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The Earl of Caithness: My Lords, if it is a burden on charities to have to write a new constitution every time they move their principal office, is it still not a burden to have to write a constitution if they move their principal office from England to Wales or from Wales to England?
Lord Bassam of Brighton: My Lords, I am not sure how many times this occurs. It may be a minor inconvenience, but we are trying to be helpful. This matter has been helpfully drawn to our attention.
The Earl of Caithness: My Lords, with respect, and before the Minister sits down, if he is trying to be helpful, it would be much better not to include anything. If one lives in the Welsh Marches—which I do not—and one moves one's principal office 10 miles across the border—which would be quite likely for a charity in some circumstances—one would have to go to the trouble of rewriting a constitution. If the Government are seriously trying to help charities, it would be much better not to include this measure in the Bill at all. Will the noble Lord consider that point rather than answering it now?
Lord Bassam of Brighton: My Lords, I will happily take the point away and we shall think about it. I do not think that it will constitute a major problem but we shall consider it.
On Question, amendment agreed to.
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Lord Phillips of Sudbury moved Amendment No. 69:
Page 111, line 21, leave out from "subject" to end of line 22 and insert "immediately prior to conversion"
The noble Lord said: My Lords, I hope that this amendment is clear and that the Government are inclined to accept it. Perhaps I should explain to the House that this affects a provision in the Bill relating to the conversion of charitable companies and charitable industrial and provident societies into charitable incorporated organisations, or CIOs. Broadly, the subparagraph, which my amendment seeks to amend, states that converting from a charitable company, or registered society as it is called, into a CIO does not let debtors off the hook, or rather—I beg your Lordships' pardon—does not prejudice creditors. That is the point. Although the Act provides an automatic transfer of the assets of the charitable company or the registered society to the CIO, you do not leave behind the poor old creditors.
My "grouse" with subparagraph (9) as it is drafted is that the words that I seek to delete seem to me not only to add nothing to that intent, but actually to confuse it. At present subparagraph (9) states that the transfer will have no effect on,
"any liability to which the company or registered society was subject by virtue of its being a charitable company or registered society".
However, one does not owe a debt to someone by reason of being who one is but by reason of having incurred the debt. Those seem to me to be muddling and confusing words which can only be a hostage to future interpretation. My amendment would add the concept that liabilities immediately prior to the conversion are carried over into the new CIO. However, I would be ready to forgo those words if the words that I seek to delete are deleted. I beg to move.
Lord Bassam of Brighton: My Lords, the purpose of subsection (9) of the new Section 69I is to make it clear that liabilities of a charitable company or registered society are not affected by conversion to a CIO. Since the process of conversion will not interrupt the legal personality of the entity, liabilities will clearly not be affected, but this subsection is designed to put the matter beyond doubt. In particular, it is designed to highlight that, although a CIO is not a company, it will still be liable for liabilities incurred by the charitable company as a company such as a penalty incurred for late submission of accounts.
This would still be the position were subsection (9) not in the Bill because, as I have mentioned, a CIO is the same legal entity as the charitable company or registered society which converted to it.
I am grateful to the noble Lord for raising the issue. I trust that that explanation will suffice. On the subject of conversions to CIOs, perhaps I may advise your Lordships' House that we intend to bring forward an amendment at Third Reading to provide for power to make regulations to enable the direct conversion of a
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community interest company into a CIO. I hope that noble Lords will welcome that provision. I hope that the noble Lord feels able to withdraw his amendment.
Lord Phillips of Sudbury: My Lords, I confess that I did not understand the justification given by the Minister unless it were to state that the subsection applies only to a very narrow class of liabilities: he mentioned a fine for the late filing of accounts. I thought that the provision was designed to sweep into the CIO the liabilities of the charitable company or registered society converting into the CIO. If the Minister is right in his interpretation, I accept that my amendment is redundant. However, I believe that the wording of subsection (9) does not encourage the ordinary reader to think that it is defined as narrowly as he states.
I suggest that I withdraw the amendment and that we pursue the matter outside the Chamber. If necessary an amendment can be brought back at the final stage of the Bill. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Bassam of Brighton moved Amendment No. 70:
"(7A) If the Commission does not notify the transferor CIO within the relevant period that it is either confirming or refusing to confirm the resolution, the resolution is to be treated as confirmed by the Commission on the day after the end of that period.
(7B) Subject to subsection (7C), "the relevant period" means—
(a) in a case where the Commission directs the transferor CIO under subsection (4) to give public notice of its resolution, the period of six months beginning with the date when that notice is given, or
(b) in any other case, the period of six months beginning with the date when both of the copy resolutions referred to in subsection (2) have been received by the Commission.
(7C) The Commission may at any time within the period of six months mentioned in subsection (7B)(a) or (b) give the transferor CIO a notice extending the relevant period by such period (not exceeding six months) as is specified in the notice.
(7D) A notice under subsection (7C) must set out the Commission's reasons for the extension."
The noble Lord said: My Lords, I beg to move Amendment No. 70 standing in the name of my noble friend Lady Scotland and to speak to Amendments Nos. 71 and 72.
The Bill envisages that the transfer of the undertaking of one CIO to another will require validation by the Charity Commission. This is to ensure that the purposes for the furtherance of which the property of the transferor CIO is held, and the rights of those dealing with that CIO, are not inappropriately modified by the transfer. In Committee, the noble Lord, Lord Hodgson, tabled an amendment, in order to ensure that this validation process was completed within six months of its initiation.
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We accepted that the interests of the charities involved could be prejudiced if the validation process takes too long, and agreed to give further consideration to the matter. However, I did explain that the period of six months may be insufficient for proper consideration to be given by the commission in complex cases.
The effect of the amendment we have now tabled will be, if the commission has not notified the transferor CIO that it has either validated or refused to validate the transfer within six months from its receipt of the copy resolutions of the transferor and the transferee CIOs relating to the transfer, that the transfer is treated as automatically validated once that period has ended.
If the commission exercises its discretion to require public notice of the transfer resolution, the six month period only starts on the date when the public notice is given.
If the commission wants to extend the six month period, it can do so for a period of up to six months by notice to the transferor CIO, giving the reasons why the extension is considered necessary.
We think that this strikes a fair balance between effective regulation, and acceptance of the point made by the noble Lord, Lord Hodgson, that an uncertain and/or over-lengthy validation process may put at risk the success of the transfer and the success of the organisation.
4.30 pm
Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for bringing forward the amendments. I express one hope. Six months is considered to be a long period, not a short period—six months is a huge period in corporate life. To have a state of suspended animation as a matter of course for six months would be very unhelpful to the development of the sector. The danger of having the words "six months" in the Bill is that what is supposed to be a maximum becomes standard fare. Will the Minister clarify how long the period may be extended thereafter? As I understand it, it could be extended for another six months, giving a maximum of 12 months. Or can we go on having six-month period after six-month period? It was not clear from what the Minister said. I am grateful for the broad thrust, but I have concerns about the detail.
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