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Lord Swinfen moved Amendment No. 63:
"RECEIVER AND MANAGER TO BE PAID BY COMMISSION
In section 19(6)(b) of the 1993 Act, for "income of the charities concerned" substitute "Charity Commission for England and Wales"."
The noble Lord said: My Lords, this amendment is on a rather different matter. Its purpose is to make the Charity Commission responsible for paying its own receivers and managers, rather than the charity on which the receivers and managers are imposed having to pay. The Charity Commission already has the power to pay its own receivers and managers, as set out in the 1993 Act, but usually if not invariably charges those costs to the charity. The commission should also pay the fees and expenses of any receiver and manager, and consultants appointed to assist a receiver and manager, in all cases.
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In the past, the commission has shown itself to be somewhat careless with charity funds when appointing and monitoring receivers and managers. For example, in the Voice of Methodism Association case, the receiver and manager was in post for more than six years, at a cost to that charity of £100,000. In the current Cancer Care Foundation case, the receiver and manager has already run up costs in excess of £600,000, and those costs are increasing. The commission's legal authority for appointing a receiver and manager is to protect the assets of the charity. Running up such costs is hardly protecting the assets of the charity. Questions may well be asked in certain cases on whether such an appointment has been detrimental to that responsibility.
There have been a number of cases in which the receiver and manager has been in post for several years, incurring costs to the charity concerned running into hundreds and thousands of pounds or, on occasions, more than £1 million. The amendment will serve to help the new commission management in its attempts to restrict the use of receivers and managers for the more serious cases, in which they are still bound to be required. Bluntly, the commission is likely to be more careful when incurring receiver and manager costs if it has to find them out of its own pocket rather than that of the charity. I note that, in the Charities Act 1993, the costs of the receivers and managers are to be paid out of the income of the charity. I suspect in some cases that the charity may well have had to delve into its capital, and I wonder whether that is entirely legal. I beg to move.
Lord Hodgson of Astley Abbotts: My Lords, my noble friend has brought to our attention an important point. It has obviously caused a lot of concern in the sector; witness the postbag that those of us involved in the Bill have received.
I have some concerns about the way in which the amendment is phrased and the background to it. My concerns are twofold. The first is the read-across from the private corporate sector, where a company that goes into administration or receivership has to pay the costs of that receiver or administrator, and there is no charge to the Department of Trade and Industry. Moving the payment from the company that is in difficulty—or the charity, as in my noble friend's example—to the taxpayer seems to raise a difficult issue. The reason is that, if we are not careful, we end up with what might in effect be a subsidy for bad behaviour. If a charity is so badly run that a receiver or manager is appointed, why should the taxpayer, who is after all the funder of the Charity Commission, pick up the bill? A possible subtext is that there is a small, probably marginal, incentive for trustees to behave well, in that, if they behave badly and an administrator or receiver is appointed, there will be a penalty attached to their bad behaviour. Those are my two problems with what my noble friend has put before us this afternoon.
On the other hand, there is no doubt that there is an obligation on the receiver and manager to operate efficiently and on the Charity Commission to ensure
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that it is operating efficiently. My noble friend has given some examples of cases where the administrator, receiver or manager has been in the post for several years, where the sums involved have been very large. That is an important issue that needs to be addressed, although I am not sure that the way that my noble friend suggests is the right one. It is, the Minister will know, a frequent complaint about the behaviour of receivers and managers in the private sector that they are cavalier with their time and therefore cavalier with the funds of the company that they are managing or administering. Redress is not easy to obtain, because a company in administration or receivership has no capacity to fight the administrator or manager, because it is obviously on the back foot.
My noble friend has raised an important issue about how the Charity Commission is going to behave and the way in which future managers and receivers should behave to ensure that they are efficient and timely in their work. I look forward to hearing how the Government believe that that important balance will be struck.
Lord Phillips of Sudbury: My Lords, I largely agree with what the noble Lord, Lord Hodgson of Astley Abbots, has just said. There are a few cases where the Association of Charitable Trusts has pursued this with great tenacity. I hope that the Minister will encourage us in the belief that the Charity Commission might be more wary of what goes on after managers and receivers have been appointed because there are some bad cases.
In an extreme case, where there has been a breach of trust by one of the trustees of the charity, the costs of the manager or receiver would—in theory, at any rate—be recoverable against the trustees that, by their breach of trust, have given rise to the appointment.
Lord Bassam of Brighton: My Lords, we have spent a long time discussing the appointment of interim managers during the passage of the Bill. It has been time usefully spent.
In practice, of course, the appointment of an interim manager is usually a last resort, when it is essential temporarily to secure the assets of a charity where there has been serious maladministration, misconduct or—perhaps worse—where the assets are clearly at risk. That is not a desirable position.
An interim manager can be appointed by the commission only after the opening of a formal enquiry and after evidence of misconduct or mismanagement in the administration of the charity is obtained or in the event that it is necessary or desirable to protect the charity's property. The Government continue to believe that, in most circumstances, it is appropriate for interim managers to be remunerated from the income of the charities concerned. Such appointments are made only after careful consideration of all other possible options and generally after a tender exercise to ensure both value for money and that the right appointment is made to deal with the circumstances that have arisen. Unfortunately, the need for
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appointments arises in circumstances where the problems are often complex and the trustees are either unwilling or unable to put the matters right themselves.
Charities run their own affairs and, we would all agree, must be responsible for the consequences of their decisions and actions, including the consequences of mismanagement. We believe that in most cases it should not fall to public funds to pay the costs of an interim manager appointed to a charity as a result of the decisions and actions of the trustees of that charity. I invite noble Lords to agree with that basic principle.
Interim manager appointments are rare: only two were appointed in 2004–05. We accept that the costs associated with the appointment can be high, but they must be considered alongside the value of the charity assets that are secured—almost £20 million for the seven cases that concluded in 2004–05. The commission has a statutory responsibility to supervise all receiver and manager appointments, which it discharges in all cases.
The new powers to give directions to be conferred on the commission under Clauses 20 and 21 of the Bill may lead to a reduction in such appointments, as they will provide an alternative and simpler route to dealing with some of the concerns that give rise to appointments now. One of the points that has been made is about the high cost of disbursements and other professional fees incurred by interim managers. There is an argument that such professional advice would be necessary for the charity to restore itself to a sound financial footing in any event, regardless of whether it was being administered by the original trustees or by an interim manager appointed to it. The commission in supervising the appointment will clearly wish to keep those costs, as it does other matters, under careful review.
We also agree that there may be some circumstances where it would be more appropriate for the interim manager to be remunerated out of public funds. An example might be where serious issues have arisen in the administration of the charity but the charity concerned is small and would not have the resources to pay the costs of an interim manager. It is perhaps with those circumstances that the noble Lord, Lord Swinfen, is most concerned. Nevertheless, if the commission decides that it is in the public interest and the best interests of the charity to appoint an interim manager, it may appoint one at public expense. It is only right that there is a clear understanding that nothing in the existing legislation would preclude the use of public resources to pay the costs of an interim manager where appropriate. However, our view remains that those should be exceptional cases and that the norm would be for interim managers to be paid out of the charity's resources under the supervision of the commission.
There is no reason why public resources cannot be used to pay for interim managers where it is right for them to do so. We understand entirely the point about the size and capacity of charities to fund the costs and
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expenses of the interim manager and any disbursements that they may have to make. Given the flexibility that is already in the law, I suggest to the noble Lord, Lord Swinfen, that it might be more appropriate to withdraw his amendment.
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