Consultation on Technical Issues

Consultation on technical issues

in charity law

A response from WCVA

1 July 2015

WCVA

Baltic House

Mount Stuart Square

Cardiff

CF10 5FH

Charity number 218093

A response to theconsultation on technical points

in charity law

Wales Council for Voluntary Action (WCVA) is a registered charity and umbrella body working to support, develop and represent Wales’ third sector at UK and national level. There are approximately 33,000 third sector organisations in Wales, of which 8, 963 were registered charities in 2014. We have over 3,350 organisations in direct membership, and are in touch with many more organisations through a wide range of national and local networks.

WCVA’s mission is to provide excellent support, leadership and an influential voice for the third sector and volunteering in Wales.We welcome the opportunity to respond to thisconsultation, and as an umbrella organisation for the third sector in Wales the focus of our response is on third sector organisations and the work that we do to support them.

General comments

The way in which charities are required to operate has altered somewhat in recent years, creating challenges and uncertainty for many organisations. There has been anincreasing move to transfer assets from local authorities and other public bodies to the third sector, and in some cases it has been necessary for new charities to be formed to enable the transfer and provision of services.

Considering these developments and the challenges that they bring, we are keen to remove inefficient and unduly complex legal provisions that impose unnecessary administrative and financial burdens on charities. Therefore we welcome proposals to amend the law, ensuring that it is both clearer and more relevant to those organisations that are required to abide by it, but also providing sufficient protection to prevent abuse.

Specific proposals

Part 2: Changing purposes, amending governing documents and applying property cy-prés

We support the proposal for statutory charities or Royal Charter charities to be given a statutory power to make minor amendments to their governing documents, provided that guidance is issued which clearly states thetype of amendments that can be made under that power.

The permitted amendments that are listed in the Consultation Paper at paragraphs 4.51 and 4.52 look to be sensible, and we agree that it would seem reasonable for the Secretary of State to have a power to extend that list of minor amendmentsby secondary legislation where necessary.

We agree in principle to the power under section 275 of the Charities Act 2011 (‘the 2011 Act’) being extended to charities with a larger income, but query whether income should be the only criteria upon which such a power is granted. There can be some instances where a charity will have an income below the current threshold of £10,000, but also hold property or assets/land of a much higher value. Therefore, we query whether it might be more appropriate for both the income and assets/land held by a charity to be considered when determining whether an organisation should have the power to amend their purposes under section 275. Guidance would also need to be made available to charities clarifying the relevant threshold(s) and the extent of the power to amend under section 275.

In the case of a failed appeal or when a surplus is raised by an appeal, the current requirement to contact donors before funds can be applied cy-près appears to be unnecessarily onerous when it relates to small sums of money. Therefore, it would seem appropriate to remove the requirement for such contact to be made with donors, and we also feel it would be reasonable for charity trustees to have the power to apply small funds or small donations cy-près in such a situation (rather than having to ask the Charity Commission to do so). Again, guidance would be required to clarify what can be classed as ‘small funds’ or ‘small donations’, and in what instances charities would have to apply to the Charity Commission for moneys to be applied cy-près.

Part 3: regulating charity land transactions and the use of permanent endowment

As the consultation document highlights, the current processes relating to land transactions are slow, complex, inconsistent and costly. We support the introduction of amendments which will result in a simplified and streamlined process.

It is proposed that a duty would be placed on trustees to obtain and consider advice before disposing of charity land, unless they reasonably believe it is unnecessary to do so. While we agree with the proposal in principle (due to the fact that the proposed duty mirrors that in the Trustee Act 2000relating to obtaining investment advice), we feel it is essential that guidance would be issued to assist trustees in determining when it would be reasonable to abstain from obtaining advice on the disposition.

We support the proposal for the provisions relating to permanent endowment held on special trust to be repealed, as they do not appear be of practical use and simply cause unnecessary confusion for charities. We also agree with the proposal for sections 281 and 282 of the 2011 Act to be amended, so that there is increased clarity for those charities looking to apply those provisions; and broadly support the proposal for a new regime that would permit charities to use permanent endowment more flexibly whilst still seeking to maintain its real value in the long term.

Part 4: Payments to charity trustees and other beneficiaries

We have no objection to the introduction of a new mechanism for the remuneration of trustees for the supply of goods, which would mirror section 185 of the 2011Act (and the 4 stage process which must be followed for that power to be exercised).

It is proposed that a new statutory power be introduced 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. We broadly support this proposal, as the current system for seeking authorisation is not always proportionate to the payment being made. We would, however, be keen to ensure that only very small ex gratia payments would be able to be made in this way, and that clear accompanying guidance would be issued so that trustees can easily identify the financial threshold for this power to be exercised and any process(es) that need to be followed.

We do not consider it would be appropriate for trustees to be able to delegate this power to another officer of the charity, if it were to be introduced.

Part 5: incorporation, merger and insolvency

The removal of unnecessary barriers to charity mergers is very much welcomed.

We agree that the power under section 268 of the 2011Act should be expanded. The suggestions set out at paragraph 12.47 of the Consultation Document look to be sensible, as the power is of limited value at present given the restrictions within it.

We support the proposals to amend section 310 of the 2011Act, and that vesting declarations under that section should apply to a charity’s permanent endowment in the same way that they apply to a charity’s unrestricted funds.

With regards to gifts by will, the current law is ineffective as many ‘shell’ charities continue to exist purely to capture gifts that might otherwise fail. In order to overcome this we support the proposal that, for the purposes of ascertaining whether a gift has been made to a charity under section 311(2) of the 2011 Act, the charity in question should be deemed to have continued to exist despite a mergerhaving been registered.

We welcome increased clarity for charities, and therefore agree with the proposal to amend the Charity Commission’s CC12 guidance (‘Managing financial difficulties & insolvency in charities’) so that it is more helpful to those trustees seeking to use it.

Part 6: Charity Commission powers

It is agreed that section 42(2)(a) of the 2011 Act should be amended to remove the need for a charity to be registered before the Charity Commission can require it to change its name. This will avoid the current situation whereby the Charity Commission may have concerns about entering an infringing name on the register, but they are required to register it only to then have to remove it at a later date as it is inappropriate. We have no objections to this power being extended so that it is exercisable in respect of exempt charities.

We agree that it would be helpful to empower the Charity Commission to determine the identity of a charity’s trustees, where necessary, and therefore support the proposal to extend the remit of section 111 of the 2011Act so that it applies to determining the identity of trustees as well as the identity of a charity’s members.

Part 7: The Charity Tribunal and the courts

While we are very keen to ensure that charitable funds are protected appropriately, we agree that the current provisions under section 115 of the 2011 Act need revising. As the Consultation Document states, the process of litigating against the Charity Commission is likely to be daunting for the majority of charities, so it is inappropriate that those charities should have to seek permission from the Charity Commission (to pursue charity proceedings or to obtain a Beddoe order) if the proposed proceedings are to be against the Charity Commission. To avoid this conflict of interests, we support the proposal that section 115 be amended so that charities can request permission under that section from either the court or the Charity Commission.

In respect of cases brought before the Charities Tribunal, we agree it would be sensible for the Charity Tribunal to be given the power to make Beddoe orders in respect of proceedings before it. This would prevent the situation whereby a charitybringing a case before the Charity Tribunal would also have to commence court proceedings unnecessarily, which goes against the spirit with which the Charity Tribunal was created and may result in charities being discouraged from bringing a case for fear of cost implications. We do not, however, feel it would be necessary for the Attorney General to always be a party to applications for Beddoe orders being made to the Charity Tribunal.

It is essential that third parties are able to challenge Charity Commission decisions in a meaningful way. In light of this, we support the proposal that the Charity Tribunal should have the power to suspend the effect of a Charity Commission decision pending challenge, or to award an interim injunction to prevent named persons from taking action in reliance on it.If the decision of the Charity Commission is capable of being challenged, any delay in that decision taking effect should be as short as possible so that there is only a very short time frame in which it can be challenged.

We do not feel it is necessary for the Attorney General’s consent to have to be sought before the Charity Commission can make a reference to the Charity Tribunal. The requirement for the Charity Commission to notify the Attorney General of its intention to make a reference, and vice versa, appears to be sufficient in terms of avoiding duplication by the Charity Commission and the Attorney General.

WCVA

1 July 2015