: “It is probably a ten-year project to bring facilities and teaching up to the standard required for these children to have the life prospects they might have had if they had been born in the Kathmandu Valley.”

“We intend to stay focussed on this community rather than just helicoptering in some aid and then disappearing. There are hundreds of equally deserving communities across this largely inaccessible country, but you just have to do what you can, wherever you happen to be, with the resources you have. Having said that, we are already looking to extend our reach to a Sherpa community further east, in Ramechhap District, where the local primary school was destroyed in the 2015 earthquakes.”

For further information about So the Child May Learn, feel free to contact John Clark.


Charitable Donation or Matrimonial Asset…?

Monday 14th August 2017

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Charity & Social Enterprise News - Issue 23 - August 2017

The recent case of Quan -v- Bray and Others [2017] EWCA Civ 405 examines a situation whereby significant assets donated to a charitable trust became the subject of protracted and complicated matrimonial litigation.

The wife, Li Quan and the husband Stuart Bray met in 1989 in Pennsylvania, USA when they were both studying towards their MBAs. Each worked separately around the world in the early 1990s whilst they were developing their careers.

The husband became extraordinarily successful in finance (global structured transactions) and the wife became the Head of Licencing for Gucci.  In 1997 the wife left her employment and moved into the husband’s property in London. 

By the time of the marriage on 1 August 2001 the husband had already amassed assets of over £18 million. The couple did not have any children.

In the late 1990s the wife became “interested and knowledgeable” about wildlife conservation and particularly the endangered South China tiger. On 6 April 2000 she set up a UK based charity called Save China’s Tigers UK (SCT UK) along with the husband and a third party. Her plan was to work closely with the Chinese Government to promote ecotourism to support wildlife; a model which had been tried and tested in South Africa. It was the intention to breed the tigers in South Africa and “re-wild” them in China.

In July 2001 the husband’s employment was terminated by the bank he worked for as Global Head of the Structured Transactions Group. This happened in difficult circumstances which resulted in the husband bringing libel action against his employers. 

On 18 November 2002 the Chinese Tigers South African Trust (CTSAT) was set up with SCT UK as its sole beneficiary.  A Framework Agreement followed on 26 November 2002 detailing the interaction between the entities and the charity’s aims and objectives.

The libel action initiated by the husband following the termination of his employment was settled on 17 July 2009 with the Bank donating £19.8 million into SCT UK.  This was surrounded by a draconian confidentiality clause with the damages for breach of the same being set at £19.8 million.

By 2010 the marriage was in difficulty and it broke down completely in April 2011. The suggestion made during the case was that the wife was threatening to name the bank that was involved thus breaching the confidentiality clause surrounding the libel case which raised grave concerns as the level of damages was so high.

On 2 August 2012 the wife was removed from the Board of SCT UK and she issued divorce proceedings shortly thereafter on 15 August 2012. On 18 August 2012 CTSAT wrote to the wife informing her of her removal as a trustee from CTSAT and she lodged a financial remedy application at court 3 days later on 21 August 2012.

Interestingly, she did not make any application for a variation of a post-nuptial settlement in that initial application. At the First Directions appointment on 27 November 2012 the wife asserted that she was seeking a guarantee that the funds within the charity would continue to be used for the intended charitable purposes only.  She said that she had some concerns that the donation had been made to the charity by the bank at the husband’s instigation to either avoid tax or to avoid any claims she may make on divorce.  If this was the case she was seeking a fair share of those assets.

By saying this the wife was effectively alleging that the donation of these funds (which were technically brought into the marriage by the husband) amounted to a post-nuptial settlement which would therefore be open to variation.  Subsequently on 17 July 2013 (almost a year after her financial application) she amended her application to include a claim to vary CTSAT as a post-nuptial settlement.

Complex and lengthy proceedings followed.  The final hearing commenced on 11 December 2013 and ran to 20 December 2013.  It was adjourned until 23 June 2014 (during which time the Trial Judge retired and had to return from retirement to finish this case) and then ran to its conclusion on 8 July 2014.

The Judge made it clear that the answer to the central question 'what is the purpose of the CTSAT' would turn on his evaluation of the credibility of the husband and wife. 

In his Judgment he found that “the wife had been beside herself with grief and anger at the way that she had been, as she saw it, unjustifiably removed from SCT UK”.  The Judge found the husband’s evidence to be clear, detailed and consistent and he commented that, “in contrast with the wife's evidence, I found his [the husband’s] evidence bore all conventional hallmarks of honesty and accuracy."

The Judge went on to set out the law in respect of post-nuptial settlements and concluded that the donation to the charity in this case was not one and thus not capable of being “invaded by court order” i.e. he found that the charity was a true charity and that the funds therein were dedicated charitable purposes.

The wife appealed the Judgment on the basis the Trial Judge had not properly dealt with the questions he set himself at a pre-trial review on 3 October 2013 in his Judgment namely:-

  • The circumstances under which the China Tiger trusts were set up;
  • The purpose of those trusts;
  • Whether those trusts were nuptial settlements;
  • The availability of funds within those trusts to the parties;
  • Whether the funds within those trusts could only be utilised for tiger conservation.

The Court of appeal found that, whilst the Trial Judge had not dealt with these exact questions in his final Judgment he summarised his findings sufficiently and dealt with the key questions in a different but satisfactory way.

They went on to endorse his findings that the donation to the charity was not a post-nuptial settlement and therefore not capable of variation.

The wife also ran an alternative argument at the Court of Appeal arguing that, pursuant to the Thomas v Thomas [1995] 2 FLR 668 line of cases, the court could assume that the trustees would respond favourably to a request by the husband for funds to be released to him from CTSAT in order to satisfy any order the court might make in her favour.  The Judge held that CTSAT could not be regarded under section 25 Matrimonial Causes Act 1973 as a 'resource' available to the husband.

Whilst the wife in this case was unsuccessful in asserting that the funds held within the charity were matrimonial assets available for distribution on divorce the Family Courts do have wide powers and a broad discretion when dealing with assets on divorce.

There are complex rules surrounding what is matrimonial and non-matrimonial property and financial transactions, business structures, trusts, gifts, inheritances and, in this case, charities are often open to scrutiny by the Family Courts on divorce.

In this case the charity and the husband were protected by the fact that the charity was well established and its foundation, aims and objectives were well documented but it serves as a salient reminder that if you are considering establishing a charity or a trust within a marriage you should take appropriate legal advice at the outset.

Natalie Hargreaves is an Associate Solicitor in the Family team at Brabners LLP. If you would like to discuss any of the points raised in this blog or you have any questions concerning family matters please do not hesitate to contact Natalie on the details provided below.

Natalie Hargreaves

Tel: 0151 600 3093
Email Natalie

Disaster appeals, legal issues and safer charity giving

Monday 14th August 2017

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Charity & Social Enterprise News - Issue 23 - August 2017

The first six months of 2017 has seen a number of tragedies that have brought out the best in communities across the country. Donations made to assist families and charities in the aftermath of the Manchester Arena Attack exceeded £2 million in the first 24 hours and a further example of this level of generosity has been seen in the aftermath of the Grenfell Tower Fire.

The public have reacted with enormous generosity in the wake of the fire, with over £1.6 million being raised within one day. Online giving platform, JustGiving, announced that over 400 fundraising pages had been set up for those affected by the fire, and GoFundMe, also received £300,000 in donations from 250 pages. Collectively, the total amount raised is now over £10 million pounds.

Safer charity giving

In light of this huge generosity, the Commission has advised the public to ensure that they “give safely”, stressing the importance of giving only to registered charities, and also to check with the charities what type of support they require.

The Charity Commission has worked closely with charities involved in the fundraising activity and a joint approach between the British Red Cross, K&C Foundation, the Evening Standard Dispossessed Fund, the London Community Foundation and the London Emergencies Trust has been agreed and a proportion of the funds raised have been consolidated in order to ensure a unified approach in meeting the immediate needs of those bereaved, seriously injured and those who are now homeless.

With donations still flooding in, the Commission has drawn the public’s attention to its published advice in relation to safer giving, which can be accessed here.

The Commission is now looking to establish a suitable, structured and transparent framework that can be utilised in the event of a similar occurrence, so that people are aware of how the Commission will respond. 

However, in addition to concerns as to the safety of donations, it is important for charities engaging in disaster appeals to consider the manner in which funds are raised so as to reduce the risk that an appeal may fail.

What follows in the remainder of this article is an explanation of what constitutes a failed appeal, the steps charity trustees should take in the event of a failed appeal and what safeguards trustees can implement to ensure that all funds raised are applied for charitable purposes.

Failed appeals

As evidenced in recent months, the immediate aftermath of a disaster or tragedy generates an immediate response. Whilst such a response is to be expected, it is not always possible for charity trustees to predict the success of an appeal, the volume of donations, or whether circumstances may unexpectedly change. As such, there is always a risk that an appeal may fail.

An appeal will fail, when some or all of the funds raised cannot be applied for the purpose, or purposes stated in the appeal. Appeals are therefore more likely to fail in cases where the purposes are more specific and less general and so either insufficient funds are raised, surplus funds are left unspent or the original charitable purpose was no longer required.

Where an appeal for a specific charitable purpose fails at the outset and the purpose can no longer be achieved, trustees are obliged to refund the donations. It cannot be assumed that donors had a general charitable intention to support wider charitable purposes. So for example, if donors gave to a charitable appeal to purchase a particular piece of medical equipment for a hospital, and insufficient funds were raised, neither the trustees nor the Commission could just assume that the donors would have been happy for their donation to be used for any other charitable purpose to benefit patients at the hospital.

As can be imagined, refunding every donation can be difficult and in some cases, an impossible task.  As such, the Charities Act 2011, sets out a framework for dealing with failed appeals.

Sections 63 and 65 of the 2011 Act deal with two different situations and set out the steps that trustees must comply with. For the purposes of this article however, I will focus on the procedure laid out in section 63.

Section 63 of the Act enables the Commission to produce a cy-près scheme for property that has been donated for a specific purpose which has failed at the outset where:

  • the donor cannot be identified, or
  • the donor has made a written disclaimer, relinquishing the right to have the property returned.

If a failed appeal falls within this section, the trustees are obliged to contact identifiable donors to return their donations, and provide other donors with the opportunity to reclaim their donation by advertising the fact that the appeal has failed. The Commission suggest that the window of opportunity for identifiable donors to reclaim funds is three months.

The actual steps that trustees must take in the event of a failed appeal are set out in The Charities (Failed Appeals) Regulations 2008. These steps are as follows:

Trustees must contact all donors who can be identified and contacted and return their donation. This process must be in writing and sent by post to the address of each donor held by the charity. The trustees are obliged to provide the donor with the following information:

  • the name and address of the charity to which the property was given by the donor;
  • a description of the specific charitable purpose for which the property was given by the donor;
  • the reasons why the purpose has failed;
  • a description of the donation (including the amount of any money) given for that purpose by the donor;
  • a statement of the donor's right to have the donation returned;
  • a statement that the donor may disclaim the right to have the donation returned by executing a disclaimer in the prescribed form;
  • a statement that, where the donor disclaims his right in respect of such donation, the donation may be applied for other charitable purposes similar to those for which it was given by a scheme established by the Commission or by the court;
  • a statement that, where the donor has not replied in writing to the inquiry within three months from the date of service of the inquiry, he will be treated as a donor who cannot be identified or found, but that he will be able to claim the donation, less expenses, within six months from the date of any scheme made by the Commission or the court.

Provide any other identifiable donors the opportunity to come forward and reclaim or disclaim their donation, by:

  • advertising the fact that the appeal has failed;
  • trying to trace donors who can be identified;
  • advising donors of their right to have their donation returned;
  • allowing three months for donors to make any claims.

Advertisements must be in the prescribed form including details as to how to make a claim and what donors must do if they wish for the donation to be applied to a similar charitable purpose. The advertisements must be published in a newspaper or periodical sold throughout the area in which the appeal was made.

Once this process has been completed, the Commission has the authority under section 63 of the 2011 Act to produce a cy-près scheme for which the remaining funds can be applied. Where there remains unidentified donors, the Commission must also create a reverse scheme which must be kept for six months by the trustees from the date on which the scheme was made. Once this period has lapsed, any remaining funds are applicable for the charitable purposes of the scheme.

As readers will appreciate, the process involved in seeking to resolve matters where a failed appeal has occurred is onerous, time consuming and potentially quite costly for a charity, both from a financial and reputational perspective.

A fundraising appeal is less likely to fail if the purpose of the appeal is broad. However, fundraising appeals are usually established to meet a specific need. In such circumstances, trustees should seek to prevent an appeal from failing by including a wider secondary purpose.

Wherever possible, charity trustees should carry out sufficient preparation and planning, taking account of the legal requirements and good practice prior to launching any appeal. However, in cases such as the Grenfell Tower Fire an immediate response is necessary. Therefore, the trustees of charities who engage in disaster appeals should ensure that internal procedures are put in place to guide staff and volunteers through the immediate stages of launching such an appeal.

As the Commission has highlighted over recent weeks, due to the volume of donations received and the severity of need when disasters such as the Grenfell Tower Fire occur, it is highly important that individuals donate safely and that appeals are set up correctly, in order to maximise the benefits to those who have suffered.

Rebecca Tucker is a Paralegal 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 Rebecca on the details provided below.

Rebecca Tucker

Tel :0151 600 3064
Email Rebecca

“Apply or Explain” – A new code for charity governance

Monday 14th August 2017

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Charity & Social Enterprise News - Issue 23 - August 2017

For several years now, the governance of charities has been never been far from the spotlight. The fallout from the Cup Trust case, the crisis in fundraising and the collapse of Kids Company have all contributed to the perception that many charities are poorly governed; charity trustees are passive observers; and overpaid executive teams are running amok.

Clearly, the reality is very different and the vast majority of charities that we encounter are managed by committed and skilled boards. However, governance is an issue for the voluntary sector whether or not a charity is experiencing successful phase of growth or a period of financial or operational challenge.

It has been twelve years since the first Charity Governance Code (then known as Code of Good Governance) was first published and over the past month, a new third edition has been made available, setting out a range of new governance-related standards and measures which charities should aim to comply with.

In this article, we examine the main changes that have been made.

Introduction and background

The new Code has been developed by a steering group comprising of a number of umbrella organisations including NCVO, ACEVO and ICSA: The Governance Institute. Work on the code was funded by the Barrow Cadbury Trust and the Clothworkers’ Foundation.

The consultation leading to the finalisation of the new Code attracted over 200 responses from charities and others.

The Code is not in itself a legal or regulatory requirement. However the Charity Commission has emphasised the importance of the new Code by withdrawing its CC10 guidance, known as the Hallmarks of an Effective Charity. The Commission is now actively referring charities to the new Code and, as readers will appreciate, this is something that charity trustees should therefore take very seriously. The Commission expects charity trustees to be familiar with the new Code and, where relevant, applying it to their charity.

Helpfully, there are two versions of the Code – one for larger organisations, and one for smaller organisations. The Code states that charities with a typical income of over £1 million a year, and whose accounts are externally audited, use the larger version and charities below this threshold use the smaller version.

Seven principles

At the outset, the Code sets out an assumption that all trustees:

  • are committed to their charity’s cause and have joined its board because they want to help the charity deliver its purposes most effectively for public benefit;
  • recognise that meeting their charity’s stated public benefit is an ongoing requirement;
  • understand their roles and legal responsibilities, and, in particular, have read and understand: the Charity Commission’s guidance The Essential Trustee (CC3); and their charity’s governing document; and
  • are committed to good governance and want to contribute to their charity’s continued improvement.

All charity trustees should consider these points. Have you read the Commission’s core guidance on charity trusteeship? Are you familiar with your charity’s governing document?

The Code is then divided into the following seven principles:

  1. Organisational purpose
  2. Leadership
  3. Integrity
  4. Decision making, risk and control
  5. Board effectiveness
  6. Diversity
  7. Openness and accountability

The Code sets out the basis and rationale for each of these principles and then explains in greater detail how they should be applied and complied with in practice, including what outcomes a charity should expect if the principles are adopted. The principles, rationale and outcomes apply to all charities, although recommended practices are tailored to charities depending on their size.

The key changes between this latest version of the Code and previous versions are as follows:

  • A statement that in the normal course of events, a trustee should not serve for terms of longer than nine years, save for in exceptional circumstances.
  • Emphasising the importance of ensuring that boards of trustees have an appropriate mix of skills, knowledge and experience.
  • A recommendation that boards should typically be limited to between five and twelve individuals.
  • A requirement that boards of trustees will review their collective and individual performance every year and, for larger charities, invite an external evaluation every three years.
  • An enhanced focus on board diversity.
  • Greater emphasis on the role of the chair (and vice chair) in achieving good governance.
  • That the trustees fully consider their charity’s impact and measure outputs and outcomes.
  • An explicit requirement that trustees consider the benefits and risks of partnership working, merger or dissolution if other organisations are fulfilling similar charitable purposes more effectively.

Apply or explain

The Code adopts an “apply or explain” approach. Charities are expected to either apply the principles and practices set out in the Code, or explain why not. The Code also urges charities to include in their annual accounts confirmation as to whether or not they have followed the Code.

Those involved in the development of the Code hope to see it used by funders as a measure of a charity’s governance arrangements and whilst there is no intention for the Code to be used in a punitive way to strip funding from charities that haven’t followed it, it is very possible that funders could, in future, stipulate compliance with the code as a condition of funding.


It has been widely acknowledged that the Code is presented in a clear and user-friendly format. An electronic version of the Code is available online here and this is fairly straightforward to follow.

The Code itself is aspirational and whilst the stated principles are of course principles that all trustees should strive for, some charities may find some of the changes much more difficult than others to implement.

So for example, we regularly encounter charities with trustees who have held office for periods exceeding nine years. Most charity trustees accept that a nine year term would be preferable however finding replacement trustees with the requisite skills continues to be a challenge that many charities face. In addition to this, a trustee who has served as such for a lengthy period usually has a wealth of knowledge relating to the charity that other trustees can be reluctant to lose. It has been suggested in some quarters that trustee recruitment, particularly for small and medium sized charities, could become an even greater problem for charities in the coming years and compliance with these aspects of the new Code could prove to be an issue.

Board diversity continues to be challenge for the sector, particularly as most new charity trustees are drawn from existing trustees’ own networks which themselves may not be particularly diverse. In other cases, the very nature of a charity might result in difficulties securing diversity.

The requirement for trustees to consider partnership working, mergers and dissolutions is an interesting addition to the Code. Some professionals operating in the voluntary sector were anticipating a significant increase in the number of mergers from the beginning of this decade. However, this anticipated increase in mergers did not materialise in the manner expected. One wonders whether the introduction of a positive obligation to consider mergers might act as a catalyst.

The Charity Commission has welcomed the new Code stating that “good governance is no longer an optional extra. It’s essential to charities’ effectiveness and probably their survival too. Charities need to be able to demonstrate that they take it seriously, allowing it to change the way they operate”.

The Charity Governance Code is a very useful tool and one that has been welcomed by the sector and its regulator. Given the emphasis placed on it by the Charity Commission and umbrella organisations, we are strongly advising charity trustees to familiarise themselves with the seven principles and take the time to consider the new Code in board meetings and whether any governance changes should be made within their own organisations.

Later this year, the charity team at Brabners will be running seminars to discuss the new Charity Governance Code. Please keep an eye out for invitations to these seminars.

Graeme Hughes is an Associate 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 or you have any questions concerning your charity please do not hesitate to contact Graeme on the details provided below.

Graeme Hughes
Tel: 0151 600 3079
Email Graeme

Charity’s failure to file accounts leads to statutory inquiry

Friday 27th May 2016

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Charities & Social Enterprise News - Issue 22

In February 2015 the trustees of the Vyoel Moshe Charitable Trust (‘the Charity’) found themselves under the scrutiny of the Charity Commission for a second time having reportedly failed to file their accounts with the Commission for nine years.

In 2013 the Charity had been part of a class inquiry conducted by the Commission into charities that were in default of their statutory obligations to meet reporting requirements. That inquiry was concluded, but it seems next year the Charity missed the filing deadline again. As a result of this the Commission opened a further statutory inquiry. The main issues under investigation were:

  • The trustees’ failure to comply with their statutory duty to submit annual accounts, reports and returns for the financial year ending 2014;
  • The administration of the Charity by the trustees;
  • The financial management of the Charity.


Failure to submit annual accounts

The Commission concluded that there is a legal duty for the trustees of a charity with an income of £25,000 or above to submit annual accounts, reports and returns to the Commission. The Charity’s failure to adhere to these obligations constituted mismanagement and misconduct in the administration of the Charity. The trustees explained that the reason for the failure had been that the responsibility for filing accounts had been delegated to one individual, who due to personal circumstances, was unable to meet the deadline. In addition, the trustees stated that their financial information was stored on paper and so their accounts were consequently time consuming to prepare.

Be that as it may, the Commission concluded that the trustees’ reasons were no “justification for non-compliance”. Carl Mehta, head of investigations and enforcement at the Commission, stressed that trustees are “collectively accountable” for submitting accounts and found that they were in breach of their legal duties.

Administration of the Charity

Having had a meeting with the trustees of the Charity and examining their policies on financial controls, grant making, volunteers and accounting, the Commission concluded that other than the non-compliance with their duty to submit their accounts, there were no other areas of concern regarding the administration of the Charity.

Financial management of the Charity

As the Charity’s income was above the audit threshold, they were required to prepare an annual report. The full trustees report, together with the statutory audit included all of the required information. The report was SORP (Statement of Regulatory Practice) compliant and when analysed against the Charity’s bank statements, no anomalies were identified.


Giving consideration to all three issues, the Commission concluded that there had been mismanagement and misconduct in the administration of the Charity due to the trustees’ failure to file their annual financial documents.

This case highlights two key lessons for trustees. Firstly, that trustees are collectively responsible for the overall management of the charity and secondly, it is essential that charity trustees file their accounts with the Commission each year as “the public have the right to see that the financial activities of charities are properly recorded and that their financial governance is transparent”.

As previously reported the Commission is continuing in its efforts to ensure that charity trustees comply with their accounting and reporting obligations. Trustees who fail to comply can expect to hear from the Commission and as this case demonstrates, this can lead to much wider scrutiny of a charity’s management.

Need advice or wish to talk to us?

If you would like to discuss any of the points raised in this article please do not hesitate to contact Rebecca or a member of the Charities team.

Rebecca Tucker

Paralegal, Charity and Social Enterprise
Tel: 0151 600 3064

Latest news from the Charity Commission

Friday 27th May 2016

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Charities & Social Enterprise News - Issue 22

The Charity Commission has been through a lot of changes in recent years. Funding cuts, sector crises and public scrutiny and criticism have all led and contributed to the Commission reviewing its modus operandi and there have been a range of attempts to improve certain aspects of the Commission’s functions.

One area where the Commission has made changes is to the manner by which it communicates with the sector and the public as a whole and in recent months, the Commission has begun reporting news more frequently on its website.

Two very recent news items made for particularly interesting reading…

William Shawcross’ speech

On 18 May, William Shawcross, the Charity Commission’s chair delivered a speech at Wild Search. The full speech can be found here and it covered a range of topics, including the Fundraising Regulator, governance and the Commission’s approach to regulation.

Shawcross’ comments in relation to charity campaigning did stand out in particular and these are repeated below:

Campaigning treads a fine line, of course. We have seen the damage charities can do to themselves if they push too hard. A few weeks ago, the Charity Commission issued guidance to help charities stay on the right side of this line in the referendum debate.”

“Some felt our guidance was too restrictive and threatened to deter charities from becoming involved. I regret this. Our aim was not to stifle legitimate contributions, rather to advise charities how they may contribute within the limits set by law. In response to some concerns, we adjusted this guidance to offer further clarity, and indeed is clearly states ‘there may be some circumstances in which it is appropriate for a charity to set out the pros and cons of a yes or no vote’.”

During the General Election last year, the subject of charity campaigning was very much in the headlines and the Lobbying Act (or to give it its full title, the Transparency of Lobbying, Non-party Campaigning and Trade Union Administration Act 2014) caused significant concern amongst charities who engage in campaigning.

Campaigning by charities is permissible in charity law so long as it is carried out solely in order to further or support its charitable purposes. An example used in the Commission’s current guidance is that of a children’s charity drawing attention to the dangers of domestic violence and child abuse.

However during the run up to the General Election (and since), charities have been of the view that the Commission and the government have been seeking to gag charities, preventing them from campaigning on matters relevant to their purposes.

The current debate around the EU Referendum presents another potential flashpoint for charities engaging in campaigning activity and the latest comments by Shawcross may be welcomed by charities who have previously felt discouraged from engaging in campaigning activities.

Public consultation on the disqualification of charity trustees

As reported in previous blogs and articles, the Charities (Protection and Social Investment) Act 2016 has introduced significant new regulatory powers for the Charity Commission.

One such power is the new power of discretionary disqualification. This power allows the Commission to disqualify certain persons from being trustees in circumstances where they are judged not fit to act, for a period of up to 15 years.

The new power is set out in section 10 of the 2016 Act and introduces a new section 181A into the Charities Act 2011. It states that the Commission may make an order disqualifying a trustee if it is satisfied that:

(a)   one or more of the statutory conditions are met;

(b)   the person is unfit to be a trustee; and

(c)   making the order is desirable in the public interest in order to protect public trust and confidence.

The statutory conditions include:

  • where a person was a trustee, charity trustee, officer, agent or employee of a charity at a time when there was misconduct or mismanagement in the administration of the charity (subject to conditions); and
  • where any other past or continuing conduct by a person, whether or not in relation to a charity, is damaging or likely to be damaging to public trust and confidence in charities.

The discretionary power itself is potentially very wide and the Commission’s exercise of the power will be interesting. The Commission has very recently set out its proposed approach in exercising this power in a consultation paper and the Commission is now inviting responses.

The full consultation can be found here.

The Commission has stated that it recognises the significance of the new power and has said that “it is important that our approach is set out clearly and understood by the sector. We hope that charities, professional advisers and other interested parties will respond to our consultation to further inform that approach”.


The Commission’s current approach to communication is quite useful and as noted above, has provided the opportunity for those involved in the sector to influence the manner by which the Commission will exercise its new powers.

As for campaigning activity, charities wishing to engage in the EU referendum debate should consider taking legal advice. Charity campaigning is a complex area and it can be very easy for charities to unwittingly fall outside of the presently accepted rules.

Need advice or wish to talk to us?

If you would like to discuss any of the points raised in this article please do not hesitate to contact: 

Stephen Claus

Head of Charity & Social Enterprise
Tel: 0151 600 3341
Email Stephen

Charities and people with significant control

Friday 29th April 2016

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Charities & Social Enterprise News - Special Issue 21


Does this sound like your charity?

  • A charitable company limited by guarantee?
  • Charity trustees who are also its only members, all with equal voting rights?
  • Charity trustees are appointed by a third party organisation that enjoys nomination rights in respect of your charity?
  • You have a trading company that is a wholly owned subsidiary of the charity?
  • You employ a chief executive who is responsible for the day to day operation of your charity?
  • You are part of a group structure, perhaps with a parent charity?

If your answer to some or all of these questions is yes, then it is very possible that your charity is caught by new rules introduced by the Small Business, Enterprise and Employment Act 2015 that will require you to keep a Register of People with Significant Control (“PSC Register”).

The new requirements only apply to charitable companies and trading subsidiaries. Therefore, unincorporated charities (trusts and associations) and charitable incorporated organisations (CIOs) (along with less common legal forms of charities such as Royal Charter bodies and statutory corporations) are not caught by the new rules – unless they have a trading subsidiary.

The PSC Register must record the details of individuals and legal entities with significant control over the company, along with a note about the nature of their control.

People with significant control

So who are people with significant control (PSC)?

Only an individual can be a PSC. However, where the owner or controller of a charitable company or trading subsidiary is a legal entity, such as a company or LLP rather than an individual, that legal entity will need to appear on the PSC register, if it is a registrable relevant legal entity (RRLE).

The tests for identifying PSCs or RRLEs are the same. A person has significant control if they meet any one of the following conditions:

  • Directly or indirectly holding more than 25% of the shares in the company or trading subsidiary – this test would not apply to a charitable company limited by guarantee on the basis that no shares exist, but it will apply to a wholly owned trading subsidiary;
  • Directly or indirectly holding more than 25% of the voting rights in the charitable company or trading subsidiary – this will apply to a charitable company limited by guarantee;
  • Directly or indirectly holding the right to appoint or remove a majority of the trustees / directors of the charitable company or trading subsidiary;
  • Otherwise having the right to exercise, or actually exercising, significant influence or control over the charitable company or trading subsidiary; or
  • Having the right to exercise, or actually exercising, significant influence or control over an arrangement such as a trust, which is not a legal entity but which meets any of the above conditions in relation to the company, or would do so if it were an individual.

The first three tests are relatively straightforward. This is perhaps best demonstrated in the following examples:

Scenario 1  

Charity X is a company limited by guarantee with three trustees. The three trustees are also the only members of Charity X (all with equal voting rights).

Each member can exercise 33.3% of the voting rights and therefore each is a PSC by virtue of the second test. The PSC Register will need to list the three members.

Scenario 2

Charity X appoints two additional trustees. The two new trustees are also admitted as members of Charity X and so in total, Charity X has five trustees and five members.

Each member now only has 20% of the voting rights and as such the members are no longer PSC’s. Charity X is still required to keep a PSC Register but this will simply state that there are no PSCs in relation to Charity X.

Scenario 3

Charity X establishes a trading subsidiary to carry out some non-charitable trading activities. The trading subsidiary is a company limited by shares and the shares are wholly owned by Charity X.

As 100% of the shares in the trading subsidiary are owned by Charity X, the trading subsidiary’s PSC Register will need to list Charity X as a RRLE.

Significant influence or control

The tests that relate to significant influence or control are much more difficult to apply.

The fourth test is whether a person has the right to exercise, or actually exercises, significant influence or control.

If someone has such a right, then they will need to be entered in the PSC Register, even if they have not exercised the right as yet. Examples are where a person has absolute rights over decisions relating to the running of a charitable company or trading subsidiary, e.g. adopting or amending a strategic plan, changing the nature of its activities, or making additional borrowings.

Absolute” means that a person has such rights without reference to or collaboration with anyone else.

This particular test raises questions as to whether it applies to the chief executive of a charitable company. It is noted that the employees of a charitable company are “excepted roles” and that they do not in themselves automatically mean a person has a right to exercise or actually exercises significant influence or control. However, this does not prevent an individual from being a PSC if “the role or relationship differs in material respects from how the role or relationship is generally understood”.

If a charitable company’s chief executive regularly or consistently directs or influences the trustees, or is regularly consulted on and influences trustee decisions they may be considered to be a PSC.

The general consensus is that the chief executives of charitable companies will not be captured under the rules. However, trustees will need to consider their own circumstances. Whilst a chief executive might not be captured, active patrons or founders who are not trustees may be.

Scenario 4
So for example, if Charity X’s founder attended meetings of the trustees in an advisory capacity and the trustees were always minded to follow the founder’s directions, the founder may be a PSC of Charity X.

The fifth test is most likely to apply in cases where the trustees of unincorporated charity (or CIO, Royal Charter body or statutory corporation) have rights to appoint the trustees of a charitable company, or where an unincorporated charity sets up a trading subsidiary.

Scenario 5

If the trustees of Charity Y an unincorporated charitable trust, had rights to appoint and remove the trustees of Charity X, the trustees of Charity Y will each be a PSC in respect of Charity X, by virtue of the fifth test.


From 6 April 2016, all companies including charitable charities and their trading subsidiaries will need to keep a PSC Register (subject to some very limited exceptions which are very unlikely to apply). All companies are under a duty to investigate whether they have PSCs.

The PSC Register cannot be empty. So, even where a charitable company has no PSC (as in Scenario 2), it will need to keep a PSC Register containing specific wording stating that there is no registrable person.

Details of the information on the PSC Register must also be filed with Companies House. From 30 June 2016, charitable companies and trading subsidiaries will need to supply Companies House with the information on their PSC Register along with a Confirmation Statement, which will replace the Annual Return.

A PSC Register will be accessible to any member of the public provided they have a proper purpose.

The new rules are intended to ensure greater disclosure by commercial organisations, creating a full picture of both the legal and beneficial ownership of such organisations, with the aim of preventing money laundering, tax evasion and other illegal activities.

It is therefore a little surprising that steps have not been taken to exempt charities in some way from these new rules. Charities are not “owned” in the same way as commercial organisations and it may be the case that charities are excluded from this new regime in the coming months.

However, for the time being, charities affected by the new rules should examine their own arrangements and take steps to establish whether any PSCs exist and what information should be included in the PSC Register.

The PSC regime itself is quite complex and to assist in its interpretation the government has released both statutory and non-statutory guidance. The non-statutory guidance (in summary and long form) offers detailed guidance and useful examples to cover the more common scenarios and can be found here.

If you have not already been in contact with us in relation to the PSC regime and you are concerned about your position, please do not hesitate to contact us.

Head of Charity & Social Enterprise
Tel: 0151 600 3341
Associate, Charity & Social Enterprise
Tel: 0151 600 3079


Paralegal, Charity & Social Enterprise
Tel: 0151 600 3064

The range of services offered by the Charities and Social Enterprise team can be viewed here

The future of charity fundraising

Wednesday 24th February 2016

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Charities & Social Enterprise News - Issue 20

2015 was another difficult year for the voluntary sector.

Charities have come under fire for campaigning activities in the lead up to the general election, the collapse of Kids Company has brought charity governance very firmly into the spotlight and the Charities Behaving Badly documentary that appeared on ITV raised issues of extremism within charities.

The crisis in charity fundraising has been equally damaging to the sector and a number of stories have appeared in the national press heavily criticising the fundraising practices of some of the country’s best known charities. This has led to two urgent reviews of charity fundraising and a number of proposals for reform that could significantly change the regulatory landscape in 2016.


Concerns about fundraising were first highlighted in May last year following the tragic death of Olive Cooke, a woman who had dedicated 76 years of her life to raising money for the Royal British Legion, selling an estimated 30,000 poppies.

Mrs Cooke had told newspapers in 2014 how she was being inundated with letters from charities and it was reported that she may have been receiving in excess of 250 letters a month from charities and other organisations seeking donations at the time of her suicide.

It was suggested that the fundraising practices of the charities involved may have contributed to Mrs Cooke taking her own life (a suggestion that was subsequently dismissed by the family) and Chris Grayling, the leader of the House of Commons, described it as a “shocking case” and an example of “wholly inappropriate behaviour”.

The case did however bring fundraising practices under the microscope and a number of other stories emerged, including instances of vulnerable people’s data being sold on to third parties for fundraising purposes.

The Daily Mail also carried out some undercover investigations and found that the telemarketing companies and charities engaged in fundraising would routinely ignore the Telephone Preference Service, make it near impossible for donors to opt out of receiving calls and target vulnerable and elderly people.

In addition to this, the Information Commissioner’s Office reported on a number of serious data protection issues with the Alzheimer’s Society. This is discussed in further depth in Michael Winder’s article here.

William Shawcross, the chair of the Charity Commission described the situation as a whole as a “crisis for the charity sector”.

The Etherington review

In response to the crisis, the government asked Sir Stuart Etherington, chief executive of NCVO, to lead a review into the regulatory framework that applies to charity fundraising. Its recommendations are summarised below:

  1. A new fundraising regulator – The review recommended a new, single regulator and criticised the systemic weaknesses in both the design and implementation of the current system. The new regulator would replace the Fundraising Standards Board (FRSB) and would be required to report regularly to parliament.
  2. A “three lines of defence” model – This model would see the trustees of charities as a first line of defence adopting more responsibility for charity fundraising being carried out in compliance with the law. The second line would be the new fundraising regulator and the third line would see the Charity Commission act as the backstop in cases that raised regulatory concerns on issues that fell within its remit.
  3. Increased responsibility for fundraising taken by trustees – trustees should take primary responsibility and regularly review compliance with the code of fundraising practice. Trustees should also report upon the steps the charity has taken to protect vulnerable people and others from undue pressure in their fundraising.
  4. One code of practice – The Public Fundraising Regulatory Association’s (PFRA) rulebook should be merged with the Code of Fundraising Practice published by the Institute of Fundraising (IOF). The new fundraising regulator should enforce the new code.
  5. A recommendation that the IOF and PFRA merge.
  6. A new Fundraising Preference Service – The establishment of a fundraising preference service to supplement the Telephone Preference Service. This would allow individuals to opt out of charity appeals.

Etherington’s report was welcomed by the sector as providing firm proposals for positive reform that would protect donors and provide charities with a much clearer framework within which to operate.


The Etherington review was swiftly followed by a report of the House of Commons Public Administration and Constitutional Affairs Committee (PACAC). Its substantial report was published on 25 January 2016.

The PACAC report was quite scathing in its criticism of the charities and particular blame was laid at the door of charity trustees. A selection of criticisms from the report appear below:

Last summer’s controversies were evidence of a failure of governance by trustees…Managing reputational risk is central to this role, for without good reputation, no organisation can be effective. In this role they failed

Trustees were either negligent, or wilfully blind to what was being done in their names

This sorry episode has damaged the reputation of charities across the board, including those who have behaved properly, and hindered their ability to raise essential funds

Government must…use its reserve powers if needs be, but it would be a sad and inexcusable failure of charities if statutory regulation becomes necessary

PACAC has supported the majority of the recommendations made in the Etherington report save for the establishment of a new telephone preference service. A working party has been established to consider the viability of such a service and its conclusions should be published later in the year.

PACAC has also emphasised the role of that trustees need to play in monitoring and enforcing fundraising standards and it has very clearly stated that charities are now drinking in the last chance saloon in respect of the self-regulation of fundraising.

Should the new regulatory landscape fail to rein in poor fundraising practices, a statutory regulator of fundraising is very likely to be created.

The future?

Steps have already been taken to establish a new regulator, to be known as The Fundraising Regulator. On 11 February, Lord Grade, the new regulator’s chair, announced eight people who will make up its first board.

The Fundraising Regulator is to be funded by large fundraising charities – that is charities who spend £100,000 or more on fundraising activities – and it has been reported that each will be asked to pay an annual levy of £1,300.

The new regulator is expected to be up and running by the summer and will have between 15 and 20 staff.

A revised Code of Fundraising Practice is to be published including elements of the PFRA’s rulebook and charity trustees whose organisations are involved in public fundraising should ensure that they familiarise themselves with its contents as soon as it is available.

It seems highly likely that the new Fundraising Regulator will be more active and visible than its predecessor and, following criticism in the PACAC report, it is possible that the Charity Commission will seek to increase its profile in respect of the regulation of fundraising. Indeed, the Commission’s guidance on charity fundraising (the CC20) has been revised and the draft new guidance was until very recently out for public consultation.

In addition to this, the Charities (Protection and Social Investment) Bill contains new provisions to further regulate the conduct of fundraising. The Bill, which is soon to become law, contains reserve powers to introduce statutory regulation in the event the this last attempt at self-regulation falls short.

Whilst the fundraising crisis of 2015 was brought about as a result of the activities of a very small minority of charities (and mainly very large national charities), the effect on the sector as a whole has been profound. Trustees have been criticised for a laissez faire attitude to fundraising activities, entrusting fundraising managers and partner organisations with responsibility for this area without carrying out any effective monitoring or exercising an appropriate degree of control.

The bad press generated could feasibly see a reduction in the amount of funds charities are able to raise from the public and it will be important for the trustees of all charities to ensure that their fundraising policies and procedures are reviewed in order to ensure compliance with the revised Code. Similarly, charity trustees will need to ensure that the fundraising practices of its staff and volunteers are properly monitored and assessed.

Charity trustees who fail to respond to will be an easy target for the new Fundraising Regulator.

If you would like to discuss any of the points raised in this article please do not hesitate to contact:

Stephen Claus

Head of Charity & Social Enterprise
Tel: 0151 600 3314
Email Stephen

Is the Freedom of Information Act to be extended to charities?

Wednesday 24th February 2016

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Charities & Social Enterprise News - Issue 20

It is perhaps not too surprising that following the Kids Company and fundraising crises, charities have found themselves under increased parliamentary scrutiny.

This has resulted in a proposal to extend the Freedom of Information Act (FOI) to “social enterprises and charities contracted to carry out work for public authorities”.

The proposal has two origins. Firstly, an independent cross-party commission was set up in December 2015 tasked with reviewing the existing Act, including whether to extend it to charities carrying out public sector work. Secondly, a Ten Minute Rule Bill to extend the reach of the Act (the ten minute rule allows a backbench MP to make his or her case for a new Bill in a speech lasting up to ten minutes) was introduced in the House of Commons by the Liberal Democrat MP, Tom Brake.

The Freedom of Information Act gives individuals the right to ask organisations that are covered by the Act whether particular information is held, and also provides a right for individuals to be given that information, unless one of the exemptions applies.

If the FOI regime was extended to charities, a charity could find itself obliged to release information that was otherwise considered to be internal or confidential to the trustees. FOI requests must be responded to within 20 working days and small charities in particular could find this to be a quite significant administrative burden.

The proposals have been met with strong opposition in the charity sector. Sir Stephen Bubb, the chief executive of ACEVO (Association of Chief Executives of Voluntary Organisations), in particular has been very vocal describing the proposals as “a blunderbuss that would do nothing for transparency but ultimately harm good causes”.

Further developments are expected in the coming weeks and months and we will keep a close eye on this, reporting on any significant developments in our blogs.

If you would like to discuss any of the points raised in this article please do not hesitate to contact Stephen Claus.

Information Commissioner’s Office issues enforcement notice to the Alzheimer’s Society

Wednesday 24th February 2016

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Charities & Social Enterprise News - Issue 20

On 5 January 2016, the Information Commissioner’s Office (ICO) issued an enforcement notice in respect of a number of serious failings in the way the Alzheimer’s Society handled sensitive personal data.

The failings primarily concerned a group of volunteers who were recruited to help sufferers and their families (or carers) to seek NHS healthcare funding. The 15-strong group handled 1,920 cases over a period of seven years, and in doing so they had access to sensitive personal data of such dementia suffers and their families/carers. The data included information used in drafting reports about the medical treatment, care needs and mental health of the dementia sufferers.

The ICO discovered among the failings that:

  • Volunteers were using personal email addresses to receive and share information about people who used the Alzheimer’s Society;
  • Volunteers stored unencrypted data on their personal home computers;
  • Volunteers failed to keep paper records locked away;
  • The Alzheimer’s Society had not trained the volunteers in data protection matters;
  • The Alzheimer’s Society had not explained its data protection policies and procedures to volunteers; and
  • There was a lack of supervision of staff.

The issues had been originally identified in late 2014 and required the charity to make improvements. While the Alzheimer’s Society has gone some way to make the necessary changes, the ICO remained concerned that more needed to be done. This, coupled with a separate breach in respect of a website hack in 2015 which put personal data of service users at risk, led to the issue of the enforcement notice.

In the enforcement notice, the ICO specifically noted that the failings amounted to a breach of the fifth and seventh data protection principles, relating to the length of time personal data should be kept and appropriate security measures respectively.

The ICO has given the charity six months to comply with the remedial steps set out in the enforcement notice, which include: the provision of secure email accounts and storage, appropriate organisational and technical measures against unauthorised staff access, provision of checking to ensure the security of the website and the provision of mandatory data protection training.

If the Alzheimer’s Society does not comply with the notice, it could face prosecution.

The Alzheimer’s Society has apologised for the failings and has issued reassurance that internal checks have shown that no personal data has ended up in the public domain as a result of the lapses. It also said that it was strengthening existing procedure to ensure training is passed to all volunteers and that compliance will be monitored.

This enforcement notice demonstrates that the ICO is not turning a blind eye to charities and whilst it will work with organisation, it will not shy away from issuing an enforcement notice if it does not consider improvements are being made fast enough. All organisations, including charities, who process personal data should ensure they are complying with the provisions of the Data Protection Act 1998. If there are any queries or concerns as to the nature or extent of your duties, or compliance with them, legal advice should be sought.

If you would like to discuss any of the points raised in this article please do not hesitate to contact:

Michael Winder

Associate, Commercial
Tel: 0151 600 3085