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Lord Phillips of Sudbury moved Amendment No. 44:

"( ) In section 38 of the 1993 Act—
(a) in subsection (2) after "loan" insert "or a grant";
(b) in subsection (3)(b) after the second "loan" insert "or grant";
(c) in subsection (3)(b) after "loan" insert "or grant";
(d) in subsection (3)(b) after "borrower" insert "or recipient of a grant";
(e) in subsection (3)(c) at the beginning insert "in respect of a loan"; and
(f) in subsection (4)(b) after "loan" insert "or grant"."

The noble Lord said: Amendment No. 44 makes changes to Section 38 of the Charities Act 1993. Section 38 is entitled "Restrictions on Mortgaging" and specifies that no mortgage of land held by or in trust for a charity shall be granted without an order of the court or of the commissioners. Section 38(2) says that that general requirement shall not apply to a mortgage by way of security for the repayment of a loan where the charity trustees have obtained proper advice. That is very sensible. That covers typical banking arrangements.

"Proper advice" is defined in Section 38(4) as the advice of someone,

to give that advice, and

Those are standard arrangements which are very important for the working of charities.
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Since 1993 some of the great grant-making agencies—I think, for example, of the Millennium Commission—rather surprisingly, your Lordships may think, require a formal charge on land of a charity to which they are making a grant, not a loan, just in case some of the conditions attaching to the loan are breached, so that in extremis, if there is a breach of a condition attached to a loan, they then have the right to recoup the loan. Then, belt and braces, they take out a charge so that if at the time concerned the charity is not "flush", they can realise land to meet the recoupment. Some may think that that is all somewhat bizarre.

The problem is, first, that this is a fairly general provision. Secondly, it is not confined to the Millennium Commission. Thirdly, if you have to go through this rigmarole—that is to say, you cannot rely on the exemption given in Section 38 of getting advice from someone qualified to give it—you are then involved in the huge expense of taking a formal legal charge and instructing lawyers on both sides of the transaction. The recipient charity will probably have to pay the costs of the charity making the grant.

I give an example, which was dealt with in my office not so long ago, concerning the Eden Project down in the West Country, which received a grant from the Millennium Commission. The legal costs regarding the charge that is being insisted upon is likely to be of the order of £2,000 to £3,000 on both sides. That is a nonsense. I believe that the making of a grant ought to come within the provisions of Section 38; that is, where you can act upon proper advice. I am sorry to have explained that at some length but otherwise it would be completely incomprehensible. I leave it at that. I beg to move.

6.15 pm

Lord Bassam of Brighton: I am grateful to the noble Lord for the lengthy nature of his introduction to the matter. I shall not chastise him for giving a cogent explanation; it seemed to me entirely sensible. We have much sympathy with what the noble Lord had to say. We would like to take the matter away and give it fair consideration as the noble Lord highlighted a particular problem. We believe that the proposal has merit.

We would also like to tackle another practical problem arising from Section 38. Under Section 38 trustees have to obtain advice covering the prescribed matters before they execute a mortgage—otherwise, they have to obtain the commission's consent. The problem arises when a charity already has a loan whose repayment is secured by a mortgage and wants a further loan. As things stand, the trustees have to execute the mortgage again, after they have taken advice on the further loan. That gives rise to administrative and legal costs for the charity, perhaps in the order of those which the noble Lord, Lord Phillips, mentioned.

It is common commercial practice for a mortgage to be given to cover further loans as well as the original one. So long as advice covering the prescribed matters is taken again by the charity on any further loan, it
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does not seem necessary to require that the mortgage should be re-executed every time the charity takes a further loan.

We would like to deal with both those matters. If the noble Lord, Lord Phillips, will trust us to do that we shall try to bring forward an amendment that is satisfactory to him before the next stage of the Bill.

Lord Phillips of Sudbury: We have trusted the Government thus far and have little cause for complaint. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 agreed to.

Lord Swinfen moved Amendment No. 45:

References to "receiver and manager" in the 1993 Act shall be replaced by the words "interim trustee" or "interim manager" as appropriate."

The noble Lord said: In moving Amendment No. 45, I wish to speak also to Amendment No. 46. No doubt the Minister will speak to the government Amendments Nos. 68, 69, 70, 71 and 72, which are grouped with these amendments.

The purpose of Amendment No. 45 is to remove the name "receiver and manager" and replace it with the name "interim trustee" or "interim manager" depending on which of those two roles the appointed person is fulfilling.

The Government's agreement at the Bill's Second Reading to replace the title "receiver and manager" with that of "interim manager" is welcomed. I am delighted with that. The fact is that a receiver and manager can be appointed to one of two different roles and the use of the same title of "interim manager" for both roles would in my view be misleading.

In appointing a receiver and manager, the commission may give him very narrow specific duties such as producing accounts or temporarily taking control of a charity's assets when they are in danger. The existing trustees are left in place to continue running the charity while the receiver and manager goes about his limited work. In this case the receiver and manager is acting as a temporary manager with specific duties and the phrase "interim manager" describes his position.

On the other hand, the commission, in appointing a receiver and manager, can give him such wide powers of control over the charity's affairs that he becomes in effect the charity's trustee under the definition in the 1992 Act. In these circumstances the previous trustees are de facto no longer trustees even though they may not have been the object of a suspension or removal order by the commission. In this case the receiver and manager is acting as a temporary trustee with wide or total control over the charity and the phrase "interim trustee" best describes his position.

It seems that some receiver and managers and even commission staff have not always understood this trustee role and have even asserted that the previous trustees still
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had those responsibilities when all their powers to act in fulfilment of those responsibilities had been removed from them. This amendment will not only clarify the two different roles of a receiver and manager but it will make quite clear to commission staff, receiver and managers, charity trustees and charity staff who is in charge and who is not. It will also make clear that receiver and managers in the role of interim trustees will be expected to perform to the standard required of all charity trustees, something which I understand has not always happened in the past.

The purpose of Amendment No. 46 is to make the Charity Commission responsible for paying its own receiver and managers, and not the charity on which they are imposed. The Charity Commission already has the power to pay its own receiver and managers but usually charges these costs to the charity if it has sufficient assets. It is not in a charity's interests to fund remedial action which has been put in place by an outside agency such as the commission rather than being decided on by the charity trustees. The commission should pay the fees and expenses of any receiver and manager and any consultants appointed to assist a receiver and manager in all cases.

This amendment runs counter to the arrangements for receivers appointed for commercial companies, but the situation in charities is very different. A commercial receivership is normally the prelude to a winding up whereas a charity receivership is expressly designed to strengthen the charity and enable it to move on. The commission has shown itself to be less than prudent with charity funds when appointing receivers and managers. For example, I am told that in the Voice of Methodism case, a receiver and manager was in post for more than six years at a cost to the charity of £100,000. In the current Cancer Care Foundation case I am advised that the receiver and manager has already run up costs in excess of £600,000 and that these are likely to grow to more than a million pounds, thus completely crippling that charity. In the Kingsway International Christian Centre case, the commission has recently published figures indicating that the costs of such appointments and their consultants to the church charity already total more than £1.23 million and will rise further. The commission's legal authority for appointing a receiver and manager is to protect charity assets. In these cases I believe that it has done the opposite.

The noble Lord, Lord Bassam of Brighton, said in Grand Committee in the previous Parliament:

If that were always the case, the Minister's stance would be firmer. The well documented abuse of charities through the appointment of receivers and managers must stop. The amendment would help the new management by forcing the staff, through their budgets, to give more careful consideration to the appropriate circumstances when receivers and managers should and should not be used. But the
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commission is likely to be much more careful when incurring those costs if it has to find them out of its own pocket. I beg to move.

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