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| Clause | Comment
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| Part 1: Meaning of Charity
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| Clause 1(1) | When a charity is defined as a "body" it may not be sufficiently clear that it includes an unincorporated association. In CA 93, Section 96(1) the phrase is "any institution, corporate or not" which may be a better formulation.
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| Clause 2 (2)(j) | This wording is new and overlaps with (a) and (d).
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| Clause 2(1) | The public benefit test is to be applied to the charitable purposes rather than to the way in which the charity furthers those purposes. We believe that the Strategy Unit intended that a public benefit test be applied also to the pursuit of charitable purposes. For example, the advancement of education of children will always be charitable; but there has been a debate about whether there is sufficient public benefit in the way this purpose is pursued by some independent schools. We therefore consider it is necessary to give the CC power to assess whether purposes are being properly pursued for the public benefit. This requires additional provisions in the Bill—perhaps through an obligation on CC to operate an ongoing review of public benefit. However in developing its criteria in this area the CC should be under an obligation to engage in public consultation both with the Tribunal and the wider public.
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| Clause 2 (2) (l) | 1. The final category (1) is very broad and gives a great deal of scope for adding further purposes in the future to keep the definition up to date. However, the Bill contains no obligation on the CC or the courts to update in this way; although case law does. The extension of the law "by analogy" is explicable to lawyers but less so to the general public. A better phrase might be "evolution by reference to changes in society or public perception of public benefit". We suggest this should be one of the CC's duties under proposed new section 1D (clause 5).
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| Clause 3.1 | 1. Public benefit is given the same meaning as it currently has in charity law, throwing us back onto existing case law to determine in each circumstance what is for the public benefit. However, as existing case law incorporates the presumption of public benefit for education, religion and relief of poverty there may be ambiguity about how existing cases will apply to these heads, now the presumption is removed. This is particularly so given the ambiguity of the CC's pronouncements on this issue. We suggest that clause 3(3) is made expressly subject to clause 3(2), that the term "charity law" is used in clause 3(3), and that it should have the same meaning as in clause 2(6).
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| 2. We are not in favour of an exhaustive definition of public benefit, but a guidance statement might be helpful. We suggest a schedule of guidelines similar to that in Unfair Contract Terms Act 1977 relating to "reasonableness" and in particular in relation to the question of fees charged by charities.
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| 3. The CC should be obliged to publish its decisions on questions of public benefit.
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| Part 2 Chapter 1: The Charity Commission
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| Clause 4 | Section 1A(3) provides that the CC's functions are performed on behalf of the Crown—not the public interest. It does not specifically state that the CC is independent of government. It is fundamental that the CC should be independent of government interference. One of its key roles is, for example, to uphold the right of charities to criticise government. Hence, we need an explicit provision stating independence.
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| Clause 4 (2) Schedule 1 | The new Schedule 1A should also require a qualified accountant to be appointed because of the importance of accountancy skills in the modern CC.
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| The Secretary of State should be required to have regard to the need to reflect the charitable sector when appointing members.
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| Clause 5 | 1. We believe proposed new section 1B(2)3 should be removed. It is not appropriate for charities to be under a social and CC to seek to ensure that charities obtain social and economic impact. This is inappropriate for many environmental religious and other organisations. Instead there should be inserted:—
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| — | An objective to increase philanthropy.
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| — | An objective to ensure public benefit.
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| 2. There is also no mention made of the CC's role to advise charities (see Section 1(3) Charities Act 1993, which is being repealed). There should therefore be an advice objective.
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| 3. The public confidence objective should be amended to read:
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| "The public confidence objective is to maintain public trust and confidence in charities and in itself as regulator."
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| 4. We believe that public trust and confidence in charities is likely to be bound up with, and inseparable from, confidence that the Commission, as regulator, will act competently, fairly and transparently in its dealings with charities, beneficiaries, trustees, volunteers and donors.
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| 5. We suggest Section 1B(3)2 should be amended as follows:—
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| "The compliance objective is to ensure compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities"
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| Those amendments to CC's objectives should then feed through to their functions. Their functions should include giving advice not just to Ministers of the Crown but on any matter affecting the charity (see Section 13 CA 1993).
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| 6. The Commission's Duties
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| In section 1D we think there should be a provision obliging the CC to act with proper principles of substantive and procedural fairness, including in accordance with the Human Rights Act and the general rules of natural justice. This is an important issue in view of the CC's existing practices.
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| 7. We suggest the addition of the following to Section 1D(2)1
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| "(c) | which is proportionate having regard to the nature of the institutions it regulates and the interests of those who serve and are served by them,
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| (d) | which recognises and protects the independence of charities from the State."
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| The Commission is regulator of a sector and population which by its very nature—and the nature of its activities—differs from that regulated by other regulators. The general duties placed upon it under subsection (2) 1. (a) and (b) might be entirely suitable for regulators such as the Police, Customs and Excise and Companies House. We believe, however, that the charity regulator must surely be obliged, by law, to take fully into account the nature of the sector it regulates; a sector which has a great preponderance of small voluntary-run organisations of a charitable nature.
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| 8. We agree with the CLA's suggestion that Section 1D(2)2 be amended to:
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| "In performing its functions the Commission must have regard to the need to use its resources in the most effective, efficient and economic way."
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| The Commission needs to perform its function having regard for the need to use its resources effectively as well as in the most efficient and economic way.
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| 9. In Section 1E(2), which prohibits the Commission from exercising functions corresponding to those of a charity trustee, or to become involved in some other way in the administration of a charity (a re-wording of the existing provision in Section 1(4) of the 1993 Act), there is an express exception for the powers conferred by Sections 19A and B. We believe this is dangerous, because it blurs the distinction between regulator and regulated, and undermines trustee independence.
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| Chapter 2: Charity Appeal Tribunal
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| Clause 6 | 1. We consider all CC decisions and non decisions should be subject to the right of appeal to the Tribunal: the current proposals are far too restrictive. Provided the CC has a robust internal appeals system this should not result in an excessive number of appeals to the Tribunal particularly if it has the capacity to change costs for frivolous or misconceived applications.
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| 2. The rules in new Section 2B (5) (h) allow for the regulations to include details about the award of costs. To ensure proper access the rules of the Tribunal should provide that costs can only be awarded in egregious cases eg misconceived or frivolous ones. We also consider the Tribunal should not be able to charge fees for making an application. The factors determining which cases go to the Tribunal should not be cost.
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| 3. We also consider that the rules under clause 5 for the operation of the Tribunal should make it expressly clear that this is not an adversarial process but similar to that of the Competition Appeal Tribunal where the Tribunal process is designed to elicit information to allow the Tribunal to come to a balanced conclusion rather than weighing up two competing arguments. Such a process would help many volunteer and non professional applicants who may wish to use the Tribunal. It is vital that the Tribunal does not become the reserve of lawyers. This also points to the rules of evidence being to a degree restricted. It will be a tragedy if this Tribunal went the way of the Employment Tribunal and became dominated by the legal profession.
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| 4. We also believe there should be provision for a list of recognised bodies, (similar to representative bodies capable of appealing to the Office of Fair Trading) who are able to appeal to the Tribunal in respect of decisions by the CC. The Tribunal should be obliged to publish its decisions to ensure transparency.
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| 5. There should be a provision, as suggested by the Strategy Unit Report, to require the CC to operate a clear and streamlined internal appeal procedure. This compounds the lack of any explicit statement that the CC will be bound to apply fair procedures stated in relation to clause 1d above.
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| Clause 6 (Section 2 C) | 1. We consider that, where the Tribunal, or if the Tribunal refuses permission, the High Court, grants permission for an appeal by a trustee on a point of law, the appellant trustee(s) should have that appeal funded from the public purse.
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| 2. Since trustee appeals to the Tribunal against CC decisions should be publicly funded, it must also be right, fair and in the interests of the proper administration of justice for trustee appeals on points of law from Tribunal decisions to the High Court to also be publicly funded.
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| 3. It should be mandatory for the CC to be a respondent in the High Court when trustee appeals are brought against decisions or Orders of the CC. The draft Bill provides for the CC to be a respondent before the Tribunal in such cases we believe the same provision should apply in proceedings before the High Court. Under existing regulatory arrangements, the CC need not defend its decisions or Orders in Court, but can rely and has relied upon the Attorney-General as defendant in trustee appeals against its Orders. Such an arrangement, we believe, encourages the Attorney-General to act as the protector of the CC rather than as protector of charity—or of the charity concerned in the appeal. Natural justice, we believe, requires a public body, whose Orders are under appeal, to act as respondent.
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| Chapter 3: Registration of Charities
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| Clause 7 | 1. New section 3(4) obliges the CC to remove from the Register "any institution which it considers is no longer a charity." The Bill does not say what should happen to the assets of an institution which has purposes that once were valid charitable purposes but which have ceased to be so.
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| 2. We believe there should be clarity in the legislation about what happens to assets of institutions that are no longer charities. Under the current law the CC has the following choices:
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| — | Recall the charity to its original purpose.
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| — | Replace the trustees.
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| — | Apply the assets cy-pres to another charity.
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| Only if these steps have failed or if the charity was mistakenly registered should a charity be removed. Removal raises questions such as: should there be claw back on tax reliefs enjoyed by the erstwhile charity? Other issues to consider are
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| (i) | if a charitable trust was improperly registered and was in fact never a charity then it will have failed as an invalid purpose trust and the assets will revert to the settlor.
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| (ii) | A corporate charity or unincorporated association, the purposes of which were never charitable, should be required to retain its purposes and all provisions restricting the way in which its assets may be applied. If the Community Interest Company legislation is passed then this might be a suitable vehicle for a compulsory asset transfer.
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| 3. Proposed new Section 3 (7) allows for a voluntarily registered charity to be removed from the Register at any time. This defeats the point of registering it and that provision should be removed.
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| 4. There should be an obligation on the CC to register a charity which applies for voluntary registration (ie change "may" to "shall" in proposed Section 3A (6)).
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| 5. Proposed new Section 3B (2) could result in over-regulation by the CC in demanding unnecessary documents which are irrelevant to its consideration of charitable status. Insert "reasonably" before "require". Moreover, in line with the Strategy Unit's proposals we would recommend that CCs should be limited to requiring documents relevant to:
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| — | Charitablity. |
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| — | Verification of the trustees.
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| — | Viability. |
| Clause 9 (4) & (5) | These provisions appear to be unnecessary. Both are exempt under Schedule 1 to the 1993 Act.
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| Chapter 4: Cy-pre"s
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| Clause 11 | Clause 11 obliges the principal regulator of an exempt charity to increase compliance with charity law by the trustees of exempt charities. This would better read: "to monitor and enforce compliance etc". We think it important that exempt charities should have principal regulators and that therefore there should be an obligation on the Secretary of State to make regulations as soon as possible.
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| Clause 12 | We suggest that "social and economic circumstances" in new Section 13 (1) should be related to the objects of the charity, otherwise too wide a discretion.
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| Clause 15 | Proposed new Section 14B (3) (c) refers to a "significant impact". It is difficult for smaller charities to satisfy and it also fails to distinguish between positive and negative impacts. Perhaps the word "positive" could be substituted for "significant." It should be made clear that paragraph (c) is subservient to paragraphs (a) and (b).
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| In section 14B(3)(c) change "make a significant social and economic impact" to "promote its purposes more effectively".
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| Chapter 5: Assistance and Supervision of Charities
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| Clauses 16-21 | 1. The powers given to the CC in this section are far too broad. They should only be available to the CC in circumstances where the CC is satisfied that trustees have not complied and will not comply with a duty imposed on them by statute or the charity's governing instrument. As drafted, the section allows the CC to act as if a charity trustee, which we believe would be a retrograde step. In circumstances where the CC believes there has been mismanagement it has power to appoint a receiver and manager who can properly act in a trustee role and will be better suited to doing so than the CC.
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| 2. Throughout this chapter the CC has power to direct the Trustees to do certain things. It seems to us that there may be a dispute as to whether a trustee was acting properly by acting in accordance with a direction which was improperly made. We think trustees need to be protected against that. For example in the proposed new sections 19A (4) and 19B (4) we think the words "(whether or not properly made)" should appear after the words "under this section" and then the clause should continue "shall be deemed to be properly done in accordance with the trusts of the charity and any duties owed as employee or agent and in the exercise of the powers . . ."(our insertion in italics).
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| 3. A new subsection should then be included stating that "properly" means "in accordance with the powers and duties applicable to that person".
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| Clause 16 | 1. Any direction to any person other than the whole body of trustees must be notified by the CC to the trustees.
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| 2. New Section 19A allows the CC to make orders about the running of a charity. We suggest this should only apply to directions that it has good reason to believe are necessary, thus, allowing directions to be challenged on the grounds of reasonableness.
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| 3. Trustees should also be given the opportunity to request an order.
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| Clause 18 | 1. In the proposed new Section 20 (2) we are not sure why this relates only to Wales.
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| 2. In proposed new Section 20A, we think there should be a requirement to have regard to the right of the trustee or other person to have a fair hearing. Otherwise there is doubt as to whether a civil right is being determined under the Human Rights Act and in past experience, the principles of natural justice have not always been effective in dealing with this sort of action by the CC.
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| 3. In Section 20B we think there should be a requirement for the CC to publish the outcome of any appeal if requested by the appellant.
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| Clause 20 | 1. In the proposed new Section 29, we think there should be a new sub-Section as follows:
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| "No person shall by virtue only of not following guidance or advice given in accordance with sub-Sections (5) and (6), be considered to have acted in breach of his trust or responsibility". The CC can sometimes be free in its general guidance and there should be a clear statement that trustees are free not to follow general guidance where they consider it is not appropriate for their charity or situation.
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| 2. Proposed new Section 29 allows the CC to give an opinion or advice to "any officer, agent or employee" over the heads of the trustees. This conflicts with the legal responsibility which the trustees alone have for the charity. Section 29 (2) (c) should be removed or at the very least, the Bill should restrict the circumstances in which this applies and require the CC to copy the trustees in on any advice given to non-trustees about their charity. If 2(c) is to remain, then a clause (3)(c) should be added as follows: "in accordance with any duty owed as employee or agent".
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| Clause 21 | 1. Proposed new Sections 31A (8) and (9) are too subjective and the CC's view should be challengeable. Accordingly, the words "appears to be necessary" in (8) should be changed to "is necessary" and (9) should read "once the retention of any document or device has ceased to be necessary, the Commission shall return the document or device as soon as is reasonably practicable"
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| 2. We question whether the power to enter premises is appropriate for the CC, even though it requires a JP's warrant.
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| Chapter 6: Audit |
| Clause 22 | 1. Section 43 has been amended to increase the audit threshold to £500,000. We are concerned that this will attract fraudsters and mistakes and problems won't be identified. An accounts examination fails to shine a proper light over the financial affairs of an organisation. It is important to audit as this is "public" money. For grant making trusts this is a source of considerable concern. They rely on audited accounts heavily. Increasing the threshold makes their job more difficult. There is a very considerable difference between a charity and a small company. We can understand the increase in the threshold for small companies—the risk there is taken by shareholders and management who probably have an intimate knowledge of the way in which the organisation operates. The position is very different with charities where external funders and the trustees do not have the same intimate knowledge of the operation of the organisation. An independent audit is therefore an extremely useful tool for them in monitoring charities. The absence of an audit will be a real worry for a number of grant making trusts and, we would, submit trustees. This seems to us to be an unnecessary piece of de-regulation.
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| Clause 23 | 1. Section 44A(2)(b) is too vague a test if an auditor is to have a statutory duty to report. At the least, the reference to section 8 should be removed; the CC can open an inquiry for any reason at all.
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| 2. Section 44A(3) is inappropriate. There should not be a retrospective duty to report. Many auditors will not recall matters which they might be under a duty to report once the Bill is enacted but had no duty to report at the time of the audit.
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| Chapter 7: Charitable Companies
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| Clause 24 | 1. Proposed new Section 64 (2) (a) should not refer to "prior" written consent of the CC. This has caused problems in the past where meetings have had to be called again in order to pass resolutions which had already been passed once. This is unnecessarily bureaucratic and the CC should be able to give written consent after the event. Accordingly (b) should read "is ineffective until such consent has been obtained".
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| Chapter 8: CIOs |
| Clause 26 | 1. CIO is stated to be a "body corporate" (new Section 69B (1) of the 1993 Act). It is not expressly stated that limited liability applies (the Companies Act allows for "unlimited companies"). It would also be helpful for it to be expressly stated that the word "company" does not apply to a CIO. For example, the intention is that the 1993 Act accounting provisions will apply to CIOs, whereas they expressly do not apply to "companies" (eg Section 41(5) 1993 Act).
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| 2. The CIO should provide a structure for a charity with both limited liability (as with a charitable company) and the option for there to be a single tier of management (as with a charitable trust). On this basis there should not be, as currently, a requirement for, or a necessary assumption that there is, a membership (eg new Sections 69B(4), 69C(2) 69G(2)c and Schedule 5A(13) 3 and 14(1)). In a single tier constitution, amendment would be by the board of trustees by a specified special majority.
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| 3. Provisions relating to membership should remain as facilitating provisions and more detail should be provided in this respect with reference to the statutory provisions relating to general meetings, notices etc in the Companies Act 1985 (Sections 366 to 383 and the elective resolution regime). For example, provisions relating to "general meetings" and proxies are assumed in new Section 69J(5)a of the 1993 Act.
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| 4. An equivalent to section 303 of the Companies Act—the members' right to remove a company director might be included, with a similar provision, for a CIO without a membership, allowing a board of trustees to remove a trustee by specified special majority.
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| 5. The constitution might also include a provision equivalent to Sections 15 and 263 of the Companies Act 1985, stating that the CIO's constitution binds the CIO and its members to the same extent as if they respectively had been signed by each member and contained covenants on the part of each member to observe all the provisions of the constitution.
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| Constitution | |
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| 6. New Section 69C(1) of the 1993 Act should require the following constitutional provisions that are essential to the definition of a charity:
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| — | its charitable objects;
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| — | a non-profit distributing clause;
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| — | a no trustee benefit clause (event as permitted under clause 27);
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| — | a charitable winding up clause providing for distribution of surplus to charitable purposes.
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| 7. The definition of "regulated alterations" in Schedule 5A paragraph 14(6), requiring CC consent may be related to this list. Currently interpretation is required of a provision "affecting the application of charitable property".
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| 8. An outline conflict of interest management provision might also be included, whereby any trustee with a potential conflict should withdraw, not vote and not be counted to quorum, subject to contrary resolution of the board.
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| 9. It is standard for the minimum number of charity trustees to be three (or a corporate trustee) and they should not be minors. In our view, new Section 69C(2)b should reflect this. It would also be desirable for a company secretary to be required. This is a familiar position and would emphasise the need for someone to be responsible for administrative operations.
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| New Offences | |
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| 10. It is a source of discomfort for new Section 69E to be creating new criminal offences, penalties and trustee liabilities for potentially minor administrative failure.
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| Registration | |
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| 11. New Section 69 F(2) of the 1993 Act deals with the registration process (as provided for more generally elsewhere). In our opinion, both should specify the standard application form and the standard trustee declaration form. Also, allowing the CC to require any other documents or information provides too much discretion and would continue current uncertainty. What the CC may require should be circumscribed by the appropriate purpose. For example, if it is accepted that the CC should police viability that may be a legitimate purpose for requiring further documents. If it is accepted that the CC should judge the suitability of trustees, documents may be asked for in that respect.
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| 12. Schedule 6 re CIO. We suggest a two stage process so that a CIO can be incorporated and start to operate prior to its being registered, in the same way a company limited by guarantee can be registered at Companies House and it can start to operate whilst the CC takes its time to register it. Otherwise a new entity would have to wait for registration before it could start to operate which could be many months. This would be a considerable disadvantage as regards other charity vehicles.
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| 13. The Secretary of State should have a power to impose on the CC by statutory instrument a maximum amount of time in which it can process both elements of the above.
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| 14. Schedule 6, para 2 inserts a new schedule 5A. Para 15(2) of that Schedule requires that an amendment to a CIO's constitution does not take effect until it has been registered. What if the CC delays in registering it because it has a backlog? It should take effect within 21 days of submission to the CC unless the CC advises the charity within that time that is has not been registered for a prescribed reason. Alternatively some types of amendment should have immediate effect and not await registration to be effective.
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| 15. The Bill contains no specific mechanism allowing unincorporated charities to become CIOs. It is not entirely clear whether new Section 69G(3) is intended to provide a mechanism for this or whether an unincorporated charity is intended to use the Bill's merger provisions to become a CIO. New Section 69G(3) could operate in this way (provided the purposes of the unincorporated charity and CIO were the same), but it would be helpful if this could be clarified.
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| Amalgamation | |
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| 16. When CIOs, or other charities, amalgamate or their undertakings are transferred, the need for proper investigation of the extent of liabilities (due diligence) where they are automatically transferred should be highlighted. See new Sections 69K(3)a, 69L(1).
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| 17. CC decisions in relation to public notices and acceptance of registration should have time limits attached so ordinary delay does not mean inappropriate lack of progress. CC approval might be assumed without any contrary indication within a prescribed timescale. See new Sections 69L(4),(5) and (6).
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| 18. New Section 69H(4), contrary to the principle of easing reconstitution etc elsewhere in the Bill, requires a conversion to go through a new registration procedure. Statute could, instead, provide for institutional continuity, subject to the adoption of an appropriate new constitution.
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| 19. The Bill needs to specify how a CIO will hold permanent endowment property on a transfer/merger etc.
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| 20. To provide flexibility provision might be made for the conversion of a CIO to a company limited by guarantee, charitable trust or Industrial and Provident Society.
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| Further regulations |
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| 21. There must be regulations on winding up, insolvency and dissolution, whereas new Section 69M1 uses the word "may".
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| 22. Further regulations for administrative arrangements are also desirable, though less critical, given that these may be established by the particular organisation, as is the case with Limited Liability Partnerships. However, in this sector more guidance than that would be desirable. See new Section 69P(1).
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| 23. Also, for the sake of clarity, prescription in relation to due execution of deeds following the familiar Companies Act powers for the signatures of two trustees or one trustee and the company secretary would be desirable. See new Section 69P(2).
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| Chapter 9: Trustees
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| Clause 27 | Introduction |
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| 1. We believe that anyone who is barred from being a trustee under Section 72 Charities Act 1993 should be disqualified for a maximum period of five years unless he or she has been convicted of an offence involving dishonesty. In the latter case it should be in the CC's discretion to allow someone back to serve as a trustee on application after five years. A lifetime disqualification is completely disproportionate bearing in mind the Rehabilitation of Offenders Act.
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| 2. We think it would be useful to state that any provision in the trusts of a charity permitting remuneration for professional services rendered to the charity is to be taken as including remuneration for services provided by any person within the proposed new Section 73 A. Otherwise, we think that constitutions will need to be amended unnecessarily where they contain a general provision prohibiting remuneration and then permission for professional charging. There has of course been great confusion as to what "professional" means in this context and it has been narrowly interpreted by the Court.
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| 3. We believe clause 73(A) is most unhelpful. Nearly all constitutions of modern charities contain an express ban on trustees receiving any remuneration. If those charities wish to utilise the power in clause 73(A) they will need first to amend their constitution and as this will involve a benefit to a trustee they will first have to obtain the CC's consent. We believe this contradicts the intent of the clause.
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| 4. That said, from evidence to our Working Party, it is clear that a number of small charities are very concerned about this proposal. Members of staff fear trustees will hire trustees to perform services on the old boy network which may not be in the charity's best interest but which it will be very difficult for staff to resist as they are answerable to the trustees.
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| 5. The proposed new Section 73A(7)(b) is ambiguous. We suggest that it be amended as follows (additional text in italics):-
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| "(7) | Nothing in this section applies to . . .(b) any remuneration not within paragraph (a) which a person is entitled to receive out of the funds of a charity by virtue of any provision or order within subsection (8) except that such persons shall be taken into account in calculating under section 73A (5) whether the total number of persons remunerated constitute a minority of the persons for the time being holding office as charity trustees of the charity".
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| 6. In the proposed new Section 73B (2) CC guidance should be reviewed very quickly in order to make it clear that the tide has turned and that this kind of remuneration is acceptable.
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| 7. In Section 73B (3) it should be made clear that the Trustee Act in this context applies to all charities, however established (the Trustee Act does not normally apply to companies, for example, unless they are themselves trustees).
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| Clause 28 | 1. The introduction of another criminal offence of this kind in relation to charity matters is unacceptable and proposed new Clause 73C (4) should be amended. It should be replaced by a criminal offence which arises only in the case of wilful or knowing or persistent breaches. It is not appropriate for unknowing trustees to commit accidental offences and then have to beg the CC to relieve them from liability.
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| Chapter 10—Powers of Unincorporated Charities
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| Clause 30 | 1. The use of the term "designated land" is we think unhelpful and another term should be found. Designated in this context means subject to a special trust imposed on the land and which is not within the control of the trustees whereas "designated" in relation to a designated fund for the purposes of accounting, means a fund which the trustees can designate and undesignate as they think fit. This is inevitably going to lead to confusion. This appears in the proposed new Section 74 and elsewhere.
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| 2. If the term "designated land" is to be used in this Section then concomitant amendments need to be made to Sections 36/37 of the 1993 Act.
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| 3. We also think that the proposed income only threshold of £10,000 is an insufficient safeguard. One might have substantial non-income producing assets which cannot be regarded as small for the purposes of this easy form of cy-pre"s. If in a bad investment year its total yield was 3%, that would put within this Section a fund worth over a third of a million pounds. We do not think that is appropriate.
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| 4. There is an issue in relation to this and many other areas where funds are being transferred between charities. There should be a statutory limitation of liability up to the value of the assets transferred and a presumption that trustees making such a transfer have not breached their fiduciary duties to the transferor by making it. The latter might involve putting in place a statutory declaration provision and a regime whereby public notice must be given. The safeguards that this would introduce for individual trustees would outweigh the bureaucratic burden.
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| 5. In proposed new Section 74 (7) it would probably be helpful to have a definition of "interested in the charity" as there is rather difficult case law on what this means.
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| 6. In Section 74 (13) we think the Secretary of State might want to introduce a different test rather than merely a different sum and that could be allowed for. In Section 74A (2) we worry about the CC being able to object "on the merits of the proposals contained in the resolution". This puts the CC in the position of second-guessing the proper motivation of the trustees acting in accordance with the Act. We suggest that they should only be entitled to object on the merits when they have good grounds to consider it necessary to intervene in order protect the assets of the Charity (ie in cases of mismanagement).
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| 7. The provisions in the new sections proposed by this clause and clauses 31-33 which require notices to be given to the CC after resolutions have been passed are unnecessarily bureaucratic and will lead to confusion and disruption. A far simpler method is for the CC to give prior consent (subject to any requirements for public notice) and for the resolution to be valid immediately on being passed.
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| 8. If the proposals are to remain broadly as drafted, however, then in Section 74A (4) (b) time should not start running again until the CC have confirmed compliance with their requirements. Otherwise there will be disputes about whether a person has complied or not and therefore whether time has started running or not.
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| Clause 32 | 1. Proposed new Clause 74C (4) imposes far too high a threshold. A two thirds majority of those who attend and vote should suffice.
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| 2. In new Section 74C (6) trustees will be able to exceed their powers and then resolve a constitutional amendment to take effect on a prior date to the ultra vires act so as to exonerate themselves—was this intended?
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| Chapter 11: Power to Spend Capital
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| Clause 33 | 1. In proposed new Section 75 (1) and (elsewhere in this Section) we think "endowment fund" should refer to "permanent endowment fund". This is because an endowment fund need not be a permanent endowment fund but this Section is clearly intended to deal with permanent endowment.
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| 2. It may discourage gifts—it should be made subject to the donor's consent during their lifetime.
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| 3. Section 75 (2) only applies to three types of corporate body. We cannot immediately see why bodies incorporated by Royal Charter, further or higher education corporations or incorporated bodies of governors should not be included in this provision.
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| 4. In Section 75 (3) the financial threshold should increase as follows:
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| (a) | gross income = £5,000
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| (b) | market value of endowment fund must not exceed £50,000
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| 5. In (4) delete the words "ought to". We think that the trustees are actually resolving to free the restrictions in this case.
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| 6. We think there should be an obligation to take account of the views of any living donor. This should also apply in 75A (9).
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| 7. We also think it would be useful to give the CC the power to authorise the spending of some rather than the whole of the permanent endowment capital.
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| Clause 34 | 1. This section does not state what happens to liabilities. We suggest the inclusion of a statutory indemnity in respect of liabilities and a presumption that the transferor trustees acted in the interests of the trust and that assets etc are transferred, subject to liabilities.
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| 2. Proposed new Section 75D (5) deals with the automatic transfer of property. This provision should expressly state that the recipient charity agreed to the transfer. It should also specify that the transfer overrides any requirement for consent from or payment to any person. We consider it should be made clear that this applies to personal data under the Data Protection Act 1998.
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| 3. The section should deal with the transfer of permanent endowment: how will it be held by the transferee, especially if a company or CIO?
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| Part 3: Funding |
| Clause 35 | 1. We consider that the proposed amendment to the statement to be made by professional fundraisers does not sufficiently clarify this area of the law which is notoriously difficult because of the myriad of different types of fundraising relationship. We believe that the law should distinguish between fundraising by volunteers, employees and paid third parties. In respect of third party fundraising by a commercial third party (a professional fundraising organisation "PFO") the PFO should be obliged to make it clear that it is paid and the nature of that payment should be disclosed, whether it is a payment by results, fixed fee or otherwise. This statement should either apply to the organisation or, where the third party is a self employed individual, to that individual.
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| 2. In relation to commercial participators (CPs) it seems to us that the statement required precludes merely making reference to a percentage of the purchase price. We think that is a big mistake as in many cases that is the most meaningful statement that can be made.
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| 3. This is a good opportunity to deal with the anomaly in the Charities Act 1992 (CA '92) whereby a CP who raises funds for charitable purposes (as opposed to a particular charity) is subject to less than equivalent penalties. This is dealt with under regulations 7 and 8 of the Charitable Institutions (Fundraising) Regulations 1994. This anomaly should be addressed.
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| 4. To our knowledge there have been no criminal prosecutions against PFOs or CPs under the CA '92. The Crown Prosecution Service appears uninterested. We would recommend that the CC or possibly Trading Standards be given power to prosecute defaulting commercial organisations.
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| 5. In particular, s62 CA '92 gives power to a charity to prevent unauthorised fundraising, but this can be a costly exercise and it may be beneficial if the charity could refer the matter to the CC to initiate for the public benefit, which would relieve the charity from having to do so.
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| Reserve Power to Control Fundraising
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| Clause 36 | 1. We are most concerned in clause 64A (1) that there are no current restrictions on when the Secretary of State should make regulations. We believe that this should be subject to an obligation on the Secretary of State to act reasonably and there should be objective criteria that he should have to meet before he can initiate the use of his reserve power. For example conclusive evidence of widespread breaches of the "good practice requirement". We also consider that the proposed consultees (see Section 77(4) of the 1992 Act) should be amended to make this clear.
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| 2. In proposed new Section 64A (5) we think there should be a reference to the purpose which an institution or group of institutions purports to serve.
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| 3. The definition of primary purpose trading in clause 64A(8) should include ancillary trading and probably the sale (albeit not the collection) of donated goods by a charitable institution.
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| Public Charitable Collections
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| Clause 38 | 1. We suggest that the requirement of a COF should be removed. Charities are already heavily monitored and regulated by the CC who could deal with complaints and Local Authorities could refer to them when a charity applies for a permit to carry out a public collection. We consider this an unnecessary requirement. At best the local authority's issuing of the COF is likely to be perfunctory. We are not at all clear what value this will add to the process in terms of increasing public confidence. Rather it will increase charity's fundraising costs.
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| 2. Those charities with registered offices in central London may find if difficult to obtain their COFs as these Local Authorities will be inundated with applications. There is no obligation on Local Authorities to issue the COFs in a given period. The COF will be issued for a five year period—hence causing fears for another log jam five years away when COFs are renewed.
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| 3. We are concerned that the Bill will perpetuate the confusion with three separate systems regulating fundraising in England and Wales, Scotland and Northern Ireland. Will there be an obligation to obtain COFs in Scotland and Northern Ireland? This is another good argument for removing the obligation to obtain a COF.
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| Clause 39 | 1. Local short term collections will be exempt from the need for a COF. There are concerns that this exemption, welcome though it is, will be too restrictive for dealing with the cases of instantaneous public reaction to major international disasters eg the desire to collect money quickly for the victims of floods in Haiti or famine in Darfur.
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| 2. A door to door collection for goods is exempt from the need for a COF provided the local authority has been given, at least 14 days notice before the collection begins information on the purposes of the appeal; the date and locality of the collection plus other information to be prescribed. Again there is a worry that this is too prescriptive. Many charities organise ongoing collections which do not fit easily within the concept of time limited one off appeals which the legislation appears to have in mind. An ongoing notification covering a 6 month period would be more appropriate.
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| Clause 40 | There are very limited grounds for the local authority to refuse to issue a certificate. For example it does not appear to be able to refuse a certificate if they have evidence that the promoter is deducting excessive costs or the likely amount to be collected seems low. If the Government follows our proposal that COFs should be withdrawn then these matters should certainly be part of the mechanism for refusing or withholding permits to collect.
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| Clause 41 | 1. The promoter for a collection in a public place will require a permit from the local authority as well as the COF. This application cannot be made more than six months before the date of the first collection. This is a problem for organisations with a rolling programme of national one day collections eg Red Cross Week. Future planning may be jeopardised. It is vital that local authorities have the resources to be able to issue permits and allocate sites in a timely manner. We do not consider that the regulatory impact assessment truly assesses the costs to the local authorities of being able to deliver this service efficiently.
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| 2. Moving responsibility for London collections from the Police to local authorities means charities will have to negotiate with 32 London Boroughs as opposed to the single Metropolitan Police Authority leading to significantly increased bureaucracy and fundraising costs. This is a major concern.
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| Part 4: Final Provisions
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| Clause 45 | The Secretary of State's powers to make regulations in clause 45(3) of the Bill seems extraordinarily wide. We recommend that this power be withdrawn or if necessary appropriately restricted.
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| Other Issues |
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| 1. Mortgages | |
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| Section 38 of the 1993 Act requires charities to obtain an order of the CC if they wish to grant a mortgage to secure a grant (as opposed to a loan). We recommend the Bill amends Section 38(2) of the 1993 Act so that the Section 38(3) process is also available where the mortgage relates to a grant (as well as a loan).
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| 2. Disposals of land |
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| The requirement in sections 37 and 39 of the 1993 Act for trustees to give certificates of compliance has been interpreted (correctly but pointlessly) as meaning all the trustees of a corporate charity must execute transfers of land in order to give certificates, unless they have passed a resolution under Section 82. This should be changed so that a transfer containing a certificate of compliance which is executed by or on behalf of a charity suffices.
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| 3. The Surveyors' Reports Regulations
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| An opportunity should be taken to amend the over-burdensome Charities (Qualified Surveyors' Reports) Regulations 1992.
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| 4. Power to determine membership |
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| The CC should be given a power to determine the membership of a charity and give directions about the appointment of new members where it is not possible to ascertain who all the members of a charity are. This power would not, of course, apply to trusts which have only trustees but would apply to companies, community benefit societies and unincorporated associations, for example.
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| 5.Power to appoint trustees |
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| There is doubt that section 16(1)(b) of the 1993 Act includes a power to appoint the directors of a charitable corporation. It should be amended to make this power express.
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| 6. Power to add accumulated income to capital
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| We consider that giving such power to trustees, where they consider it expedient in the interests of the charity, would be valuable. It would, for example, enable trustees to use accumulated income to improve permanently endowed land
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| 7. Permanent Endowment and Corporate Bodies
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| The CC is of the view that a company (and probably therefore a CIO) cannot hold permanent endowment in its own right but can only hold it as trustee. This therefore results in the creation of two charities, the charitable company/CIO and itself as trustee of the permanent endowment. This can cause unnecessary complications. We believe this is a golden opportunity to legislate to make it clear that a company or a CIO can hold permanent endowment absolutely, subject to a duty to retain capital.
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| 8. Inquiries | |
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| The draft Bill should take the opportunity to amend Section 8 of the 1993 Act to stipulate that the CC can only open inquiries where it has reasonable grounds to do so.
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| 9. Distributions |
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| There is a problem on the inter-relationship between Gift Aid and distributions. Where a charity owns a trading company 100% the Inland Revenue accepts that the payment of all its profits under Gift Aid to the parent charity is not a distribution and can be effected under Gift Aid. However if a consortium of charities set up a trading company and wish to extract the profits under Gift Aid the Inland Revenue disallow this because they consider this to be a distribution under Taxes Act 1988 Section 209(2)(b). This is tax inefficient for the charities and militates against charities co-operating through the shared use of trading companies. Whilst this may be outside the scope of the Charities Bill we would recommend the PLS make representations to the Treasury that a suitable reform be included in the next Finance Bill.
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| 10. Consolidation |
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| Charity law should be accessible to every citizen. The sector depends hugely on volunteers who need to be able to understand the law. Consequently we recommend a consolidation act bringing together:-
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| — | the 1958 Recreational Charities Act
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| — | the 1992 Charities Act
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| — | the 1993 Charities Act
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| — | the 2005 Charities Act,
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| as soon as possible in the next session of Parliament so as to have one consolidated Charities Act 2006.
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| 11. Attorney General |
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| We recommend a review of the AG's role as friend of charities. We would like those powers to be included in the Bill so as to clarify them and make them more comprehendable by the general public.
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