Not for Profit Policy Update: Law Commission consultationLouise Thomson FCIS

18 May 2015

Law Commission: Technical issues in charity law

Context

• Lord Hodgson review

• First Law Commission review on social investment by charities

• Draft protection of charities bill

• Second Law Commission review looking at technical aspects of charity law

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Law Commission themes Changing governing documents

Royal Charter and statutory charity changes

Fundraising appeals that fail and the need to apply funds under cy-près

Procedures regarding the disposal and acquisition of land

Permanent endowment

Payments to charity trustees

Ex gratia payments

Incorporation, merger and insolvency

Charity Commission powers

Charity Tribunal and the courts 3

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Changing governing documents

What’s the issue?

• Lack of consistency - different means by which governing documents can be changed, for different reasons, according to their structure

• S275 power for small unincorporated charities (<£10k and no designated land) too narrow

• S280 powers too wide/too narrow

• Disproportionate regulatory oversight

• Administrative burdens for minor or inconsequential changes

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Changing governing documents: Law Commission proposals

1. Extend s275 powers to larger unincorporated charities and those holding ‘designated land’

2. Notification to CC to continue?

3. Ongoing requirement of a vote by members on resolutions to amend purposes?

4. Views on s280 powers

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Royal Charter and statutory charity changes

What’s the issue?

• Ability of Royal Charter and Act of Parliament charities to amend governing documents can be complex, time consuming and expensive

• Same process involved regardless of whether proposed change is minor or major

• Lack of clarity on changes to Charter bye-laws

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Royal Charter and statutory charity changes: Law Commission proposals

1. Statutory provision for charter/bye-laws to include power of amendment (subject to Privy Council approval), by resolution of 2/3 of trustees and further 2/3 vote of members (where they exist), unless express powers already exist

2. Statutory power to make minor amendments, by resolution of 2/3 of trustees and further 2/3 vote of members (where they exist)

3. All s73 schemes subject to negative procedure

4. Privy Council to amend guidance on amending bye-laws

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Fundraising and cy-près

What’s the issue?

• The need to get the wording on fundraising literature right to avoid future problems

• The use of surplus funds to an appeal, without the need for a CC cy-près scheme

• The administrative burden of returning donations in failed funding appeals

• The administrative process of applying to CC for a cy-près scheme for the use of funds subject to general charitable intention precondition

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Fundraising and cy-près: Law Commission proposals

1. Views sought on removal of general charitable intention for failed appeals in general or limited to small funds/donations

2. Improve procedures for the distribution of failed appeals

3. Power for trustees to apply small funds cy-près

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Land

What’s the issue?

• Generally deemed to be complex, costly and burdensome to dispose of charity land

• Unnecessary provisions relating to the disposal of land to ‘connected persons’, and its definition

• Separate provisions for disposal of charity land and for mortgages

• Inconsistencies between disposing of land and acquiring land, and the divestment of other assets

• Additional burdens for charities with ‘designated land’

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Land: Law Commission proposals

1. Repeal or change provisions relating to the disposal of charity land to a ‘connected person’

2. General prohibition on trustees disposing of land be removed and insert new duty to obtain and consider appropriate advice, where reasonable

3. Abolish advertising requirements on charity land disposals

4. Should certain provisions apply to exempt charities?

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Permanent endowment

What’s the issue?

• Difficulties in making social investments

• ‘Special trust’ regime for permanent endowments deemed unnecessary and causes confusion

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Permanent endowment: Law Commission proposals

1. Repeal s288 and s289 for ‘special trusts’ as it is repetitive of the provisions covered in s281 and s282

2. Clarify s281 and s282 so that it applies to permanent endowment held by incorporated charities

3. Raise the thresholds for s282 and s282 from £1k to £10k and £10k to £100k?

4. Reduce the time frame for CC to respond to resolutions passed under s275 from three months to 60 days?

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Payments to trustees

What’s the issue?

• Clarify the position on the payment of trustee/connected person for goods, currently different from the regime regarding the provision of services

• The role of the court in authorising breaches of fiduciary duty in relation to ‘equitable allowances’

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Payment to trustees: Law Commission proposals

1. New statutory powers to remunerate trustees for the supply of goods to mirror that for the supply of services

2. CC to have statutory power to relieve trustees of liability arising from ‘equitable allowance’ profits

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Ex gratia payments

What’s the issue?

• Disproportionate process for seeking approval to make small ex gratia payments

• The decision may need to be timely and can be impacted by the frequency of board meetings and the need to gain CC authorisation

• Statutory charities do not have access to Attorney general, courts or CC to authorise ex gratia payments, they have to go to Parliament

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Ex gratia payments: Law Commission proposals

1. New statutory power allowing trustees to make small ex gratia payments, subject to governing document provisions, with the Minister given power to vary financial thresholds by secondary legislation

2. Views sought on a new power to delegate the decision to make ex gratia payments, to whom, and under what threshold?

3. Extend the power of the Attorney General, courts and CC to authorise ex gratia payments by statutory charities and apply new power for trustees to make small ex gratia payments to statutory charities

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Incorporation, merger, insolvency

What’s the issue?

• Inconsistencies in the way different types of charities (income, designated land) can incorporate or merge – s280, s268, s235 and s240

• Confusion as to the application of s268 powers in charity’s with permanent endowment, which are more onerous

• Different means for transferring assets, with some requiring CC approval and others not

• The use of vesting declarations inhibited by specific limitations

• Lack of clarity regarding charity assets when trustees face insolvency

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Incorporation, merger, insolvency: Law Commission proposals

1. Views sought on the possible expansion of s268 powers

2. Extend requirement for similar purposes between transferor/transferee charities to unrestricted funds and permanent endowments

3. Views sought on the use of vesting declarations and any difficulties experienced, specifically s310 (leases)

4. Removal of exception of s310(3)(b) regarding leases with qualified covenants against assignment

5. S310 vesting declarations should apply to permanent endowment in same way as unrestricted funds

6. Revise CC12 re the use of trust property in the case of trustee liability in insolvency cases

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Charity Commission powers

What’s the issue?

• CC can only direct registered charities to change their main name, cannot be done before registration

• CC has no power to determine charity trustees, only members

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Charity Commission powers: Law Commission proposals

1. New powers for CC to direct unregistered charities to change name

2. CC directions to change name to include all exempt charities

3. Additional CC powers to refuse registration or change of name of a charity or stay the registration or name change, if it fails to meet the criteria established in s42(2)

4. Enhance CC powers so it can identify charity trustees on application by the charity/trustee or following a s46 inquiry

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Charity Tribunal and the courts

What’s the issue?

• The requirement for CC or court consent to instigate ‘charity proceedings’

• Lack of clarity whether trustees can indemnify themselves from charity funds for costs incurred as a result of litigation

• The application of Beddoe orders presents the CC with an inherent conflict of interest

• Inconsistency of the protection of charitable funds in charity proceedings in the court and the Charity Tribunal

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Charity Tribunal and courts: Law Commission proposals

1. Where a charity wishes to enter proceedings against the CC, the charity should be permitted to seek authorisation from the CC or the courts

2. Charity Tribunal to have power to make Beddoe orders on matters before it

3. Views sought on the role of the Attorney General in relation to charity proceedings

Law Commission consultation on technical issues in charity law

Document can be found at: http://lawcommission.justice.gov.uk/consultations/charity-law-technical.htm

Consultation closes 3 July 2015

ICSA running a number of working groups

Comments to lthomson@icsa.org.uk

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Thank you.