Clause 10: Interim changes in threshold for registration of small charities

55.     This clause allows the Secretary of State to bring about the effect of the changes described above for paragraph (d) of clause 3A(2) before the commencement of that provision.

Clause 11: Changes in exempt charities

56.     This clause amends Schedule 2 to the 1993 Act, to remove some specified institutions from that Schedule and to include other specified institutions in that Schedule. The effect of removing the specified institutions is that they will no longer be exempt charities. The inclusion of certain institutions, specified in subsections (4) and (5), is a technical change that will have no effect on the exempt status of the institutions.

57.     Subsection (12) allows the Secretary of State, provided he meets the condition in subsection (13), to make orders removing other particular institutions, or institutions of a particular description, from Schedule 2 to the 1993 Act, or adding other particular institutions, or institutions of a particular description, to Schedule 2 to the 1993 Act.

58.     Subsection (14) provides a power for the Secretary of State to amend or modify enactments in connection with charities that cease to be exempt charities, or become exempt charities, under this clause. This power would be used, for example, to mitigate the risk of dual accounting regimes arising for charities that lose their exempt status and become subject to registration with, and regulation by, the Charity Commission.

59.     Any order made under this section would be subject to the affirmative resolution procedure.

Clause 12: Increased regulation of exempt charities under 1993 Act

60.     This clause gives effect to the amendments to the 1993 Act specified in Schedule 5 to this Bill. These amendments apply to exempt charities provisions of the 1993 Act which formerly did not apply to them. However, the Charity Commission's power to institute inquiries into exempt charities under section 8 of the 1993 Act (conferred by paragraph 2 of Schedule 5) is limited: the Commission may only exercise that power, in relation to an exempt charity, on the request of the charity's principal regulator (see note on clause 13).

Clause 13: General duty of principal regulator in relation to exempt charity

61.     This clause gives the Secretary of State power (subsection (4)(b)) to make regulations prescribing a body or a Minister of the Crown as the principal regulator of an exempt charity. A body or Minister prescribed as a principal regulator of an exempt charity will have, in relation to that charity, the duty (subsections (2) and (3)) to do all that it or he reasonably can to increase compliance by the charity trustees with their legal obligations.

62.     Subsection (5) will allow the Secretary of State to make regulations amending or otherwise modifying Acts of Parliament, Statutory Instruments and other enactments for certain purposes. These could include the purpose of giving a principal regulator any new statutory powers that it needs to carry out its duty to meet the compliance objective in relation to the exempt charity(ies) for which it is principal regulator.

Clause 14: Commission to consult principal regulator before exercising powers in relation to exempt charity

63.     The principal regulators of exempt charities will not have the full powers of the Charity Commission. This clause inserts a new section, 86A, into the 1993 Act, requiring the Charity Commission to consult the principal regulator of an exempt charity before the Commission exercises any of its specific powers in relation to that charity.

Clause 15: Application cy-prSs by reference to current circumstances

64.     This clause amends section 13 of the 1993 Act by substituting 'the appropriate considerations' for 'the spirit of the gift' in that section. The effect is to require the Charity Commission, when making a scheme to alter the purposes for which charity property is to be applied, to take into account not only the spirit of the gift of the property but also the social and economic circumstances prevailing at the time of the proposed alteration in the purpose.

Clause 16: Application cy-prSs of gifts by donors unknown or disclaiming

65.     This clause, by amending section 14(4) of the 1993 Act, gives the Charity Commission the power to decide whether property is to be treated as belonging to donors who cannot be identified. Under the existing law only the court has that power.

Clause 17: Application cy-prSs of gifts made in response to certain solicitations

66.     This clause inserts a new section, section 14A, into the 1993 Act. Section 14A applies to property (which includes money) given for specific charitable purposes in response to an appeal - containing a certain type of statement. The statement is described in subsection (2) and is to the effect that unless, at the time of making his donation, the donor asks (by making a "relevant declaration" as described in subsection (3)) to be given the chance to reclaim his donation if the specific purposes for which he is giving it fail in future, the donation will be applied cy-prSs.

67.     Subsections (4)-(6) set out the process to be followed where the purposes have failed and where the donor has made a relevant declaration. The trustees holding the property must notify the donor that the purposes have failed and ask him whether he wants the property (or a sum equal to its value) returned. If he does, the trustees must return it to him. If either the trustees cannot find the donor, or the donor indicates that he does not wish the property returned, then the property can be applied cy-prSs as if the donor had disclaimed his right to have it returned to him.

68.     Subsection (7) applies where the purposes have failed and where the donor has not made a "relevant declaration". It allows the property to be applied cy-prSs as if the donor had disclaimed his right to have it returned to him.

69.     Paragraph (b) of subsection (8) makes clear that this section applies both where the donor has received something of value in return for his donation and where he has not. Paragraph (c) makes clear that where an appeal consists of some solicitations which contain the statement described in subsection (2) and some which do not contain that statement, the donor (unless he proves otherwise) will be regarded as having responded to a solicitation containing the statement.

Clause 18: Cy-prSs schemes

70.     This clause alters the cy-prSs rule. The cy-prSs rule is a well-established legal rule that applies when the purposes for which charitable property is held are being changed by the court or by the Charity Commission. The occasions on which charitable purposes can be changed to new purposes by the court or the Commission are set out in section 13 of the 1993 Act, as amended by clause 18 of this Bill. At present the cy-prSs rule requires the new purposes to be as close as practicable (bearing in mind the reason why the need to change the purposes arose in the first place) to the original purposes.

71.     Clause 18 alters the cy-prSs rule by inserting into the 1993 Act a new section 14B, subsection (1) of which requires the court or the Commission to act, when making a scheme to change charitable purposes, in accordance with the remaining provisions (i.e. subsections (2) to (6)) of new section 14B.

72.     Subsection (2) of new section 14B requires the court or the Commission, when making a scheme changing the charitable purposes for which particular property given to a charity is held, to have regard to certain matters (see next paragraph). This applies either when the scheme is transferring the property from one charity to another or when there is no transfer and the scheme simply changes the purposes of the charity that holds the property. "Property given" to a charity includes (by virtue of subsection (5)) both the property in the form in which it was originally given and any property derived from it. The effect is that if, for example, a piece of land was given to a charity and sold by the charity, the money representing the proceeds of the sale would also count as the "property given".

73.     The three matters to which the court or the Commission must have regard when making a scheme changing the charitable purposes for which property is held are set out in subsection (3) of new section 14B. One of those matters is the desirability of choosing new purposes which are close to the original purposes; but that is not paramount. The court or the Commission must give equal weight to the other two matters. One of these is the spirit of the gift by which the property came to the charity. The other is the need to ensure that, the charity has purposes which are suitable and effective in the light of current social and economic circumstances.

74.     Subsection (4) of new section 14B allows the court or the Commission, when making a scheme which transfers a charity's property to another charity, to require the trustees of the receiving charity to use the property for purposes as similar as practicable to the original purposes for which the property was held. This is to cover cases where the original purposes are still useful but the court or the Commission believes that the property can be more effectively used in conjunction with other property.

Clause 19 - Power to suspend or remove trustees etc from membership of charity

75.     This clause inserts into the 1993 Act a new section 18A, which applies when the Charity Commission - at any time after it has started a statutory inquiry into a charity - makes an order suspending or removing from office any trustee, charity trustee, officer, agent or employee of a charity who is also a member of that charity.

76.     In some cases under the present law, a person who has been suspended or removed from office can use his membership of the charity to help vote himself back into, or reacquire in other ways, the office from which he has been suspended or removed. The Bill gives the Commission power to prevent this by:

• (subsection (2) of section 18A) allowing it also to suspend the membership of someone whom it was suspending from office. The person's suspension from membership would last as long as his suspension from office; or

• (subsection (3) of section 18A) allowing it also to terminate the membership of someone whom it was removing from office and to prohibit that person from taking up his membership again without the Commission's agreement.

77.     There is a presumption, in subsection (4) of section 18A, that a person should be entitled to take up his membership again five years after it was terminated. That presumption can be overturned only if there are special circumstances.

Clause 20 - Power to give specific directions for protection of charity

78.     This clause inserts into the 1993 Act a new section 19A, which allows the Charity Commission at any time after it started a statutory inquiry into a charity and has found either:

• that there is or has been any misconduct or mismanagement in the administration of the charity; or

• that it is necessary or desirable to act for the purpose of protecting the property of the charity or securing a proper application for the purposes of the charity of that property or of property coming to the charity,

• to direct any of the persons listed in the subsection (2) of section 19A to take a specific action which the Commission thinks is expedient in the interests of the charity.

79.     "Charity trustees" in paragraph (a) of subsection (2) attracts the definition of "charity trustees" in section 97(1) of the 1993 Act: the persons having the general control and management of the administration of a charity. Paragraph (b) of subsection (2) covers a person who is a trustee for the charity but who is not a "charity trustee" within that definition. An example would be a custodian trustee of the charity's property.

80.     Subsection (3) of section 19A:

• prevents the Commission from directing a person to do something which is expressly prohibited by an Act of Parliament or by his charity's own constitution, but

• allows the Commission to direct a person to do something which he does not have power to do under his charity's constitution or otherwise.

81.     Where a person is directed by the Commission to take some action which is not otherwise within his power, and he takes that action in accordance with the Commission's direction, subsection (4) protects him from any allegation that he acted improperly, although subsection (5) preserves the contractual and other rights of other parties in respect of anything so done.

Clause 21 - Power to direct application of charity property

82.     This clause inserts into the 1993 Act a new section 19B. Subsection (2) gives the Charity Commission, in certain circumstances, power to make an order directing a person who is in possession or control of charity property to apply that property in the way specified in the Commission's order.

83.     Subsection (1) of new section 19B sets out the circumstances in which this power is exercisable.

84.     Subsection (3) makes similar provision to subsection (3) of new section 19A (see paragraph 80) above.

85.     Subsections (4) and (5) make similar provision to subsections (4) and (5) of new section 19A (see paragraph 81) above.

Clause 22 - Relaxation of publicity requirements relating to schemes etc.

86.     This clause substitutes for section 20 of the 1993 Act, which sets out the procedures to be followed by the Charity Commissioners for giving publicity to schemes and certain orders, a new section 20 and a new section 20A. The purpose of the changes is to speed up the formal procedure for the making of schemes and orders by the Charity Commission and to reduce the cost to charities, by making advertising of the changes a matter of Commission discretion.

87.     Subsections (1) and (2) of new section 20 state that the Commission may not establish a scheme for a charity without:

• giving public notice; and

• if it is a local charity, informing the parish council or chairman of the parish meeting.

88.     Subsection (3) makes the timing of such notices a discretionary matter for the Commission. Under the current law, public notice must have been given for at least a month before the date of making the scheme.

89.     Subsection (4) allows the Commission to disapply either or both of the publicity requirements in subsection (2) if it is satisfied that either or both is unnecessary. Subsection (5) says that the Commission must take into account any representations made to it but may proceed with the proposals without further notice at its own discretion without necessarily modifying them. After an order is made it must be displayed publicly for at least a month in the Commission's office and, if it is a local charity, at a convenient place in the charity's area. The latter requirement may be disregarded should the Commission deem it unnecessary. Subsection (7) gives the Commission discretion as to what information is included in the public notices and how it is presented.

90.     Section 20A contains similar provision to section 20 in relation to orders of the Commission to remove trustees, officers, agents or employees of charities from their position as such within a charity. The Commission can determine the length of public notice given (subsection (3)), whether or not such a notice is necessary (subsection (4)) and the form and content of the notice (subsection (7)). Subsection (5) requires the Commission to notify the person being removed from his position not less than one month before the order is made, inviting representations from him within a stated time. This does not apply if the person cannot be found or has no known address in the United Kingdom. Subsection (8) allows the notice to be given by post to the recipient's last known address in the UK.

Clause 23 - Participation of Scottish and Northern Irish charities in common investment schemes etc.

91.     Under sections 24 and 25 of the Charities Act 1993 the Charity Commissioners may make schemes for the establishment of, respectively, common investment funds (CIFs) and common deposit funds (CDFs), which are collective investment vehicles specially designed for charities. A CIF is akin to a unit trust while a CDF is akin to a deposit account for cash. Under the existing law the only investors from which CIFs and CDFs are allowed to accept investments are charities established in England and Wales.

92.     Clause 23 amends sections 24 and 25 of the Charities Act 1993 to allow CIFs and CDFs the opportunity to accept investments from charities established in Scotland and Northern Ireland. Clause 23 will not automatically widen the scope of every CIF and CDF in this way, but will allow individual CIFs and CDFs to make their own decisions as to whether or not to accept investments from charities in Scotland and Northern Ireland.

Clause 24 - Power to give advice and guidance

93.     The Charity Commissioners have power under section 29 of the 1993 Act to give a charity trustee who applies in writing for it, their opinion or advice on any matter affecting the performance of his or her duties as such. If the trustee acts in accordance with the advice or opinion given by the Commissioners, he or she is deemed to have acted in accordance with the trusts of the charity. This protection is withdrawn, however, if the trustee knows or suspects that the Commissioners' opinion or advice was given without their knowing all the material facts of the matter. Protection is also withdrawn where the court has already given a decision on the same matter, and where proceedings are under way to obtain the court's decision.

94.     Clause 24 substitutes a new section 29 for the existing section 29. The overall effect of new section 29 is to preserve, with one minor extension, the existing power described above, and to add a more general power for the Commission to give advice.

95.     Subsections (1) to (3) of the new section 29 reproduce in essence the existing power. Subsection (1)(b) makes the extension, which is to allow the Commission's opinion or advice to be sought on any matter relating to the proper administration of the charity not just, as at present, on any matter relating to the applicant's performance of his or her duties.

96.     Subsections (4) and (5) give the Commission a more general power to give advice and guidance, as part of their new function (set out in new section 1C(2) of the 1993 Act, inserted by clause 7 of the Bill) of encouraging and facilitating the better administration of charities. The Commission may use this new power to give advice to individual charities, to classes of charity, or to all charities, and may do so in whatever form and manner - for example, through letters, through publications made generally available, through documents placed on their website - it considers appropriate.

Clause 25 - Power to determine membership of charity

97.     Some charities have a body of members with voting and other constitutional rights, such as the right to elect some or all of the trustees of the charity. If, for example, a charity's membership records were incomplete, there might be a dispute as to who the members of the charity were. That could in turn impede the proper administration of the charity - for example, by casting doubt as to whether or not particular people have been validly elected as trustees.

98.     Clause 25 inserts a new section 29A into the 1993 Act. New section 29A gives the Charity Commission, or a person appointed by the Commission for the purpose, the power to decide authoritatively who the members of a charity are. The Commission, or the person it has appointed for the purpose, may exercise this power in two circumstances. The first is when the charity in question applies for such a decision to be made. The second is at any time after the Commission has begun a statutory inquiry into the charity under section 8 of the 1993 Act.

99.     An amendment made to section 97(1) of the 1993 Act by Schedule 8 to the Bill has the effect that, if the charity in question has a body of members distinct from the charity trustees, "members" in the new section 29A means that body of members.

Clause 26 - Power to enter premises and seize documents etc

100.     This clause inserts into the 1993 Act a new section, section 31A, which gives the Charity Commission power to enter premises for certain purposes and on certain conditions. The Charity Commissioners have had since 1960 an enforceable power to call for documents and search records, but have never had power to enter premises to take possession of documents or information.

101.     The power of entry is exercisable subject to obtaining a warrant from a justice of the peace. Subsection (1) of new section 31A sets out the circumstances in which a justice of the peace may issue a warrant.

102.     The conditions in subsection (2) include the condition (paragraph (a) of that subsection) that an inquiry has been instituted under section 8 of the 1993 Act. Section 8 gives the Commission power to institute inquiries with regard to charities or a particular charity or class of charities, either generally or for particular purposes.

103.     Subsection (3) sets out the actions which a warrant authorises the Commission employee named in the warrant to take. The documents which that person may take into his or her possession are limited, by paragraph (c) of that subsection, to documents falling within paragraph (b) of subsection (2) - that is, to documents which are relevant to the inquiry in question and which the Commission could require to be furnished or produced under its power in section 9(1) of the 1993 Act. Subsection (3)(d) allows the Commission employee to take possession of computer disks and other electronic storage devices containing information of the same description. Subsection (4) provides that the warrant must be executed within one month of its issue.

104.     Subsection (6) provides that a written record of the entry and seizure must be made, and sets out the matters it must include. Subsection (7) provides that the written record must be presented on request to the occupier or his representative. Subsection (8) provides that unless it is not practical, the Commission employee must prepare the written record whilst on the premises and, if it is requested, provide the copy of the record before leaving the premises.

105.     Subsection (9) allows the Commission to retain documents or devices that it has seized for as long as it needs to retain them for the purposes of its inquiry. An effect of paragraph (a) of this subsection is that, if keeping a photocopy of a document will suffice for the purpose of the inquiry, the Commission must return the original document.

106.     Subsection (10) provides the Commission to return a seized document or device either to the person from whom the Commission seized it, or to any of the charity trustees. This would allow the Commission to give direct to the trustees property which belongs to the charity but which was in someone else's possession when seized.

107.     Subsection (2) of this clause applies section 50 of the Criminal Justice and Police Act 2001 to the Charity Commission's power of seizure. That would in some circumstances allow a Commission employee to seize something (such as a computer):

• when he believed that it contained information the Commission was entitled to take but he could not determine, on the premises, whether or not it did in fact contain that information; or

• when he knew that it contained information the Commission was entitled to take but he could not, on the premises, extract the information from the computer.

Clause 27: Restrictions on mortgaging

108.     Clause 27 makes a number of amendments to section 38 of the 1993 Act. At present, the grant of any mortgage over charity land requires the authority of the court or the Charity Commission, unless it is being granted by way of security for the repayment of a specific loan. Where the mortgage is granted for such a purpose, that authority is not necessary so long as the trustees obtain and consider proper advice, before executing the mortgage, on certain matters concerned with whether the loan is expedient in the interests of the charity. This clause extends the types of arrangement when a charity does not require the formal authority of the court or the Commission to allow land belonging to a charity to be used as security.

109.     The substitution made by subsection (2) provides for the extension of the regime for which consent is not required, and sets out the written advice on relevant matters which the trustees must obtain in the case of a mortgage to secure the repayment of a proposed loan or grant (new subsection (3)), and in the case of a mortgage to secure the discharge of any other proposed obligation (new subsection (3A)).

110.     New subsections (3B to 3D) make provision for the regime for which consent is not required to be extended to mortgages which are intended to secure not only the loan which is under immediate consideration, but also any future loan which the lender might make to the borrower. This is subject to the requirement in new subsection (3D) that such a future transaction must not be entered into unless proper advice has been taken (as set out in new subsection (3) or (3A)) in respect of that transaction.