Memorandum from the Law Society (DCH 162)
The Law Society fully supports the broad thrust
of measures contained in the draft Bill, however, we would like
to take this opportunity to raise specific concerns which we consider
would benefit from closer examination.
In particular, the Law Society recognises that
charities have a strong public image, in which the public has
confidence, and so we are concerned that the Draft Bill should
not lead to any dilution of the effectiveness of charities or
diminution of their status.
The Law Society urges that when the Bill is
passed it should be followed swiftly by a consolidation Act to
provide the wide range of people who will use the legislation
with a clear statement of the law without the need to refer to
several Acts.
1. CHARITABLE
PURPOSES
We support the introduction of new charitable
purposes as a means of confirming and making explicit the categories
of status that are already quite well established under the existing
"other purposes to the community" head.
In particular, the Society welcomes the inclusion
in clause 2(2)(h) of the advancement of human rights, conflict
resolution and reconciliation heading.
We consider that clause 2(2)(g), advancement
of amateur sport, when read with clause 2(3)(c) would require
physical exertion and may need greater clarity to define the types
of sporting activities which are to be excluded from charitable
status.
The new heading of relief of those in need,
by reason of youth, age, ill health, disability and financial
hardship, in clause 2(2)(j) is to be welcomed. However, we seek
clarification of the reasons for inclusion of the "or other
disadvantage" category. If it is intended that this should
apply to those who have suffered some form of discrimination then
this could be more tightly drafted. If this is what is intended
then we would suggest that the term discrimination, this would
be clearer as the term is defined in existing case law, whereas
the term "disadvantage" is not.
2. PUBLIC BENEFIT
We support the proposal in clause 3(3) that
the public benefit test is to be based on the well understood
existing case law.
3. THE CHARITY
COMMISSION
The decision to place the Charity Commission
on a statutory basis is a positive step. Nevertheless we are concerned
that in explicitly taking on the mantle of a regulator, the current
valuable role of the Commission as the friend of the charitable
sector, to which smaller charities can turn for guidance, should
not be lost.
Advice given under the existing s29 of the Charities
Act 1993 or clause 20 of the Draft Bill is authoritative. We regard
this as a very valuable protection for charity trustees that should
not be removed.
4. THE CHARITY
APPEALS TRIBUNAL
The objective of establishing a tribunal should
be to allow for an authoritative body which could make swift decisions,
allowing the law to develop with less cost and difficulty than
is currently the case.
There is not enough detail in the draft Bill,
to know whether this is likely to be the case. In particular,
the role of the Attorney General needs clarification as it seems
that the Attorney-General is to be treated as a party to all proceedings
before the Tribunal, but who nonetheless must seek the consent
of the Tribunal before s/he can appeal a decision.
5. REGISTRATION
OF CHARITIES
We welcome the decision to allow registration
of any charity.
6. CY-PRE"S
The cy-pre"s principle is used to re-apply
failed charitable gifts for use in a similar charity, for example,
this applies where a gift to a particular charity fails because
the charity in question no longer exists but the courts do not
want the gift to be lost.
Clause 12(3)(b), includes the term "social
and economic circumstances prevailing". We seek clarification
as to whether the intention of this term is to expand the principle
to include gifts made to charities that may lose charitable status
as a result of changes to the interpretation of the charitable
purposes and public benefit test under the Bill.
Clause 15 provides for the Charity Commission
to decide how cy-pre"s funds should be applied, when a charitable
gift has failed. We are also concerned that it may result in political
pressure being brought to bear on the Commission in its quasi-judicial
role, which being incorporated as a Crown Body, becomes more likely
to find it difficult to insist on its independence of government.
7. SUPERVISION
OF CHARITIES
In clause 16, we note that the Commission may
direct a charity trustee or employee to undertake a particular
course of action. While we appreciate that there is a right of
appeal against such a direction, and that clause 16(4) provides
protection for the trustee/employee who acts on a direction of
the Commission, we believe that consideration must be given to
a means of dealing with losses suffered by the charity in consequence
of a direction given by the Commission.
We welcome the proposals to allow Scottish and
Northern Irish charities to participate in common investment and
deposit schemes.
8. CHARITABLE
INCORPORATED ORGANISATIONS
(CIO)
We are concerned that the provisions of chapter
8 and schedule 6 do not contain sufficient detail to allow any
charity considering converting to CIO status, to make a proper
assessment of the benefits and pitfalls of the model. We would
ask that more detail of CIO status is provided. Schedule 6, paragraph
69P states that the Secretary of State may make further provisions
about the administration of CIOs, and this in itself underlines
the uncertainty about the operation of these entities.
We are concerned at the power of the Commission
to block amalgamation or transfer of undertakings under schedule
6, paragraph 69L (6) between CIOs if the Commission thinks the
successor will not be able to pursue its purposes properly, since
this power does not exist in relation to other forms of charity.
We are concerned that the provisions of schedule
6, which inserts a new schedule 5A in the 1993 Charities Act,
effectively gives third parties dealing with a CIO the same protection
as those dealing with a normal commercial company, where no such
protection exists for those dealing with a company limited by
guarantee. This anomaly should be addressed.
We are also concerned about the lack of sufficient
interaction of the proposed new provisions with the Companies
Act and the Insolvency Act. It seems the trustees of a CIO would
be dealt with under the Charities Act while the directors of its
captive trading company would be subject to the Companies Act
regime. This creates unnecessary complexity in an already difficult
area.
9. CHARITY TRUSTEES
We note that there does not appear to be a reference
in schedule 4 (the Charity Appeals Tribunal) to the provisions
inserted by, clause 29 of a new section 73D (of the Charities
Act 1993) dealing with the power to relieve trustees, auditors
etc of liability for breach of trust or duty. On the assumption
that our questions above, about the authority and cost effectiveness
of the Tribunal, can be dealt with satisfactorily, we believe
that it is important that persons seeking relief under the new
73D provisions should be able to apply to the Charity Appeals
Tribunal if such relief is refused by the Commission. We can see
no good reason for their being prevented from doing so.
We support the provisions of clause 27 which
will allow for the remuneration of charity trustees. Many trustees
are currently limited in the amount of assistance they are able
to give on a pro bono basis to a charity. This will help charities
to attract trustees with the right type of professional expertise.
10. POWERS TO
SPEND CAPITAL
AND MERGERS
We are disappointed that there is no additional
encouragement in the provisions under chapter 11 to facilitate
the merger of charities. While these provisions do something to
smooth the way for charities, which already have powers allowing
merger, those provisions are almost unknown in many pre-20th Century
charities still operating. There is nothing here to help them.
We believe that a general power for any charity to merge with
another charity or charities either the whole or part of its activity
would be of considerable use. It is not satisfactory to rely on
the possibility of an order under s26 of the Charities Act 1993,
as it is difficult to argue that a transfer is "expedient
in the interests of the charity".
There appears to be an anomaly in the provisions
relating to mergers and the transfer of property. Section 75C,
to be inserted by clause 34, provides for a declaration akin to
that under s 40 Trustee Act 1925 to transfer all the property
of a transferring charity to the recipient without the need for
any further document (new s75D(5)). The new section 75C(5) allows
for registration of a merger only when all the transfers of property
have taken place.
Furthermore, while we welcome the attempt to
allow for the transfer of all property automatically so that none
is "lost" by being left in the former charity, we believe
that there are some kinds of property where it will be necessary
to have documentary evidence of transfer of title. It is not clear,
for instance, how land with a registered title would be dealt
with, or how shares in limited companies would be dealt with.
There would need to be a transfer to ensure that the registrar
had a document to register.
There are some other prospective problems which
do not appear to have been considered.
— Would the effect of a transfer by
operation of s75D(5) operate to cure any defect in a transfer
which had already taken place as required by s75C(5)?
— What would be the effect of such
a transfer if it were of property which was permanent endowment
and the transfer was made to a company limited by guarantee/CIO—(in
the former case it would be necessary for the property to be held
by the company on the relevant trusts)—the nature of CIO
is insufficiently certain to know whether or not that would have
to apply?
— What would be the effect of the transfer
on the rights or obligations of third parties—say a leasehold
with requirements for a licence to assign, or a guarantee of an
obligation by a third party?
— If the effect would be to remove
or interfere with the property rights of third parties, how is
that to be reconciled with the Human Rights Act and the First
Protocol to the Convention?
— Should the provision not also extend
to obligations of the transferring trustees?
11. FUNDRAISING
The Law Society supports the aim to regulate
house-to-house and street fundraising in a modern way, because
we take the view that it is essential that public confidence in
the charity brand is not undermined by the adoption of marketing
methods likely to alienate large sectors of the public.
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