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Lord Bassam of Brighton: My Lords, my original speaking note started with the legend "Resist", but having listened to the remarks of the noble Lord, Lord Phillips, and taken further advice from officials, who thought that there was a fair point at the core of the amendment, I think that the best approach is to invite the noble Lord to withdraw his amendment today but to agree to consider the matter further, obviously in consultation with him, with a view to tabling at Third Reading our own amendment, on which I am sure we can agree. I am grateful to the noble Lord for approaching us in this way. If he is happy to follow that course I am sure we can come up with something which answers the point.
Lord Phillips of Sudbury: My Lords, I am most grateful to the noble Lord and I accept that invitation. There are some other aspects of these two new clauses that we could usefully discuss at the same time. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury moved Amendment No. 87:
"( ) Where the statement in subsection (6)(b) above is false, or appropriate arrangements for discharge of any liabilities have not been made, the relevant charity trustees at the time concerned shall be jointly and severally personally liable for such liabilities."
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The noble Lord said: My Lords, we have discussed this issue on a number of occasions. We discussed it at Committee stage when we dealt with this Bill, or its predecessor, before the last election. The Government were as good as to accept the need for there to be a statement of appropriate arrangements made by charities that are engaging in what is called relevant charity merger, and that is now in Clause 42(6) on page 46. Let us leave aside the issue of whether it is required to be made, but the notification, if given, must,
"include a statement that appropriate arrangements have been made with respect to the discharge of any liabilities of the transferor charity or charities".
I am grateful for that having been placed in the Bill.
However, there is a further lacuna in that there is no sanction on the part of any charity or charities giving such notification if the statement of arrangements that they give to the Charity Commission is not appropriate and if the statement that they make is otherwise false. I have had discussions with officials on this matter and one answer is: you have your normal remedies. You can go to the registrar of companies—by this time at least the charity having ceased to exist—and ask the registrar to reinstate the corporate charity, and then you can bring an action against the corporate charity that has been put back on to the register. It may have no assets but you can bring an action against it, and if you are successful you can look into the question of whether the directors have been in breach of other provisions of the Companies Act in winding it up without due allowance made for the liabilities concerned. All that is a grotesquely unreasonable and unfair set of so-called remedies with which to lumber an innocent creditor in the event that these arrangements take their course.
My amendment, to which the noble Lord, Lord Hodgson of Astley Abbotts, has added his name, seems to be abundantly fair, because it simply says that if your statement is false you cannot hide behind it, and if you have not made appropriate arrangements you cannot hide behind them. In those circumstances, instead of going round the mulberry bush you can proceed against the trustees of the corporate charity themselves personally. They then stand on the same footing as trustees of an unincorporated charity; namely, that they are jointly and severally liable for the debts concerned. On that basis, I beg to move.
Lord Hodgson of Astley Abbotts: My Lords, as the noble Lord, Lord Phillips, said, my name is down to Amendment No. 87. I wish to add two points to the very expert proposition for the case put by the noble Lord.
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The Government have said that they want to maintain confidence in the charitable sector. That is one of the strategic purposes behind this Bill. Therefore, where we have mergers, making false statements is not only clearly a very serious matter by any standard, legal or moral, but it is also the sort of effect that is likely to undermine confidence in the sector. Those who are affected by it are likely to take
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a much more stringent view of the charitable sector in the future, which is something that we should seek to avoid.
Moreover, in the past I have talked about systemic risks. Where a series of false statements are made, you may endanger not just one charity—the charity that has been taken over—but also the charity that has done the taking over. You may have a series of difficulties that flow from it. What the noble Lord, Lord Phillips, is trying to achieve here is important. I cannot see any downside for including this sort of health warning in the Bill. I support what he has said.
Lord Bassam of Brighton: My Lords, I shall address both amendments. Amendment No. 87 seeks to add to the general law as regards liability for the liabilities of a charity, in the circumstances where the property of that charity is being transferred to another charity in the context of a registered merger. The noble Lord has explained his amendment clearly. As we see it, it would make the charity trustees of the transferor charity jointly and severally liable for its liabilities, in addition to whoever else (if anyone) would be so liable under the general law, in any case where those trustees had failed, as part of the merger process, to make "appropriate arrangements" for the discharge of those liabilities. I assume that the trustees would have the usual right to an indemnity out of the charity property, but they would still have the primary liability to settle the debts, and would have a personal liability in the event that they were unable to enforce their indemnity.
We cannot see the justification for giving creditors a potentially additional selection of people to sue, simply because the option to register the merger is exercised, and the "appropriate arrangements" have not been made. Charities can go out of existence for reasons other than merger, and the general law would then simply take its course as regards the enforcement of any liabilities of the charity which are left outstanding. If creditors are given rights which they would not otherwise have had to sue trustees simply because the option to register the merger is exercised, and the "appropriate arrangements" have not been made, registration of charity mergers will be discouraged, and the beneficial purpose of these provisions will be undermined. For those reasons, I would invite the noble Lord to withdraw his Amendment No. 87.
I shall now deal with Amendment No. 88 in the group. Charities—
Lord Phillips of Sudbury: My Lords, I am grateful to the noble Lord for giving way. I did not move the second amendment in the group. I wonder whether it would be appropriate to leave it until we have disposed of Amendment No. 87. It would help the House if we did. I realise that it is grouped, but it is always open to us to ungroup. As neither of us has spoken to the second amendment, perhaps I may invite the Minister to simply deal with Amendment No. 87.
Lord Bassam of Brighton: My Lords, I am obviously very much in the hands of the House. As regards
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Amendment No. 88, I was going to suggest, in order to expedite matters, that we were minded to give it fair consideration. We thought that the noble Lord had a point. That was my intention. Perhaps if I sit down now we can deal with Amendment No. 87—I suspect that the noble Lord wants to.
Lord Phillips of Sudbury: My Lords, I am most grateful to the Minister. Without having moved Amendment No. 88, I accept his kind offer of discussions, so that we can bring matters forward.
The Earl of Caithness: My Lords, I hope that when we come to Amendment No. 88, we, too, will be entitled to know what the point is that the noble Lord has moved that has attracted the Minister so much.
Lord Phillips of Sudbury: My Lords, is the noble Earl sure that he wants to listen to that explanation at this time of day? In any event, let us deal with Amendment No. 87. I am grateful to the Minister for what he has said, but I am also not grateful because, with respect, he did not address the argument. The point about these new merger provisions is that they do two things by the operation of law: first, to see the cessation of charities that merge; and, secondly, the automatic vesting of all their assets in the new charity. In my view, it is a nonsense to declare that this is comparable with any existing arrangements; it is not. It is also grotesquely unfair to the poor old creditor who may know nothing whatever about the merger business. Indeed, if it is not on the register of notification, he would not know in any case. He will suddenly wake up to find no charity to go up against and no assets anyhow. On that basis, I feel that I ought to test the opinion of the House.
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On Question, Whether the said amendment (No. 87) shall be agreed to?
Their Lordships divided: Contents, 128; Not-Contents, 152
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