Memorandum from Dickinson Dees Law Firm
(DCH 132)
SUMMARY
Submission 1
The definition of charity in the Charities Act
1993 ("CA 1993") should be the same as that in the draft
Charity Bill. To achieve this delete "falls to be" and
replace with "is" in Clause 1(b) and in Clause 1(2)
repeal the definition of charity in S96(1) CA 1993 and replace
it with the Clause 1 meaning of charity.
Submission 2
Clause 2(2)(f) should be revised to expressly
include a reference to "culture" as the advancement
of culture is an accepted charitable purpose and is broader in
scope than arts and heritage.
Submission 3
Clause 2(3)(c) should be deleted.
Submission 4
In Clause 5(3) delete "above" and
replace with "below".
Submission 5
In proposed new Section 3(4) CA 1993 delete
the words "it considers".
Submission 6
In proposed new Section 3(5) CA 1993 refer to
"any change in . . . trusts or purposes . . .".
In proposed new Section 3(9) CA 1993 delete
"trusts" and replace with "governing instruments".
In proposed new Section 3B(2)(a) CA 1993 delete
"trusts" and replace with "governing instruments".
In proposed new Section 3B(3)(a) CA 1993 refer
to ". . . any change in its trusts or purposes".
In proposed new Section 3B(3)(b) CA 1993 delete
"trusts" where it appears and replace with "governing
instruments".
Submission 7
Clause 11 should charge the principal regulator
with all the regulatory objectives referred to in the proposed
new Section 1(B) CA 1993, not just the compliance objective.
Submission 8
Clause 20(3)(a) delete "trust", replace
with "legal obligations". Delete "trustee",
replace with "charity trustee or trustee for a charity".
Clause 20(3)(b) delete it "in accordance
. . . charity" and replace with "properly".
Submission 9
The proposed new Section 31A CA 1993 should
require the warrant to specify at least in general terms who is
authorised to accompany the relevant Commission employee onto
any premises.
Submission 10
Delete "clause" where it appears in
the proposed new S64 (2A)(a).
Submission 11
Clause 26 and Schedule 6 should be deleted.
Submission 12
The Bill should include provisions to give charity
receivers and managers the same protections afforded to their
non-charity peers under the current insolvency legislation.
Submission 13
Clause 27(6) should be deleted and replaced
with a provision to make clear that the statutory power to remunerate
overrides any express provisions to the contrary in a charity's
governing instrument.
PART 1
CLAUSE 1—MEANING
OF "CHARITY"
Comment
The "Explanatory Notes on the Draft Clauses"
("the Explanatory Notes") states that Clause 1 follows
the definition of charity in S96(1) of the Charities Act 1993
("CA 1993"). However, Clause 1 is different to the CA
1993 definition in the following respects:—
— Clause 1 refers to any "body
or trust", whereas S96 CA1993 refers to any "institution,
corporate or not".
— Clause 1(a) refers to the body or
trust having to be established for charitable purposes only. This
is a welcome clarification of the position under existing charity
law, which S96(1) lacks.
— Clause 1(b) uses the wording "falls
to be subject to the control of the High Court . . ." whereas
the wording used in S96(1) is "is subject to the control
of the High Court . . .".
Submission 1
The definition of charity in the Charities Act
1993 ("CA 1993") should be the same as that in the draft
Charity Bill. To achieve this delete "falls to be" and
replace with "is" in Clause 1(b) and in Clause 1(2)
repeal the definition of charity in S96(1) CA 1993 and replace
it with the Clause 1 meaning of charity.
CLAUSE 2 (2)(A)
Comment
It is questionable the extent to which the "prevention"
(as opposed to the relief) of poverty is charitable. The express
reference to "prevention" is welcome, even if it expands
the scope of an existing charitable purpose.
CLAUSE 2(2)(F)
Comment
It is unclear why the reference to "culture"
has been dropped, even though it was in the Strategy Unit's proposed
list which was accepted in the Government's Response "Charities
and not for Profits—A Modern Legal Framework".
Submission 2
Clause 2(2)(f) should be revised to expressly
include a reference to "culture" as the advancement
of culture is an accepted charitable purpose and is broader in
scope than arts and heritage.
CLAUSES 2(2)(G)
AND 2(3)(C)
Comment 1
What does "amateur" mean? Would it
include clubs which, amongst other things, organise competitive
tournaments for a prize or prize money? If so, what level of prize
money would bring such tournaments outside the scope of charity?
Comment 2
Clause 2(3)(c) adds nothing to clarify the definition
of sport because almost every activity involves some degree of
physical exertion or skill including, for example, chess and tiddlywinks.
Is it really intended for such activities to fall within the scope
of "sport" in the charitable sense?
Submission 3
Clause 2(3)(c) should be deleted.
CLAUSE 2(2)(I)
Comment
The Charity Commission refused to accept "the
advancement of environmental improvement" as being charitable
in the context of promoting urban or rural regeneration. Is this
extension of a charitable purpose intended? If so, it would be
welcome.
CLAUSE 2(2)(J)
Comment
What does "other disadvantage" mean?
This warrants clarification, unless its definition is to be developed
through case law.
CLAUSE 2(2)(K)
Comment
The express inclusion of this "head"
is welcome and should remain as it covers a significant number
of charities and an important part of the charitable sector. Moreover,
the existing case law as regards animal charities is confusing
and conflicting. Including Clause 2(2)(k) as an express head should
enable the meaning of charity in this area to develop more coherently
as it will stem from a statutory basis and it gives an opportunity
to accept the "good" existing case law, but to reject
"bad" conflicting case law. It should also assist the
Charity Commission to be more consistent when dealing with applications
to register new animal charities by enabling it to move away from
and reject "bad or conflicting" case law.
CLAUSE (2(4)(C)
Comment
Clause 2(4)(c) is difficult to follow. However
the principle underlying the inclusion of clauses 2(4)(b) and
(c), ie to allow the meaning of charity to develop and evolve,
is welcome.
CLAUSE 3
Comment 1
We agree that there should not be a statutory
definition of "public benefit" and that the presumption
in favour of the "first three heads" should be abolished.
We assume, but it would be useful to clarify, whether this will
remove charitable status from poverty charities with very narrowly
defined classes of beneficiaries, eg "founders of charities"
and those aimed at helping poor people related to a particular
or proposition body such as a company, unless those charities
extend the scope of their beneficial class.
Comment 2
Our response to the Joint Committee question
as regards whether private schools show sufficient public benefit
to retain charitable status is that this must be assessed on a
case by case basis. Provided a school undertakes activities of
public benefit, its charitable status should not be affected.
We think the following factors should be taken into account when
assessing the level of public benefit a particular school provides:—
— The number of means-tested bursaries
the school provides to enable poorer children, who could not otherwise
afford the fees, to attend.
— The extent to which the school makes
its facilities available to the wider community and state schools
that lack similar facilities.
— The extent to which the school encourages
its pupils to do extra-curricular activities of benefit to the
community, particularly those that help those in need.
It should be recognised that for every child
educated in a private school there is a valuable saving to the
public purse which would otherwise have to meet the costs of educating
such children in the state sector. Any measures to strip private
schools of their charitable status is likely to have most effect
on smaller to medium sized schools whose fees are at the lower
end of the scale. If such schools are forced to close as a result
and their pupils cannot find or afford places at other private
schools, they will have to move into the state sector creating
an additional burden on the state sector and public purse.
If the charitable status of private schools
is challenged on the basis that they charge fees, presumably the
status of universities will need to be reviewed accordingly if
and when they introduce top-up fees. The existence of private
schools does not exclude anyone from education per se,
as there is a right and requirement to be educated up to 16 and
state schools, which cater for this. There are no equivalent "public
universities" or right to higher education. Therefore, the
introduction of top-up fees is much more likely to exclude people
from education, whereas private schools do not, they merely provide
an additional alternative to what is otherwise freely available
in the public sector. Private schools should not be treated any
differently to universities in this regard.
PART 2
CLAUSE 5(3)
Comment
There is a drafting error in Clause 5(3) which
should read ". . . under Section (3) below . . .".
Submission 4
In Clause 5(3) delete "above" and
replace with "below".
CHAPTER 3 CLAUSE
7 (NEW SECTIONS
3, 3A AND 3B CA 1993)
Comment
Whether an organisation ceases to be a charity
should be an objective test of law, not a subjective view of the
regulator.
Submission 5
In proposed new Section 3(4) CA 1993 delete
the words "it considers".
PROPOSED NEW
SECTIONS 3(5), 3(9), 3B(2)(9)
CA 1993
Comment
Not all charities hold their property on trusts;
eg charitable companies own their corporate property beneficially.
Submission 6
In proposed new Section 3(5) CA 1993 refer to
"any change in . . . trusts or purposes . . .".
In proposed new Section 3(9) CA 1993 delete
"trusts" and replace with "governing instruments".
In proposed new Section 3B(2)(a) CA 1993 delete
"trusts" and replace with "governing instruments".
In proposed new Section 3B(3)(a) CA 1993 refer
to ". . . any change in its trusts or purposes".
In proposed new Section 3B(3)(b) CA 1993 delete
"trusts" where it appears and replace with "governing
instruments".
CLAUSE 9(3)(B)
Comment
The proposed changes put the colleges and halls
of the University of Newcastle in a different position to those
at Durham, Oxford and Cambridge. Is this what is intended?
CLAUSE 11
Comment
If exempt charities are to remain exempt on
the basis they are regulated by some other "principal regulator",
that regulator should have the same regulatory objectives as the
Charity Commission will have under the proposed new Section 1(B)
CA 1993 (see Clause 5 of the draft Bill).
Submission 7
Clause 11 should be amended to refer to all
the regulatory objectives referred to in the proposed new Section
1(B) CA 1993, not just the compliance objective.
CLAUSE 20(3)
Comment
As indicated above, not all charities hold property
in "trust".
Submission 8
Clause 20(3)(a) delete "trust", replace
with "legal obligations". Delete "trustee",
replace with "charity trustee or trustee for a charity".
Clause 20(3)(b) delete it "in accordance
. . . charity" and replace with "properly".
CLAUSE 21
Comment
By the time the Charity Commission applies for
a warrant it should have a clear idea whom will be needed to accompany
the relevant Commission employee under the proposed new 31A(3)(b).
The warrant should specify, at least in general terms, if not
by name all those authorised to enter the premises. This should
not simply be a matter for the Commission to determine and strikes
an appropriate balance between the need to ensure the Commission
can carry out its functions and the need to safeguard anyone who
may be on the premises and/or the owners thereof.
Submission 9
The proposed new Section 31A CA 1993 should
require the warrant to specify at least in general terms who is
authorised to accompany the relevant Commission employee onto
any premises.
CLAUSE 24/PROPOSED
NEW S64 CA 1993
Comment
S64 CA 1993 currently requires charitable companies
to obtain the prior consent of the Charity Commission to any changes
in the "objects clause". It is quite common in the memorandum
of association of older charities for the objects and powers to
be included in the same clause. In such cases, the Charity Commission
interprets the reference to the "objects clause" to
mean that any change, even a minor amendment to a power, requires
the Commission's prior consent. Even where the change in question
would not require any consent if the powers and objects were in
separate clauses: see Charity Commission OG 47 A1. Only changes
to the actual objects should require the prior consent of the
Charity Commission, changes to powers other than those already
listed within the meaning of "regulated alterations, should
not be inadvertently caught."
Submission 10
Delete "clause" where it appears in
the proposed new S64 (2A)(a).
CLAUSE 26 AND
SCHEDULE 6
Comment 2(1)
The company limited by guarantee (CLG) structure
that is currently available to new charities or to those seeking
to incorporate is perfectly adequate and works well in practice.
We do not think the proposed clause will add anything to what
is currently available. We would not envisage advising clients
to adopt the CIO unless and until the inevitable teething problems
are ironed out.
If the driving force is to have charities regulated
by one body, ie the Charity Commission rather than "dual
regulation" by Companies House and the Charity Commission,
this could be achieved by means of a deregulation order under
the deregulation legislation to modify the provisions of the Companies
Acts to do away with the current dual system.
Comment 2(2)
If the CIO is introduced, at least for the next
five years there is likely to be more confusion with CIOs, CLGs
and other corporate vehicles operating under difference systems
and subject to different rules. During this period, the only people
likely to prosper as a result of the changes are those professional
advisors who are willing to use their clients as guinea pigs to
trial run the new system.
Comment 2(3)
Why will all CIOs have to register, irrespective
of income? It is anomalous for CIOs to be on a different footing
to other small charities, which do not have to register if their
income is less than £5,000.
Comment 2(4) Schedule 69(m)
There is a well developed body of company and
insolvency law. It is impossible to comment on the adequacy of
the proposed provisions in relation to the winding up, insolvency
and dissolution of CIOs and how this will interplay or compare
with current law until we see the detail of the proposed regulations.
We would point out that in relation to CIOs,
the proposed regulations would afford an opportunity to plug a
clear gap in the law and Charities Act 1993, which does not afford
charity receivers and managers the same (or indeed any adequate)
protection as that given to other non-charitable receivers and
managers under the insolvency legislation.
Comment 2(5)
It is a crying shame that the draft Bill does
not remedy the position for all charity receiver and managers.
Until they are given adequate protection the pool of people willing
to undertake such work will be limited to those prepared to do
so at their own risk.
Submission 11
Clause 26 and Schedule 6 should be deleted.
Submission 12
The Bill should include provisions to give charity
receivers and managers the same protections afforded to their
non-charity peers under the current insolvency legislation.
CLAUSE 27
Comment
Moving forward, newly established charities
will be able to rely on the statutory power to remunerate trustees
by ensuring their governing instrument does not include any express
provisions which would fall foul of Condition D (Clause 27(6)).
However, this puts existing charities, many
of which will have express provisions caught by Clause 27(6) at
a disadvantage.
All charities should be on a level footing moving
forward and should be able to rely on the statutory power of remuneration.
Submission 13
Clause 27(6) should be deleted and replaced
with a provision to make clear that the statutory power to remunerate
overrides any express provisions to the contrary in a charity's
governing instrument.
June 2004
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