Ministerial foreword

Our dedicated charities and volunteers have played a huge role in the national effort against coronavirus. From supporting people suffering domestic abuse to tackling loneliness and social isolation, they have delivered vital work throughout this pandemic.

That is why the Government provided an unprecedented multi-billion-pound package of support for Britain’s charities – including an unprecedented £750 million of dedicated funding that has helped more than 15,000 organisations across the country respond to the impact of Covid-19 and relieve the pressure on our NHS.

As the country moves towards recovery from the impact of Covid-19, I know many charities are considering how to respond to the impact of the pandemic on their organisations. That is why we welcome the Law Commission’s well-considered and detailed report. It addresses a number of technical issues in charity law which were first raised by Lord Hodgson’s 2012 review of the Charities Act. Its recommendations are, at first sight, highly technical; together, however, they will make it simpler and easier for charities to respond to opportunities to achieve their charitable purposes in an effective, sustainable and impactful way. The recommendations also maintain important safeguards to ensure the best use of charities’ resources.

I thank the Law Commission for their hard work on this topic. It is clear that the consultation on the Law Commission’s proposals with the sector was thorough. I am pleased that the Report’s recommendations have support within the sector, and from the Charity Commission, the independent registrar and regulator for charities in England and Wales.

In principle, we accept the vast majority of the report’s 43 recommendations, and will look to implement them when Parliamentary time allows.

Ensuring that there is a modern, strong and flexible legal framework for charities is just one element of the Government’s work to create a more effective, sustainable and impactful charity sector. As the Secretary of State for Digital, Culture, Media and Sport commented in a recent speech, “there is huge power in civil society, and that it should be the government’s job to unlock it – not try to replace it, or end up stymying it.” The Government will steward the sector, unlock new types of resources, from encouraging philanthropy to leveraging finance, empowering volunteers to keep supporting their communities, and build a compelling picture of the enormous value that charities contribute to our economy and society.

Baroness Barran

Minister for Civil Society

1. Financial Thresholds

Charities’ registration, accounting and reporting requirements vary according to financial thresholds such as a charity’s income. The Law Commission’s recommendation would mean that these thresholds are reviewed regularly to reflect inflation. This would prevent an increasing number of smaller charities becoming subject to stricter requirements, or acquiring powers, which are not appropriate to their size. The Government accepts this recommendation.

Recommendation 1

We recommend that Government periodically review all financial thresholds in the Charities Act 2011 with a view to increasing them, by secondary legislation, in line with inflation.

Government Response

We accept this recommendation. We agree that such a review should take place at least every 10 years, and subject to resources, we will aim to undertake a review of the financial thresholds in 2022.We appreciate, in times of uncertainty, set financial thresholds present difficulties and can be restrictive. They can create additional administrative burdens for, in particular, small charities at times of financial difficulty as a result of increased inflation over time. We agree with the Law Commission’s conclusion that an automatic inflation adjustment would not be the right solution: it would add more complexity and potential for confusion to the landscape, and would add to compliance costs due to frequent, and unpredictable changes. The review will be conducted with a view to increasing thresholds in line
with inflation according to the appropriate index of inflation used by the government and/or the Office for National Statistics (ONS) at the time of the review.

2. Changing purposes and amending governing documents

All charities, whatever their legal form, have a governing document, which is the
rulebook for the charity. A charity may need to amend its governing document for a variety of reasons, which can range from minor technical changes to fundamental changes to the way the charity is run or to the charitable purposes that it pursues. Charities should be able to make changes as quickly and efficiently as possible, whilst retaining safeguards to ensure that any amendments are in the best interests of the charity and its beneficiaries.

The processes for amending a charity’s governing document vary according to the charity’s legal form. The Law Commission’s recommendations would simplify those processes and align them across the different types of charity. They would also simplify the criteria which the Charity Commission considers when agreeing significant changes.

We accept all the recommendations in this chapter.

Recommendation 2

We recommend that:

  1. an amendment to a CIO’s constitution by resolution of its members should take effect on the date the resolution is passed, or on a later date specified in the resolution; save that (a) an amendment that makes a regulated alteration should be ineffective unless the prior consent of the Charity Commission has been obtained; and (b) a change of a CIO’s purposes should not take effect until it has been registered by the Charity Commission;
  2. the description of changes to a charity’s objects as a “regulated alteration” in section 198(2)(a) be amended to reflect the description in section 226(2)(a); and
  3. the Charities Act 2011 be amended to provide that the court and Charity Commission’s power to make schemes in respect of charities extends to corporate charities.

Government Response

  1. We accept this recommendation. Although a CIO is a relatively new legal structure, we want to ensure that it is an attractive legal structure for small and medium sized charities.
  2. We accept this recommendation. If it is just the wording that changes, and the substance of the charity’s purpose remains the same, it should not be a ‘regulated alteration.’
    3.We accept this recommendation. Whilst we consider that the Charity Commission’s scheme-making power already extends to charities with a corporate structure, we agree that this could be put beyond any doubt in the way the Law Commission suggests.

Recommendation 3

We recommend that:

  1. in place of section 280 of the Charities Act 2011, unincorporated charities be
    given a new statutory power to amend any provision in their governing
    documents, subject to a requirement that the Charity Commission approves the
    following amendments:
    (a) amendments that would be “regulated alterations” under section 198 if they
    were made by a company (as amended in accordance with
    Recommendation 2 above);
    (b) any amendment to a restriction that renders property permanent
    endowment;
    (c) any amendment that – had it been made under an express power of
    amendment – would have required the consent of a person (other than a
    trustee or member), unless that person consents to the amendment or has
    died or (if a corporation or other body) is no longer in existence;
    (d) any amendment that would affect any right directly conferred by the
    governing document on (i) a named person, or (ii) the holder of an office
    or position specified in the governing document (other than that of a trustee
    or member), unless that person consents to the amendment or has died or
    (if a corporation or other body) is no longer in existence; and
    (e) any amendment which would confer power on the charity trustees to make
    an amendment falling within paragraphs (a) to (d) above;
  2. in the case of a charitable trust, the power should be exercisable by a resolution
    of 75% of the trustees;
  3. in the case of a charitable unincorporated association that has a body of
    members with an entitlement under the governing document, to attend and vote
    at a general meeting, the power should be exercisable:
    (a) by a resolution of a majority of the trustees; and
    (b) by a further resolution of those members which is passed:
    (i) at a general meeting, by 75% of those members who attend and
    vote on the resolution;
    (ii) at a general meeting, by a decision taken without a vote and without
    any expression of dissent in response to the question put to the
    general meeting; or
    (iii) otherwise than at a general meeting, unanimously;
  4. in the case of amendments that require the consent of the Charity Commission,
    the trustees should be able to seek that consent before putting the resolution to
    a vote of the charity’s members;
  5. amendments should take effect on the later of:
    (a) the date of the resolution;
    (b) the date specified in the resolution for it to take effect (if any);
    (c) the date on which the resolution of the members of the charity is passed
    (if such a resolution is required); or
    (d) the date on which the Charity Commission consents to the amendment (if
    such consent is required);
  6. the power should only be exercised where the charity trustees are satisfied that
    it is expedient in the interests of the charity to pass the resolution;
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  7. the power should not be exercised in any way which would result in the institution
    ceasing to be a charity;
  8. the Charity Commission should be given a power to give public notice, or require the charity trustees to give public notice, of any amendment in respect of which
    the Commission’s consent is required; and
  9. section 275 of the Charities Act 2011 should be repealed.

Government Response

We accept this recommendation. Under the current law it can be complicated and costly for an unincorporated charity to change its purposes. Given unincorporated charities are often very small, volunteer-led organisations we welcome the Law Commission’s approach to make this new procedure as simple as possible, whilst ensuring there are appropriate safeguards in place. In effect this new section would introduce a similar, simpler, regime for unincorporated charities wishing to change their charitable purposes or make other changes to their governing document, to the existing regimes that apply to incorporated charities. The new amendment power would align the position of unincorporated charities with the position of charitable companies and CIOs as far as possible.

We welcome the Law Commission’s recommendation to include specific safeguards protecting third party rights. We agree that this new provision would render section 275 of the Charities Act 2011 unnecessary. We agree with the Law Commission’s conclusion that trustees should not themselves be permitted to release permanent endowment restrictions under the new statutory power. (Powers in respect of permanent endowment are discussed further below).

Recommendation 4

We recommend that:

  1. when considering whether to consent to:
    (a) a company or CIO changing its purposes under sections 198 and 226 of the Charities Act 2011; and
    (b) an unincorporated charity changing its purposes under the new amendment power that we recommend above;
    the Charity Commission should be required to have regard to the following matters:
    (a) the purposes of the charity when it was established;
    (b) the desirability of securing that the property is applied for charitable purposes which are close to the purposes being altered; and
    (c) the need for the relevant charity to have purposes which are suitable and effective in the light of current social and economic circumstances; and
  2. the Charity Commission should be given a power to give public notice, or require the charity trustees to give public notice, of any amendment by a charitable company or CIO in respect of which the Commission’s consent is required.

Government Response

We accept this recommendation. We welcome the Law Commission’s conclusion that the similarity considerations (based on an amended version of the wording used in section 67 of the Charities Act 2011) should be standardised for unincorporated and incorporated charities. Whilst we recognise the arguments for and against were finely balanced, we agree that the section 67 similarity considerations strike the right balance between protecting donors’ wishes and allowing charities to adapt to change. We agree that in the interests of consistency, the Charity Commission should have the power to give public notice or require public notice to be given where the Commission’s consent is required.

Given unincorporated charities are often very small, volunteer-led organisations we welcome the Law Commission’s approach to make this new procedure as simple as possible, whilst ensuring there are appropriate safeguards in place. The similarity considerations (based on an amended version of the wording used in section 67 of the Charities Act 2011) would provide those appropriate safeguards.

3. Charities governed by statute or Royal Charter: changing purposes and amending governing documents

Different rules apply to charities governed by statute or Royal Charters that want to amend their governing documents. To do this, these charities must seek approval from either Parliament (for charities governed by statute) or the Privy Council (for charities governed by a Royal Charter). As in the previous chapter, the Law Commission’s recommendations balanced the need to enable these charities to make changes as quickly and efficiently as possible, with safeguards to ensure that any amendments are in the interests of the charity and its beneficiaries.

Charities governed by statute or by Royal Charter vary widely. They range from some of the UK’s largest charities such as the NSPCC and RNIB, to universities and professional chartered organisations, to small benevolent societies with a local purpose. Some older, Royal Charter charities do not have a power to amend their charters, which causes time and expense when their governing documents need to be updated. We welcome the recommendation to introduce a power for them to make those amendments, with Privy Council approval.

The Law Commission’s recommendations to improve the processes by which these charities can amend their governing documents relate largely to the Privy Council’s procedures. Where the government has not accepted the Law Commission’s recommendations in this chapter, it is because the recommendations seek to apply a ‘one size fits all’ approach to Privy Council guidance and engagement with charities. Such an approach would not reflect the reality that Privy Council guidance has to be tailored to each charity’s situation.

One recommendation (recommendation 10), which seeks to simplify amendment processes for Welsh higher education institutions, is for the Welsh Government.

Recommendation 5:

We recommend that:

  1. a statutory power be created for Royal Charter charities to amend any provision in their Royal Charter which cannot be amended under any existing express power of amendment, subject to the amendment being approved by the Privy Council;
  2. in the case of a charity that has a body of members with an entitlement to vote under the Royal Charter, the power should be exercisable:
    (a) by a resolution of a majority of the trustees; and
    (b) by a further resolution of those members which is passed:
    (i) at a general meeting, by 75% of those members who attend and vote on the resolution;
    (ii) at a general meeting, by a decision taken without a vote and without any expression of dissent in response to the question put to the meeting; or
    (iii) otherwise than at a general meeting, unanimously;
  3. in the case of a charity without a separate body of members, the power should be exercisable by a resolution of 75% of the trustees;
  4. the trustees should be able to seek an indication from the Privy Council as to whether a proposed amendment would be approved before putting the resolution to a vote of the charity’s members; and
  5. amendments should take effect on the date on which the Privy Council consents to the amendment (or, if the resolution specifies a later date for it to take effect, on that date).

Government / Privy Council Response

The Government and Privy Council accepts this recommendation. A new express amendment power would relieve those Royal Charter charities that do not currently have such a power of the time and expense that would otherwise be involved in following the Supplemental Charter procedure.

We agree with the Law Commission’s conclusion that the new express amendment power for Royal Charter charities should only be available to those charities that do not have an existing amendment power in their Charter. We also welcome the recommendation to align the voting requirements for trustees and member resolutions with the approach taken for companies. We accept that the new power to amend the Charter could additionally be used to amend any bye-laws for which there was no existing amendment power.

We agree that the charity should be able to seek an indication from the Privy Council as to whether a proposed amendment would be approved before putting the resolution to a vote of the charity’s members.

Recommendation 6:

We recommend that:
1. the Privy Council review its current policy of requiring all petitions by charities for Charters and for supplemental Charters to be published in the London Gazette for eight weeks with a view to removing, or replacing, that requirement; and
2. the Privy Council cease to require Charters or supplemental Charters granted to charities to be printed on vellum.

Government / Privy Council Response

The Government and Privy Council accepts this recommendation in part.

The publication of petitions for Charters and Supplemental Charters in the London Gazette ensures there is transparency about proposed changes to Charters (whether or not the organisation is a charity). This is provided at no cost to the charities concerned. The Privy Council Office also publishes details of petitions on its website, again providing a mechanism for public notice. Incorporation by Charter is a form of Government regulation in the public interest, so it is important that there are mechanisms to ensure public notification of any changes.

The Privy Council Office no longer requires printing on vellum in all cases, and would be happy to discuss possible alternatives with those petitioning for a Charter or Supplemental Charter.

Recommendation 7

We recommend that:
1. in order to improve the process by which charities can make constitutional amendments:
(a) the Privy Council Office, in consultation with the Charity Commission and DCMS, produce guidance concerning the process by which Royal Charter charities can amend their governing documents;
(b) the Charity Commission and DCMS produce guidance concerning the process by which statutory charities can amend their governing documents –
2. in order to facilitate the re-allocation of provisions within governing documents:
(a) the Privy Council Office, in consultation with the Charity Commission and DCMS, produce guidance for Royal Charter charities concerning the types of provisions that should generally appear in the Royal Charter, the bye-laws or the regulations;
(b) the Charity Commission, in consultation with DCMS, produce guidance for different statutory charities concerning the types of provision that should generally be subject to Parliamentary control; and
3. the PCO amend its guidance to make clear that amendments to bye-laws only require approval when that is expressly required by the Royal Charter itself.

Government /Privy Council Response

The Government and Privy Council accept this recommendation in part.

The Privy Council Office already provides general guidance on its website regarding the process of petitioning for a Charter or seeking a Supplementary Charter. This can only give a high level overview, due to the varied circumstances of applicant organisations. It would be disproportionate and could cause confusion to attempt to provide guidance that covered all eventualities. Instead, the Privy Council Office encourages applicants to get in touch directly to benefit from bespoke advice that will take into account their specific circumstances.

In relation to the types of provisions that should generally appear in the Royal Charter, the bye-laws or the regulations, these will often vary depending on the circumstances of the applicant, and so one-size-fits-all guidance would not be appropriate or proportionate. The Privy Council Office routinely consults with the relevant government departments on receipt of an application for a Charter, Supplemental Charter, byelaws or amendments to byelaws.

DCMS will work with the Charity Commission on guidance regarding the process for making a scheme under section 73 of the Charities Act 2011 for charities governed by an Act of Parliament. However, in a similar vein to the Privy Council Office, it would be difficult and disproportionate to produce guidance on all the types of provision that should generally be subject to Parliamentary control, as each case presents its own issues, and a bespoke approach is required.

Recommendation 8

We recommend that the Privy Council Office establish a user group to allow those who engage with the process of amending Charters and bye-laws to propose and discuss improvements to the procedures.

Government /Privy Council Response

The Government and Privy Council do not accept this recommendation. Due to the unique issues that arise in relation to different Charters, and the very small volumes of casework, it would be disproportionate to establish such a user group. The Privy Council Office is always open to engage with advisers of Chartered bodies, and potential petitioners for a Charter, and encourages feedback from its users.

Recommendation 9

We recommend that all section 73 schemes be subject to the negative procedure, regardless of whether the governing document is contained in a private Act or a public general Act.

Government Response

It will rightly be for Parliament to decide on any changes to the appropriate level of Parliamentary scrutiny for section 73 schemes. However we welcome this recommendation, recognising that in our experience, the negative resolution procedure provides an appropriate level of Parliamentary oversight for charities whose governing document is an Act of Parliament. We welcome the Law Commission’s suggestion of pursuing a collective section 73 order containing multiple schemes for multiple charities. This could prove useful if schemes for multiple charities are ready to be taken forward at the same time. However in practice such circumstances are rare.

Recommendation 10

We recommend that, in order to facilitate the amendment of, and the reallocation of provisions within, the governing documents of Welsh higher education institutions (“HEIs”), the Welsh Government should consider introducing the following measures:
(1) the publication of guidance concerning the process for amending governing documents;
(2) following consultation with the sector, the publication of guidance (either by the Welsh Government or some other public body) setting out the matters of public interest in the governing documents of HEIs, amendment of which should remain subject to oversight; and
(3) the removal of the requirements in the Education Reform Act 1988 as to the content of the governing documents of higher education corporations so as to enable those bodies to re-allocate provisions in accordance with guidance concerning public interest matters

This recommendation is for the Welsh Government. The Draft Tertiary Education and Research (Wales) Bill, published for consultation between 14 July and 4 December 2020, includes provision for HE Governance reforms. It will be a decision for the incoming Welsh Government to take forward the provisions of the Draft Bill.

4. Cy-près schemes and the proceeds of fundraising appeals

Some charity fundraising appeals raise too much, or too little, money to achieve the appeal’s aim. The current law requires charities to contact donors to offer to return their donation if a fundraising appeal does not achieve its target. The effort to do this can be disproportionate to the size of the individual donations. The Law Commission recommends thresholds below which charities would not have to contact donors if a fundraising campaign to which they contributed had not met its target, and simplifies the process that the law requires charities to follow when contacting donors. We agree that these recommendations would protect donors’ wishes while reducing administrative burdens on charities.

Recommendation 11

We recommend that:
(1) in the case of failed appeals, a donation should be applicable cy-près without the trustees having to take steps to contact the donors in order to offer to return the donation if:
(a) the donation does not exceed £120; and
(b) the trustees reasonably believe that the total given by the donor to the fundraising appeal over the financial year did not exceed £120; unless the donor states that the donation must be returned if the specific charitable purposes fail.
(2) those financial thresholds should be capable of amendment by way of secondary legislation

Government Response

We accept this recommendation. We agree that the requirement for a general charitable intention should be retained to protect donor autonomy. We agree with the Law Commission that a fair balance should be struck between protecting donors’ wishes and the administrative burden of contacting donors to offer a refund. We consider that this recommendation achieves such a fair balance.

Recommendation 12

We recommend that sections 63 to 66 of the Charities Act 2011, concerning the cy- près application of the proceeds of failed appeals, be simplified as follows.
1. Case (1) (the advertisement and inquiry requirements under section 63 of the Charities Act 2011) should be replaced with a requirement that the trustees take reasonable steps to contact donors in order to offer the return of their donations, such steps to be agreed in advance with the Charity Commission.
2. After proceeds of a failed appeal have been applied cy-près pursuant to Case (1), the six-month period in which donors can continue to make a claim for the return of their donations should be removed.
3. Case (2) (the disclaimer procedure in section 63(1)(b)) and Case (3) (the declaration procedure in section 65) should be repealed.

Government Response

We accept this recommendation. We accept that the existing advertising requirements can be disproportionate and inflexible. We agree that the best way to contact donors will vary depending on how the appeal was conducted and that the best people to make this judgement are the charity’s trustees. We agree that trustees should act in line with Charity Commission guidance and approval.

We agree with the Law Commission that claims for reimbursement should not be permitted after the proceeds of a failed appeal have been applied cy-près.

We agree with the Law Commission’s proposed repeals.

Recommendation 13

We recommend that, where the proceeds from failed appeals and from surplus cases are applicable cy-près:

  1. trustees should have a power to resolve that the proceeds be applied for new purposes, having regard to:
    (a) the desirability of securing that the purposes are, so far as reasonably practicable, similar to the specific charitable purposes for which the proceeds were given; and
    (b) the need for the purposes to be suitable and effective in the light of current social and economic circumstances;
  2. if the proceeds exceed £1,000, such a resolution should only take effect when the Charity Commission consents to it; and
  3. that financial threshold should be capable of amendment by way of secondary legislation.

Government Response

We accept this recommendation. The approach proposed by the Law Commission would remove an administrative burden for charities and the Charity Commission in applying the funds from failed or surplus appeals. It is a proportionate response, with Charity Commission consent only in cases where proceeds of the appeal exceed £1,000.

5. Acquisitions, disposals and mortgages of charity land

The law governing how charities dispose of land requires charities to follow certain rules when they sell, let or mortgage their land. The Law Commission’s consultation considered the extent to which charity trustees should be compelled to seek advice before disposing of charity land, and what that advice should cover. The recommendations which the government accepts will enable trustees to access professional advice which is proportionate and appropriate to the particular circumstances of the land disposal. They will resolve gaps in protection for buyers of charity land, gaps which can currently deter buyers or increase the charity’s cost of selling. They will simplify the law about disposing of charity land which has multiple beneficiaries and when it is being disposed of by a liquidator or administrator. Finally, they will simplify the highly technical law around how certain universities and colleges dispose of land, aligning it with broader charity and trust law.

The government has not accepted the Law Commission’s recommendations to remove two provisions because the way those provisions work in practice makes them more important safeguards than an analysis of the law alone would suggest.

Recommendation 14

We recommend that:
1. the category of designated advisers under Part 7 of the Charities Act 2011 be expanded to include fellows of the National Association of Estate Agents and fellows of the Central Association of Agricultural Valuers;
2. qualified charity trustees, officers and employees be able to give advice under sections 119(1)(a), 120(2)(a) and 124(2) of the Charities Act 2011; and
3. the Charities (Qualified Surveyors’ Reports) Regulations 1992 be replaced with regulations that require designated advisers to provide:
(a) advice concerning:
(i) what sum to expect (or, if an offer has already been made, whether the offer represents the market value of the land);
(ii) whether (and, if so, how) the value of the land could be enhanced;
(iii) marketing the land (or, if an offer has already been made, any further marketing that would be desirable);
(iv) anything else which could be done to ensure that the terms of the transaction are the best than can reasonably be obtained for the charity; and
(b) a self-certification by the adviser that they:
(i) have the appropriate expertise and experience to provide the advice that is required;
(ii) do not have any interest that conflicts, or would appear to conflict, with that of the charity; and
4. the statutory requirement that charity trustees advertise the proposed disposition in the manner advised in the surveyor’s report be removed.

Government Response

We accept this recommendation. Extending the range of specialist advisers to provide advice in relation to land transactions will give charity trustees more flexibility to determine an adviser that is best placed to provide advice in relation to a transaction, recognising that different transactions should have tailored treatment.

We welcome the Law Commission’s proposals to streamline and reform the content of expert reports on transactions. Importantly the recommendation retains the requirement for an independent valuation of the property concerned.

Self-certification of suitability to advise provides a welcome additional safeguard, which will reassure trustees and the public that suitable independent advice has been obtained.

We agree that there should not be a statutory requirement for trustees to advertise a disposition as advised in the surveyor’s report. Instead we welcome reliance on trustees to have considered the expert’s advice and act appropriately given the circumstances of the transaction and the advice of the expert.

Recommendation 15

We recommend that Part 7 of the Charities Act 2011 only apply where land is solely held by, or held in trust solely for, a single charity

Government Response

We accept this recommendation. We accept that where a charity is only one of several beneficiaries for which the land in question is held in trust, it would not be appropriate to require an expert’s report to be obtained. In such cases it would be for the trustee of the land to determine the best terms of any disposition and whether expert advice is necessary.

Recommendation 16

We recommend that:

(1) the connected persons regime in Part 7 of the Charities Act 2011 be retained;
(2) the definition of connected persons should:
(a) exclude employees where the disposal is the grant of a short residential tenancy;
(b) exclude wholly-owned subsidiaries;
(c) be capable of amendment by secondary legislation; and
(d) omit the reference to “illegitimate child”;
(3) disposals of land to wholly-owned subsidiaries should be notified to the Charity Commission; and
(4) the Charity Commission’s guidance for trustees disposing of land, and guidance for designated advisers, should make clear that disposals to wholly owned subsidiaries should be for the best terms that can reasonably be obtained for the charity.

Government Response

We partially accept this recommendation. We recognise that trustee fiduciary duties already preclude conflicted connected persons transactions. However, we agree that there is still a need for a specific statutory connected persons regime to ensure trustees are aware of their responsibility to avoid a conflict of interest and to provide the best protection for charity assets.

The proposed exclusion of short term residential tenancies for employees of the charity is sensible to facilitate the charity’s work.

We do not agree that wholly-owned subsidiaries should be excluded from the definition of connected persons. Evidence from the Charity Commission’s casework shows that charities frequently fail to appreciate the need to deal with subsidiaries on an arm’s length basis and do not appropriately manage conflicts of interest. There is a lack of understanding of the legal distinction between charities and their subsidiaries. This can sometimes lead trustees to consider the interests of the subsidiary either in place of, or alongside, the interests of the charity.

The Charity Commission believes, and we agree, that removing subsidiaries from the definition of connected persons would result in an increase in disposals of charity land to wholly owned subsidiaries on terms that would not be in the charity’s best interests. Further, the Charity Commission would find it more difficult to identify or prevent improper disposals of charity land before the transaction takes place. A notification requirement after the transaction has taken place would make it much more difficult for the Charity Commission to safeguard an asset (or its value) for the charity.

We welcome the proposal for the connected persons regime to be capable of amendment by secondary legislation. We agree that the language “illegitimate child” is outdated and unnecessary.

Recommendation 17

We recommend that:

  1. charities be required to include in a contract for a disposition of charity land a statement that the requirements of Part 7 of the Charities Act 2011 have been complied with; and
  2. a contract for a disposition of charity land should be enforceable by a purchaser
    if:
    (a) such a certificate has been given in the contract; or
    (b) such a certificate has not been given but the purchaser has acted in good faith.

Government Response

We accept this recommendation given a purchaser is not currently protected under a contract for the sale of land when the charity trustees had not compiled with the statutory requirements. Therefore, purchasers who contract to buy, or take a lease of land from a charity have to check that the statutory requirements have been compiled with. We agree this is onerous and causes delay and expense. A statement in the contract for disposition from the charity that the requirements of Part 7 of the Charities Act 2011 have been complied with would mitigate this.

Recommendation 18

We recommend that the requirements in section 121 of the Charities Act 2011 concerning advertising proposed disposals of designated land and considering any responses received should be abolished.

Government Response

We do not accept this recommendation. We do not agree that advertising proposed disposals of designated land and considering any responses received (which are requirements in section 121 of the Charities Act 2011) should be abolished. Long standing community assets – including recreation grounds, almshouses and local school, church and/or village hall properties – are typically held as designated land. Evidence from the Charity Commission’s casework shows that proposals to dispose of these assets can be highly controversial and some disposal proposals generate a significant response from the public. We consider that the requirement for advertising proposed disposals of designated land remains important for beneficiaries and other stakeholders, enabling them to be informed and to make representations before assets of this kind are sold. Otherwise, there is a risk that trustees might dispose of charitable community assets without a complete understanding of the implications, including the impact on beneficiaries and the local community. This would affect the perceived legitimacy of trustee decision-making, and could have an adverse impact on public trust and confidence in charities.

The Charity Commission recognises that the public notice requirements in section 121 are not appropriate in every case. However, under the existing law, charities can apply to the Charity Commission for directions granting them an exemption from the requirements. We agree with the Charity Commission that this approach strikes the right balance between the need to protect charity assets on the one hand, and the need for flexibility in some cases.

Recommendation 19

We recommend that the Charity Commission amend its guidance Acquiring Land (CC33) as follows.

  1. The guidance should reflect our recommendations to reform the regime governing the disposal of land, for example, suggesting that advice could be obtained from a fellow of the National Association of Estate Agents or fellow of the Central Association of Agricultural Valuers as well as a member of the Royal Institution of Chartered Surveyors.
  2. The guidance should explain that trustees might decide not to obtain advice from those advisers, or from any advisers, with examples of when the trustees might make such a decision.
  3. The suggestion that trustees seek advice on whether the proposed acquisition is in the interests of the charity should be removed.

Government Response

This recommendation is for the Charity Commission. We understand that the Charity Commission accepts this recommendation. Currently, the Charity Commission strongly recommends charities to follow the Part 7 regime when acquiring land. However, as the Law Commission sets out, it is not always appropriate to do so as obtaining advice is not always necessary given the charity might have sufficient in house-expertise or its trustees might decide to deliberately purchase land in excess of market value in pursuit of the charity’s charitable purposes.

Recommendation 20

We recommend that:
1. disposals of land by liquidators, provisional liquidators, administrators, receivers and mortgagees be excluded from Part 7 of the Charities Act 2011; and
2. the exception in section 117(3)(c) of the Charities Act 2011 be reformulated such that it applies only to disposals that are solely intended to further the transferor charity’s purposes.

Government Response

We accept this recommendation. We agree that disposals of land by liquidators, provisional liquidators, administrators, receivers and mortgagees be excluded from Part 7 of the Charities Act 2011 given that they already have duties to ensure they obtain a reasonable price to ensure the best result for the creditor(s).

We agree that the exception in section 117 of the Charities Act 2011 be reformulated such that it applies only to disposals that are only intended to further the transferor charity’s purposes. This will ensure that where the transaction is in part motivated by seeking a financial return, the exception will not apply.

Recommendation 21

We recommend that:
1. the detailed provisions in the Universities and College Estates Act 1925 be repealed and the institutions to which it applies be given the general powers of an owner similarly to trustees under the Trusts of Land and Appointment of Trustees Act 1996 and the Trustee Act 2000; and
2. the exercise of that replacement power should not, of itself, engage the exception from the Part 7 advice requirements in section 117(3)(a) of the Charities Act 2011.

Government Response

We accept this recommendation. This recommendation would remove the complex and technical arrangements that apply to a very small number of particular institutions under the Universities and College Estates Act 1925, and replace them with a simpler regime: a series of new general land transaction powers. We agree that the exercise of new, general powers, should attract the Part 7 advice requirements in the Charities Act 2011. We also agree that the new, general land transaction powers, should complement existing powers in these organisations’ statutes.

6. Permanent Endowment

Permanent endowment is property belonging to a charity that cannot be spent. The Law Commission’s recommendations will simplify the definition of permanent endowment, which will address legal problems which arise from the different legal interpretations of the current definition. They will also enable charities to make more effective use of their permanent endowment, while maintaining appropriate safeguards that will ensure that use of permanent endowment is in the charity’s best interests. The government accepts all recommendations in this chapter.

Recommendation 22

We recommend that the definition of permanent endowment in section 353 of the Charities Act 2011 be reformulated to remove its inconsistencies and lack of clarity.

Government Response

We accept this recommendation. The reformulated definition of permanent endowment would provide greater clarity.

Recommendation 23

We recommend that:
1. the power to release permanent endowment restrictions in sections 281 and 282 of the Charities Act 2011 should be available to all charities, and the potential exclusion of corporate charities should be removed;
2. the power to release permanent endowment restrictions in section 281 should depend on the value of the permanent endowment alone, and that the income threshold and the “entirely given” condition in section 282(1) should be removed;
3. the power to release permanent endowment restrictions under section 281 should be available in respect of permanent endowment funds of a value up to £25,000;
4. the time limit for the Charity Commission to respond to a resolution under section 282:
(a) should be reduced to 60 days;
(b) should commence when the resolution is received by the Charity
Commission;
(c) (when the Commission directs the charity trustees to give public notice
of the resolution) should be suspended until 42 days after public notice
is given;
(d) (when the Commission directs the charity trustees to provide further
information about the resolution) should be suspended until that
information is provided to the Commission; and
5. the parallel regime for “special trusts” in sections 288 and 289 of the Charities Act 2011 should be repealed.

Government Response

We accept this recommendation. We agree that there is no policy reason why charities with a corporate structure should be excluded from the provisions to release restrictions on permanent endowment. We welcome the proposed simplification of moving to a threshold dependent on the value of the permanent endowment alone, and the proposal to increase the threshold to £25,000. This will enable more permanent endowment funds to be released where it is appropriate to do so, and will reduce bureaucracy and costs for charities and the Charity Commission. We agree that an incremental approach will enable the Charity Commission to assess whether the power is being used appropriately. We accept that the parallel “Special Trusts” regime in sections 288 and 289 of the Charities Act 2011 should be repealed.

Recommendation 24

We recommend that:

  1. trustees be given a statutory power to borrow from their permanent endowment by allowing them to resolve to spend up to 25% of the value of the permanent endowment subject to a requirement that they recoup that expenditure within 20 years; and
  2. trustees be given a power, once they have opted into the regulations governing total return investment, to resolve that the permanent endowment restrictions be further released to permit them to make social investments with a negative or uncertain financial return (which would not otherwise be permitted as “investments”).

Government Response

We accept this recommendation. We agree that these two powers would be useful additions to trustees’ existing toolbox in seeking to further their charity’s purpose, whilst protecting the enduring nature of permanent endowment.

7. Remuneration for the supply of goods and the power to award equitable allowances

Charity trustees cannot make gains from their position as a trustee. The current law allows trustees to be paid for services but not for goods, which is inconsistent and prevents charities from accessing goods which may be offered at more favourable terms by a trustee than elsewhere. The Law Commission’s recommendation would resolve this inconsistency. Similarly, it recommends allowing trustees to be paid for work they have carried out that has generated a profit for the charity, with the important safeguard that the Charity Commission must approve any such payment. The Law Commission also recommended a review of the basis on which basis of the decisions of the Charity Commission on which the Charity Tribunal can be challenged in the Charity Tribunal. We do not accept this recommendation as we believe the current arrangements are appropriate.

Recommendation 25

We recommend that:
1. the power in section 185 of the Charities Act 2011 allowing charities to remunerate trustees for the supply of services should be extended to allow charities to remunerate trustees for the supply of goods; and
2. the power should supplement any existing express power in the charity’s governing document (whether narrower or wider) to pay the remuneration.

Government Response

We accept this recommendation. Extending the power in section 185 of the Charities Act 2011 to allow trustees to be remunerated for providing goods will bring the provision of goods in line with the provision of services. We agree that the power should supplement any existing express power in the charity’s governing document.

Recommendation 26

We recommend that:
1. the Charity Commission should have a power to require a charity to remunerate a trustee (or to authorise a trustee to retain a benefit already received) where:
(a) the trustee has done work for the charity; and
(b) it would be inequitable for the trustee not to be remunerated for that work (or not to retain the benefit received in connection with that work);
2. the exercise of that power, and the decision not to exercise the power, should be subject to challenge by way of judicial review.

Government Response

We accept this recommendation. The Charity Commission should have a statutory power to award equitable allowances in situations where charity trustees must account for a benefit that they have received in breach of fiduciary duty. We note the time, effort and expense involved in going to court to obtain an equitable allowance, and that requests for equitable allowances already come before the Charity Commission prior to the courts.

We agree that the exercise of this power, or a decision not to exercise this power, should be subject to challenge by way of a judicial review.

Recommendation 27

We recommend that the basis on which decisions of the Charity Commission can be challenged, including in particular the rights of challenge to the Charity Tribunal, should be reviewed.

Government Response

We do not accept this recommendation. The rights of appeal listed in Schedule 6 to the 2011 Act were all carefully considered in terms of who could exercise them, in what circumstances, and the appropriate remedies in each case. We have no plans to review these.

8. Ex gratia payments out of charity funds

‘Ex gratia’ payments are payments out of charity funds that trustees feel morally obliged to make, but which they have no legal power to make. These cases typically arise when administering wills: for example, if a testator leaves an estate to charity, and lawyers are later instructed to change the will to include a legacy to a family member, but the testator dies before the will can be changed. In those cases, charity trustees may feel morally obliged to make an ex gratia payment to the family member in question. The current law requires charity trustees to seek Charity Commission permission for all ex gratia payments, which can be disproportionately time-consuming and cause delay. The Law Commission’s recommendation would allow charities to make relatively small ex gratia payments without seeking Charity Commission permission, and to delegate the power to make those payments to an appropriate person within the charity. This is a sensible adjustment which reflects the reality of delivering a charity’s work. The Government accepts all recommendations in this chapter.

Recommendation 28

We recommend:
1. the introduction of a new statutory power allowing trustees to make small ex gratia payments without having to obtain the prior authorisation of the Charity Commission, the Attorney General or the court;
2. that the statutory power to make ex gratia payments without authorisation should apply to ex gratia payments of up to:
(a) £1,000, in the case of a charity with a gross income in its last financial year of up to £25,000;
(b) £2,500, in the case of a charity with a gross income in its last financial year of more than £25,000 and up to £250,000;
(c) £10,000, in the case of a charity with a gross income in its last financial year of more than £250,000 and up to £1 million; and
(d) £20,000, in the case of a charity with a gross income in its last financial year of more than £1 million;
3. that those financial thresholds should be capable of amendment by way of secondary legislation; and
4. that the statutory power to make small ex gratia payments should be capable of being expressly excluded or limited by a charity’s governing document.

Government Response

We accept this recommendation. We agree that requiring authorisation before small ex gratia payments are made is time-consuming and can involve costs which are disproportionate to the value of the payment itself. The limit on the size of payment that could be made without Charity Commission oversight would provide a safeguard to protect charitable assets. We agree with the Law Commission that there should be accountability and note the existing requirements in the Statements of Recommended Practice (“SORP”) requiring charities to report all ex gratia payments in detail in the charity’s accounts.

We agree that setting the threshold by reference to the broad categorisation of a charity’s income would provide proportionate regulation and oversight of ex gratia payments, whilst remaining sufficiently simple for charities to apply. The threshold takes into account that the size of the charity is relevant to the financial damage that would be caused by an inappropriate ex gratia payment, and we welcome the alignment with existing, well-known, thresholds that dictate accounting and reporting requirements.

Recommendation 29

We recommend that:

  1. the test for making an ex gratia payment should be reformulated to allow such a payment to be made when the charity trustees could reasonably be regarded as being under a moral obligation to make it, thus allowing for the decision to make an ex gratia payment to be delegated; and
  2. trustees should be able to delegate decisions to make ex gratia payments of any value to any person. This recommendation applies when an ex gratia payment is to be made (i) without Charity Commission oversight under the new statutory power to make small payments (in accordance with Recommendation 28 above), and (ii) with Charity Commission oversight under section 106 of the Charities Act 2011.

Government Response

We accept this recommendation. We agree that the requirement for trustees to make the decision themselves is unrealistic in some cases because the decisions are often not significant enough to warrant trustee involvement, and waiting for approval for an ex gratia payment from the trustees can cause delays to the already, in some cases, lengthy process.

We also agree that trustees should be able to delegate decisions to make ex gratia payments of any value to any person given it takes into account different people might be best equipped to deal with ex gratia payments, depending on the charity. It is important to note, however, that trustees will retain ultimate accountability where they delegate such decisions.

Recommendation 30

We recommend that:

  1. the Attorney General, the court and the Charity Commission should have the power to authorise ex gratia payments by statutory charities; and
  2. the power for charity trustees to make small ex gratia payments without Charity Commission approval should be available to statutory charities.

Government Response

We accept this recommendation. We agree that there is no reason to differentiate between statutory and non-statutory charities in this context.

Recommendation 31

We recommend that decisions by the Charity Commission not to authorise an ex gratia payment under section 106 should be subject to review by the Charity Tribunal.

Government Response

We accept this recommendation. We agree that there should be consistency between the appeal rights under section 105 and section 106 of the Charities Act 2011 given the overlap between these powers.
Incorporations, mergers and trust corporation status

It is important that charities are able to change their structures in order to achieve their charitable purposes most effectively. For example, incorporation as a charitable company can make it easier for a charity to enter into contracts, or merging with another charity can achieve efficiencies of scale. The Law Commission’s recommendations will resolve several problems with the law that make it more difficult for charities to merge or incorporate. In particular, they enable charities to amend their governing documents to allow them to merge; to more easily transfer property during a merger; and to allow gifts by will to be made to the new charity even when the old charity is named in the will, which will reduce the need for charities to maintain inoperative ‘shell charities’ to capture such gifts. The government accepts all the recommendations in this chapter.

Recommendation 32

We recommend that the power in section 268 of the Charities Act 2011 (governed by sections 267 to 274 of the Act) be repealed.

Government Response

We accept this recommendation. We agree that the expansion of the section 280 general amendment power would render section 268 of the Charities Act 2011 redundant, as the same result is achieved. The expansion of section 280 would allow unincorporated charities to amend their government documents so as to introduce a power to merge.

Recommendation 33

We recommend that:

  1. the first exclusion from section 310 vesting declarations (for land conveyed by way of mortgage for securing money subject to the trust) be repealed; and
  2. leases containing absolute covenants against assignment be excluded from section 310 vesting declarations.

Government Response

We accept this recommendation. We agree that the first exclusion from section 310 vesting declarations (for land conveyed by way of mortgage for securing money subject to the trust) is unlikely to serve any purpose in modern transactions. We also agree that as leases with qualified covenants against assignment are excluded from section 310 vesting declarations, so should be leases with absolute covenants.

Recommendation 34.

We recommend that:

  1. when a charity has merged and the merger is registered, for the purposes of ascertaining whether a gift has been made to that charity under section 311 of the Charities Act 2011, the charity should be deemed to have continued to exist despite the merger;
  2. when two or more CIOs amalgamate under section 235, for the purposes of ascertaining whether a gift has been made to the amalgamated CIO under section 239 the original CIOs should be deemed to have continued to exist despite the amalgamation;
  3. when a CIO transfers its undertaking to another CIO under section 240, for the purposes of ascertaining whether a gift has been made to the transferee CIO under section 244 the transferor CIO should be deemed to have continued to exist despite the transfer; and
  4. the Charity Commission should investigate whether, on registering a merger, a charity’s entry in the register of charities could include a reference to the registered merger.

Government Response

We accept this recommendation. We agree that the Law Commission’s proposal would facilitate merger between charities as shell charities would no longer need to be preserved.

The Charity Commission has confirmed that it is investigating whether, on registering a merger, a charity’s entry in the register of charities could include a reference to the registered merger.

Recommendation 35

We recommend that:

  1. trust corporation status be conferred automatically on existing and future corporate charities in respect of any charitable trust of which the corporation is (or, in the future, becomes) a trustee; and
  2. regulation 61 of the Charitable Incorporated Organisations (General) Regulations 2012 be repealed.

Government Response

We accept this recommendation. We agree that the three current routes to obtaining trust corporation status are time-consuming and cumbersome. Automatically conferring trust corporation status in respect of any charitable trust of which the corporation is
(or, in the future, becomes) a trustee, would address this. We agree that this recommendation renders regulation 61 of the CIO (General) Regulations 2012 redundant and that regulation 61 should therefore be repealed.

9. Charity and Trustee Insolvency

In certain circumstances, charity property may be available to creditors when a trustee of the charity becomes insolvent. The Law Commission found that there is confusion about how the law applies and recommended changes to Charity Commission guidance which would clarify the uncertainties.

Recommendation 36

We recommend that the guidance of the Charity Commission in Managing a Charity’s finances (CC12) be revised:
1. so as to make it clear that the availability of trust property, including trust property that falls within the statutory definition of “permanent endowment”, “special trust” or “restricted funds”, to meet the liabilities of an insolvent trustee is no different whether the trustee is an individual or a charitable company; and
2. to reflect more fully and accurately the law governing the exercise of trustees’ rights of indemnity from trust property for the benefit of the creditors of the trustee, in particular in respect of permanent endowment, special trusts and restricted funds

The Charity Commission has accepted these recommendations and confirmed that it intends to revise its guidance.

10. Charity Names

The Charity Commission has power to require a charity to change its name. When a charity uses a name which is similar to another charity’s name or is offensive, it can lead to the public being misled, donations mistakenly being made to the wrong institution, and reputational damage to individual charities and to charities generally. It is therefore important for the Charity Commission to have clear and effective powers in those rare cases where a charity adopts an inappropriate name. The Law Commission’s recommendations would create consistency in the Charity Commission’s power over different types of charity, including unregistered and exempt charities, and extend the power to apply to a charity’s working name as well as its formal name. This would remove legal loopholes which currently would allow charities still to adopt inappropriate names in certain circumstances. The recommendations would also enable the Charity Commission to delay entering a charity’s name on the charities register in cases where it has a concern about a charity’s name, which would avoid the potentially damaging consequences of an inappropriate name being entered on the register even for a short time. The government accepts all the recommendations in this chapter.

Recommendation 37

We recommend that:

  1. the Charity Commission be empowered to issue a direction, relying on any ground in section 42(2) of the Charities Act 2011, requiring a charity to stop using a working name;
  2. the Charity Commission be permitted to issue a direction, relying on the ground in section 42(2)(a):
    (a) against both registered and unregistered charities; and
    (b) where a charity’s (formal or working) name is the same as, or too like, the working name (as well as the formal name) of another charity; and
  3. the Charity Commission be permitted to issue a direction under section 42 to exempt charities.

Government Response

We accept this recommendation. Section 42 provides a practical and useful framework that enables the Charity Commission to take steps to protect charities from confusion arising from other charities with duplicated or very similar names. This recommendation would extend the existing power in section 42(2) in a sensible and proportionate way to cover “working names” of charities as well as the main name of the charity, and would extend the Commission’s powers to issue directions on charity names to unregistered and exempt charities.

Recommendation 38

We recommend that:

  1. the Charity Commission be given a power to delay the registration of an institution as a charity, and to delay changing a charity’s name in the register:
    (a) during the period for compliance specified in a direction issued under section 42 of the Charities Act 2011; and
    (b) for 60 days after that date for compliance; and
  2. the 60 day period should stop running during any period that the following proceedings are ongoing:
    (a) any challenge to
    (i) the section 42 direction, or
    (ii) any enforcement action taken by the Commission in respect of the section 42 direction; and
    (b) any proceedings for contempt of court in respect of the section 42 direction.

Government Response

We accept this recommendation. This proposal would enable the Charity Commission to delay the registration of a charity, or delay the changing of a charity’s name in the register, where the proposed name would be the same as or too similar to the name of an existing charity. We agree with the Law Commission that this recommendation amounts to a compromise. We also share their view that it will create a better process for the resolution of disagreements about a charity’s name by giving the Charity Commission sufficient time to take action against the charity without requiring the Commission to enter inappropriate names in the register during that period.

11. The identity of a charity’s trustees

There is inconsistency between the Charity Commission’s power to determine a charity’s members, and the lack of a corresponding power to determine a charity’s trustees. The ability to determine a charity’s members – who can have a role in governing a charity, such as electing its trustees – is helpful in resolving confusion about, for example, who has a right to vote in trustee elections and whether trustee elections are valid. The lack of a power to determine trustees means that there is no equivalent way of resolving similar confusions where members are not involved. The Law Commission’s recommendation would give the Charity Commission a power to ratify the appointment or election of a trustee, as long as that trustee consents. The government supports this recommendation.

Recommendation 39

We recommend that:

  1. the Charity Commission be given the power to ratify prospectively the appointment or election of a person to a particular role (which in turn would render them a charity trustee);
  2. the power should be exercisable only with the consent of the person whose appointment or election is sought to be ratified; and
  3. a decision to ratify, or not ratify, an appointment should be subject to challenge by way of judicial review.

Government Response

We accept this recommendation. We agree that giving the Charity Commission the power to ratify prospectively the appointment or election of a person to a charity trustee role will resolve uncertainties as to whether the trustees had been properly appointed, and to remedy directly and quickly one of the difficulties that an incomplete or inaccurate record of trustees creates.

12. The Charity Tribunal and the courts

Some aspects of the law cause difficulties for charities using the First-tier Tribunal (General Regulatory Chamber). The Tribunal provides a low-cost, user-friendly way for charities to challenge certain decisions made by the Charity Commission, as an alternative to court proceedings. The Law Commission’s recommendations would provide reassurance to, and reduce legal costs for, trustees by enabling them to obtain confirmation that costs of Tribunal proceedings can properly be paid from their charity’s funds without the expense of going to court to get that confirmation. They would allow the time for Charity Commission decisions to be challenged before they took effect, in the event that the decision was controversial and not time-sensitive. They would simplify the Charity Commission’s ability to refer questions about Charity Law to the Tribunal, by removing the requirement for the Attorney General to consent to such a referral. The government accepts the recommendations which would achieve those aims (recommendations 41 – 43).

The government does not accept the recommendation that charities should be able to get authorisation to pursue ‘charity proceedings’ from the court as well as the Charity Commission (recommendation 40). This would remove an important protection of charity assets: Charity Commission approval prevents charity funds being wasted on litigation that is without merit.

Recommendation 40

We recommend that it should be possible to obtain authorisation to pursue “charity proceedings” under section 115 of the Charities Act 2011 from either the court or the Charity Commission in circumstances where the Charity Commission would face an actual or apparent conflict of interests if asked to give such authorisation.

Government Response

We do not accept this recommendation. The majority of proceedings taken by charities against the Charity Commission are heard in the First-tier Tribunal (General Regulatory Chamber). We agree with the Law Commission that Tribunal proceedings are not classified as “charity proceedings” and can therefore be brought without the Charity Commission’s authority. Other “charity proceedings” where the Charity Commission is directly involved are rare.

However, the existing arrangements protect charity assets by preventing charity funds from being wasted on litigation that is without merit. They also ensure that disputes are dealt with in the appropriate forum because the Charity Commission cannot, without special reasons, authorise the taking of charity proceedings if it considers that the dispute concerned can be resolved using its regulatory powers. The Charity Commission is concerned that allowing applicants to seek authorisation from the court directly would significantly weaken these protections. This is because the court would not be expressly obliged to consider whether the dispute could be resolved by the Charity Commission.

In the small number of cases where a conflict does arise, it should be dealt with in a more proportionate manner that does not risk losing the protections discussed above. For example, the Charity Commission could institute robust information barriers and ensure that the case officers and legal advisors that consider the section 115 application are not in any way involved in the substantive claim.

Recommendation 41

We recommend that the Charity Tribunal be given the power to make “authorised costs orders” in respect of proposed or ongoing Tribunal proceedings that would provide charity trustees with advance assurance that:
1. costs already incurred or proposed to be incurred; and
2. costs ordered to be paid if the litigation is unsuccessful; can properly be paid from the charity’s funds.

Government Response

We accept this recommendation. We recognise that there is no power for trustees to obtain advance protection, akin to a Beddoe order, from the Charity Tribunal in respect of the costs of Tribunal proceedings. We accept that this may discourage trustees from pursuing action in the Tribunal. We agree with the Law Commission that the Tribunal should have the power to make a costs order, like a Beddoe order, that would provide for the expenditure incurred (and expenditure to be incurred) to be recoverable from the charity’s funds.

Recommendation 42

We recommend that the Charity Commission delay the date on which its decisions take effect to allow time for a challenge (to the Tribunal or to the court) where the decision is likely to be controversial and is not time-sensitive.

Government Response

This recommendation is for the Charity Commission. We understand that the Charity Commission accepts this recommendation, and intends to develop guidance for case officers on this

We agree that where the decision is likely to be controversial and is not time-sensitive, this practice would go some way to ensuring that complainants can make meaningful challenges to the Tribunal and to the court in respect of the Charity Commission’s decisions.

Recommendation 43

We recommend that the Charity Commission should not be required to obtain the Attorney General’s consent before making a reference to the Charity Tribunal, but that the Charity Commission and the Attorney General should be required to give the other four weeks’ advance notice of any intended reference.

Government Response

We do not accept this recommendation. The Attorney General’s consent for references to the Charity Tribunal is an important element in the system which should not be removed. The Attorney General has a duty, on behalf of the Crown, to protect charitable interests in England and Wales; this mechanism assists the Attorney General to fulfil that duty.



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