DCH 83 Charles Russell
DRAFT CHARITIES BILL
Submission to the Joint
Committee
by
Charles Russell
1 INTRODUCTION
1.1 Charles
Russell is a medium sized law firm in the City which has one of
the largest charity law practices in the country and is recognised
as a leader in the field by both Chambers and Legal 500 Guides
to the UK legal profession.
1.2 The Charities
Group, lead by Michael Scott, acts for many of the top 3,000 charities
as well as numerous other organisations in the wider not-for-profit
sector.
1.3 The Group has
a number of partners recognised as experts in their field who
are also charity trustees. The Group's consultant was formerly
an Executive Legal Commissioner at the Charity Commission.
1.4 The firm is
on the Charity Commission's panel for Receivers and Manager and
Approved Intermediaries.
1.5 Michael Scott
and Simon Wethered, partners of the firm, are joint editors of
Butterworths Charity Law Handbook.
1.6 The comments
which follow are mostly quite detailed and they are not exhaustive,
merely reflecting the short time available for proper consultation
of the Bill so far.
2 COMMENTS
ON THE DRAFT BILL
2.1 Clause
1(1): It is not clear why the definition of a "charity"
in section 96(1) of the Charities Act 1993 ("CA93")
needs to be changed. "Body" is not a defined term at
law, although "person" is, and "institution"
is defined in section 97(1) CA93.
Why "falls to be" and not
"is" subject to the control of the High Court?
2.2 Clause
2(4): The reason for subsection (c) is not clear.
2.3 Clause 3:
The removal of the presumption of public benefit by subsection
(2) makes a fundamental shift in over 400 years of charity law
and is not to be lightly cast aside. The problems relating only
to certain independent schools and hospitals (and to a lesser
extent religious communities) has in the current climate a political
profile, but this should not justify such a fundamental change
in the law. If there are particular difficulties relating to
the advancement of education and the advancement of health, these
could be singled out for more specific treatment.
2.4 The proposed
change in the law will affect those charities established for
the relief of poverty, where the public benefit test is not required
- e.g. a class of individuals who were formerly employees of a
company.
2.5 Although subsection
(3) seeks to codify an accumulation of case law on the "public
benefit" issue, in practice there is a serious risk that
this will become a matter of administrative determination by officials
of the Charity Commission, either when carrying out Review Visits
or when vetting applications for registration. As Picarda writes
in "Charity Law and Practice" (p20) "the difficulty
here is determining what is sufficient to satisfy the test".
Whether or not an organisation is charitable should remain a
matter to be decided on statute and case law, and not subject
to executive decision. It is also not clear what is to happen
to charities which fail the public benefit test? Are they to
be removed from the register but otherwise continue?
2.6 Clause 5:
These proposals are supported. Two small drafting points:
- why
does section 1C(2)1 refer to "institutions" when section
1(1) refers to "body or trust"?
- the reference in section 1C(3) should
be to "section 3 below", not "section 3 above".
2.7 Clause
7: In view of the introduction with CA93 of a definition of "the
Commission" by the new section 1A introduced by clause 4(1),
the word "Charity" can be omitted from the substituted
section 3(1) to the CA93.
2.8 The new section
3(4) empowers the Commission to remove from the register any institution
(not "body") which "it considers" is no longer
a charity. A number of legal commentators have questioned the
legal basis on which the Commission is purporting to remove charities
from the Register as a result of their Review of the Register.
The maintenance of the Register is much more than an administrative
chore. If this change in the wording of the existing section
3(4) of the CA93 is intended to reflect the statutory function
now imported by new section 1C(2)1, it would be better to use
the word "determines" rather than "considers".
2.9 A small drafting
point: In new section 3(9) why not cross refer to "the required
documents and information" defined by new section 3B(2),
rather than referring to "trusts", which looks odd in
relation to corporate charities.
2.10 Clause 26
- Schedule 6: It is not clear from the proposals:
- how
the recommended distinction between foundation and membership
formats is reflect in them
- whether it is envisaged that a CIO
will have to register any charges it may give over its property
with the Commission (as companies are obliged to under section
395 Companies Act 1985); or
- what insolvency procedures will be
available to a CIO.
2.11 The
opportunity for the Commission to second guess the judgment of
the relevant charity trustees afforded by proposed section 69J(9)
is both unwelcome and unnecessary.
2.12 A similar
proposal is section 69L(6) is undesirable as potentially giving
rise to a long period of uncertainty when two CIOs are commercially
and operationally committed to merging.
2.13 Clause 28:
It seems draconian for the same criminal penalties to apply to
a charity trustee who is disqualified for receiving remuneration
as applies if he acts while disqualified pursuant to section 73
CA83.
2.14 Clauses 30-32:
An opportunity has been missed with these proposals to lighten
the administrative burden for what will inevitably be very small
charities, particularly in relation to the publicity requirements
envisaged by clause 31.
2.15 Clause 34:
The interaction between proposed section 75C(5)(a) and section
75D(5) is not clear: If, in order to qualify as a "relevant
charity merger" all of the property of one or both of them
has to have been transferred under subclause 75C(4)(a) or (b)
and notification pursuant to clause 75C(5) can only be given "after
the transfer of property involved in the merger has taken place",
there should be no assets left for the declaration envisaged by
clause 75D(5) to operate on.
2.16 The definition
of "ceased to exist" in proposed section 75C(6)(a) may
need some clarification; for a corporate charity this may mean
many months after the completion of the transaction if its means
its dissolution pursuant to section 652 Companies Act 1985.
3 CONCLUSION
3.1 Most
of the provisions of the Bill are to be warmly welcomed. We hope
that the Bill finds its way onto the statute book sooner rather
than later, after account has been taken of your scrutiny.
3.2 However, judgment
in many respects will have to be suspended until the subordinate
legislation required to bring many of the proposals into force
has been published; we are pleased to note that such orders must
be subject to the approval of both Houses of Parliament, but concerned
that bringing the proposals into effect piecemeal would be confusing
for everyone in the sector for an uncertain length of time, just
when clarity is most needed.
Charles Russell
15 June 2004
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