Law Commission: Technical issues in charity law

Of direct interest to those involved in charities in England and Wales

The charity sector in England and Wales is varied and diverse, not just in the causes it supports, but in the way it is structured. 

Charities can therefore find themselves required to comply with charity, trust, and company law as well as specific sector legislation, such as education, health, care and children’s services. Different legislation means different approaches to some governance areas spread, creating confusion and inconsistency among charities.

The Law Commission’s latest report, published in September, concludes its Eleventh Programme of Law Reform. This arose from Lord Hodgson’s statutory review of the Charities Act 2006, and specific suggestions from the Charity Commission regarding statutory charities (those established by legislation) and Royal Charter charities.  

The aim of the Law Commission’s review was to ‘remove unnecessary or inefficient regulation while safeguarding the public interest in ensuring charities are properly run’ (p8). The objectives were fivefold:
  • Remove unneeded regulation and bureaucracy to maximise the efficient use of charitable funds
  • Increase trustees’ freedom to make decisions in the best interests of their charities
  • Grant more powers to the Charity Commission to make it more effective
  • Ensure the protection of charity property and boost donor confidence
  • Remove inconsistent and complex parts of the law.
Specific chapters within the Law Commission report cover:
  • Changing purposes and amending governing documents
  • Charities governed by statute or Royal Charter: changing purposes and amending governing documents
  • Cy-près schemes and the proceeds of fundraising appeals
  • Acquisitions, disposals and mortgages of charity land
  • Permanent endowment
  • Remuneration for the supply of goods and the power to award equitable allowances
  • Ex gratia payments out of charity funds
  • Incorporations, mergers and trust corporation status
  • Charity and trustee insolvency
  • Charity names
  • The identity of a charity’s trustees
  • The charity tribunal and the courts.
The report’s 43 recommendations and draft bill has a more permissive focus, and seeks to make life easier for trustees and those that run charities. At over 400 pages the document is quite a tome, but worth investing the time if you have a strong interest in charity law. 

Recommendations of interest to governance professionals include: 
i. Process for changing governing documents
a. Create a single process for both corporate and unincorporated charities, with a new power for unincorporated charities to amend their governing documents by resolution, replacing section 280 of the Charities Act 2011.
b. Review and update the definition of ‘regulated alterations’ within the act to promote consistency. 
c. Grant powers for the Charity Commission and courts to create schemes to be extended to incorporated charities. 
ii. Changing purposes 
a. Introduce new criteria for the Charity Commission to consider before consenting to a change of purpose.
iii. Statutory and Royal Charter charities
a. Subject all s73 of the Charities Act 2011 changes to administrative arrangements in statutory charities to the negative procedure in Parliament. 
b. Create a new power for Royal Charter charities to amend any provision in their governing document where express powers do not exist, subject to Privy Council approval. 
c. Develop new guidance through the Charity Commission, Privy Council Office and Department for Digital, Culture, Media and Sport on how to make constitutional changes.
iv. Cy-près schemes and failed appeals 
a. Simplify the regime for failed charitable appeals to make it less onerous for charities to deal with failed or oversubscribed appeals.
v. Charity land 
a. Propose to widen ‘designated advisers’ for charity land transactions to include members of the National Association of Estate Agents and the Central Association of Agricultural Valuers, as wells as the Royal Institution of Chartered Surveyors. 
b. Change the definition of ‘connected persons’ and remove Charity Commission approval when a charity sells land to a wholly-owned subsidiary.
vi. Permanent endowment 
a. Reformulate the definition of permanent endowment in s353 of the Charities Act 2011 to remove inconsistencies and improve clarity. 
b. Extend the power to lift the restrictions on spending permanent endowment to corporate and unincorporated charities.
c. Introduce new powers for trustees to borrow from permanent endowments and make social investments which may not make a financial return.
vii. Remuneration for the supply of goods 
a. Extend s185 of the Charities Act 2011 to include the provision of goods by trustees, which should supplement any existing express powers within a charity’s governing document.
viii. Ex gratia payments
a. Grant powers for trustees to make small ex gratia (voluntary) payments without prior approval from Charity Commission, the courts or the attorney general, subject to financial thresholds relating to the gross annual income of the charity. Those thresholds can be subject to change via secondary legislation.
ix. Charity names 
a. Grant new powers for the Charity Commission to direct charities in relation to their names, including declining to register a change of name for a given timeframe.
x. Charity trustees 
a. Grant further powers for the Charity Commission to determine trustees and ratify uncertain or invalid trustee appointments, with the trustee’s consent. 

As government is focused on Brexit it is difficult to predict when, or if, parliamentary time will be available to discuss the draft bill. This is disappointing as the proposed changes to charity law and regulation promise to be helpful for trustees, advisors and the sector. 

The report can be found here. 

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