Examination of Witnesses (Questions 400
- 405)
WEDNESDAY 23 JUNE 2004
MR PESH
FRAMJEE AND
MS HELEN
VERNEY
Q400 Lord Phillips of Sudbury: May
I pursue that because that is a very important point, and I hope
the Members of the Committee are with us on this. The fact is
that as things stand the law requires the trustees of the charity,
when putting in more loans to its trading company, to satisfy
some very strict tests that you advise upon and others advise
upon. In most cases that is strictly construed and the arm's length
relationship with the trading subsidiary is effective, in my experience,
in protecting charity assets against loss in a trading venture.
There are a few cases—and those were the ones we were referring
to—where they do not comply with the existing law. My point
is to clarify that those are exceptional cases and not the rule?
Mr Framjee: Yes, but what we are
saying is that if in existing cases they are going through these
stringent tests; then they can go through the same tests whether
the trade is carried out within the charity or within the trading
company. If we are saying that it is within their competence to
carry out those tests, like the loan should be secured and things
of that kind. If they carry out these tests, when a trade is hived
off to the trading company, then those same tests can be applied
when the trade is carried out within the charity.
Q401 Lord Phillips of Sudbury: Is
it not a matter of commonsense reality that it is going to be
much more difficult if you have a single entity, a single pot
of funds? It is going to be much more difficult for the trustees
to pause before they say, "Let us put in another line of
goods, let us open another shop."
Ms Verney: That is not the reality.
Q402 Lord Phillips of Sudbury: It
is the reality in my experience as a solicitor.
Ms Verney: I think you have had
some bad experiences! The reality from my experience is that often
there is not that arm's length separation because often the directors
of the subsidiary, which is often small in comparison to the whole
charity, are a sub-set of the main trustees, perhaps with a couple
of co-optees.
Q403 Lord Phillips of Sudbury: It
used to be, but not now.
Ms Verney: In many cases it still
is. At the same time there is something here that also does not
feel real; it is the way we are talking about trading activities
as though they are totally different from anything that happens
within the charity itself. The reality is that what is happening
in charities today is more and more business-like, it is more
and more complex than it has ever been, and there are much higher
risk activities going on within the body of the main charities
than is often the case in trading subsidiaries.
Q404 Lord Phillips of Sudbury: That
is the charities' own primary purpose.
Ms Verney: Absolutely, but if
the Trustees are geared up to deal up with that then why on earth
can they not deal with the complexities of what has happened in
the subsidiary?
Baroness McIntosh of Hudnall: May I come
back on a particular point?
Chairman: Yes.
Q405 Baroness McIntosh of Hudnall: You
have said in your evidence and you have said to us today that
there are circumstances in which you would expect a charity to
put certain activities into a separate trading company. I agree
with a great deal of what you have said in principle about the
difficulty of separating the charity itself from its trading activities.
However, since you have said that you can see situations in which
it should separate some of its activities out into a separate
trading company, could you come back and give us some concrete
examples because my experience is that it is very hard to make
that call on the ground.
Ms Verney: Yes.
Ms Keeble: May I just say that that is
what I asked for, but could we also have it in terms of how you
would draft it into the legislation, how you would draft that
duty of care?
Chairman: I think that would be immensely
helpful. I am sorry for the shortness of time, but thank you for
both your written evidence and the evidence you have give to us
today.
| 
