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Lord Bassam of Brighton moved Amendment No. 85:
"(4A) In the case of a merger involving the transfer of property of any charity that has both a permanent endowment and other property ("unrestricted property"), subsection (4)(a) or (b) applies in relation to any such charity as if—
(a) the reference to all of its property were a reference to all of its unrestricted property, and
(b) the reference to its ceasing to exist were omitted."
The noble Lord said: My Lords, in moving the amendment I shall speak also to Amendments Nos. 89, 90, 91, 92, 93 and 94. The purpose of Clause 43 is to facilitate charity mergers. It does so in two ways: it speeds up the process of transferring property from one charity involved in the merger to another; and it preserves, for the benefit of the transferee charity in the merger, gifts made to the transferor charity after that charity has ceased to exist. A gift made to a charity after it has ceased to exist is currently exposed to the possibility of being ineffective as a charitable gift.
In its current form, Clause 43 does not apply at all to permanently endowed charities but applies only in the case of charities which cease to exist as the consequence of a merger. The intention of a person who sets up a permanently endowed charity is that the charity cannot cease to exist. We agreed during our discussions in Committee that the courts have decided that such a charity does not cease to exist simply because the arrangements for its administration have been changed.
We resisted the amendment that the noble Lord, Lord Hodgson, tabled in Committee because the merger facilitation provisions cannot be applied to property that is permanent endowment. The property is not transferred to a new charity and any gift that may be added to the endowment after the merger does not need any protection, because the charity will not
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have ceased to exist. However, it is possible for a charity to have both permanent endowment and other property and we accept that the provisions of Clause 43 could have a useful application to such other property, even though the charity as a whole does not cease to exist.
The effect of the amendments will be that the merger of a charity with a permanent endowment can still be registered where all the unrestricted property of that charity will pass to the transferee charity. The provisions that speed up the transfer of property in a merger can be applied to the unrestricted property. Where, after the merger, a gift is made adding to the unrestricted property, that will automatically take effect in favour of the charity to which the unrestricted property passed on the merger.
These provisions will not, however, affect the legal position of the charity's permanent endowment and it will not be transferred to a new charity. Any gift adding to the permanent endowment made following the merger will take effect in the usual way. In practice, we envisage that the new charity resulting from the merger and the separate charity consisting of the permanent endowment will be managed together.
The amendments also include a technical provision to ensure compatibility with the Land Registration Act 2002 where the transfer provisions apply to registered land or land which is required to be registered. That has been requested by the Land Registry to make clear that transferred land must still be registered. I beg to move.
5 pm
Lord Phillips of Sudbury: My Lords, I have only one point on the Minister's very clear explanation of this group of amendments. That is in respect of Amendment No. 85. I gave notice to his office of my question. At the end of that amendment it states that the reference to the charity ceasing to exist on this merger shall be omitted. I wanted confirmation that if that be the case—namely, that because of permanent endowment it is in future to be held back by one or more of the merging charities so that it does not cease to exist—any creditor of that charity whose claim was unmet could go against the permanent endowed assets retained by the rump charity, if I may call it that. It is very important that it should be clear where creditors will gain their satisfaction in the complicated arrangements that these new provisions provide.
Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord for his question. Charities which merge will want to make arrangements for their liabilities. If, for whatever reason, there is an unforeseen liability which cannot be met in any other way, it is possible to use funds held as permanent endowment. The noble Lord will know more than me, but my understanding is that that is permitted by Section 31 of the Trustee Act 2000. We do not see that any difficulty will arise as a result of the merger arrangements.
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It also seems to me that there is a question about whether the new charity formed from the transfer is liable and whether the funds of that charity should be used before recourse is made to the residual permanent endowment charity. I think that that is a slightly more complex question. I am more than happy to write to the noble Lord giving further chapter and verse on that, because I think it is a valuable point to explore and set out.
On Question, amendment agreed to.
Lord Phillips of Sudbury moved Amendment No. 86:
Page 46, line 21, leave out from "above" to end of line 22 and insert "shall be given by the transferor charity or charities concerned within 28 days of the relevant charity merger"
The noble Lord said: My Lords, Amendments Nos. 86, 87 and 88 stand in my name. I am grateful to the noble Lord, Lord Hodgson, for having added his name to Amendment No. 87. I crave the indulgence of the House for what is an extremely technical set of amendments to an extremely technical set of new clauses inserted into the Charities Act 1993 by Clause 43 of the Bill. They all relate to mergers; that is, where two or more charities decide that they want to pool their resources either by creating a new charity into which they all transfer their assets or where one of them is the surviving charity and the other one or more charities transfer all their assets into it.
The provisions created by the Bill are in many ways admirable and to be desired. One aspect of the arrangements is that if the merging charities make what are called in proposed new Section 75D "pre-merger vesting declarations", so long as they comply with the provisions of that clause there will be an automatic transfer of all the assets of the charities concerned—what is called "automatic vesting". That is a most dramatic thing to happen in English law, under which the transfer of any assets is a laborious business and that of charity assets is extremely laborious, for the obvious reason that it is in the public interest to protect charity assets.
We and noble Lords on the Conservative Benches are anxious that those arrangements work in the way in which the Government undoubtedly intend them to. The concern that the three amendments address is that a creditor of one of the charities merging could wake up one morning and find that the assets against which his or her claim might normally be met are no longer with the charity concerned. Indeed, creditors might find that the charity against which they have a claim—it may be a straightforward debt—no longer exists. Between them, the amendments are designed to tighten up the merger provisions.
Amendment No. 86 fills a gap in the legislation. New Section 75C is all about the register of charity mergers and starts by saying:
If you put a cold towel around your head and study the provisions, you will find that the register is voluntary; that is to say, no charity engaged in a relevant merger
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is obliged to notify the Charity Commission. That is most obvious in subsection (5) of new Section 75C, which says:
"A notification under subsection (3) above may be given in respect of a relevant charity merger at any time after".
The subsection then refers to the transfer of property of the charity concerned. That in itself is misleading, because an automatic vesting is not a transfer but a vesting of property—I shall return to that point.
It is essential that we tighten up those arrangements for the benefit of creditors, bearing in mind that no charity doing a proper and honourable job will want to disadvantage creditors. The first requirement of Amendment No. 86 is that it is compulsory, not voluntary, for those involved in a relevant charity merger to notify the Charity Commission so that it can keep its register up to date. The amendment would make it compulsory to give notice,
rather than at some indeterminate time, which could mean a year or two later.
The other two amendments are in a separate group, so the only other thing that I need say at this juncture is that, under those arrangements, an automatic vesting of all the assets of the charities concerned can take place without notification being given to the Charity Commission. For reasons that I have briefly sketched, that seems wrong in principle and contrary to the public interest. It is a matter that ought to be rectified. I beg to move.
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