RNSA - THE CASE FOR CHANGE? A paper by the Chairman dated Jan 2016

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1 1 Background RNSA - THE CASE FOR CHANGE? A paper by the Chairman dated Jan The Royal Navy is embarked on a programme of steady activity to ensure that the naval Sports Associations are properly constituted, governed and managed in the interest of the Naval Service, usually through the adoption of charitable status in one form or another. By assuring that proper arrangements are in place, the Royal Navy aims to ensure that while the expected benefits of the Sports Associations are delivered, the reputational and other operational risks are under effective control, without burdening the Associations with unnecessary overheads or taxation burdens. RNSA, as one of the largest naval Sports Associations, and with a high profile, has been invited to review the degree to which it meets the policy requirements for a large Service Sports Association, and to implement change where required to improve policy compliance. 2. The RNSA 2020 Vision Paper was discussed at the 2015 AGM at BRNC Dartmouth. One of the actions under the heading 'Review the Organisation' 1, briefed separately at the same AGM, was to review the benefits, risks and choices inherent in adopting charitable status, identified in the policy guidance as the appropriate model for a naval sporting association of our scale. This work has been underway for several months, thanks to the invaluable help of Peter Davies, Julian Baxter and Peter Culver, who have all given their time, experience and some of the skin from their backs in researching and developing options 2. At the November 2015 Central Committee Meeting, under the agenda item 'Update on Charitable Status' the Chairman took an action to inform the Membership of the issues at stake by writing a paper outlining the current situation, the pressures for change, the options being considered here and recommendations on the way forward. 3. This paper is being circulated to all Members in early 2016 as RNSA moves forward with this issue. Benefits 4. Any changes we make should deliver the following benefits: a. Demonstrate appropriate, effective governance and control appropriate for a modern sporting association operating under the aegis of the Armed Forces. b. Improve the ability of the association to fulfil its objectives by: i. Improving the ease with which potential donors can support the Association. 1 Para 17.i 2 I have also plagiarised their work heavily throughout this paper.

2 2 Aspects to Preserve ii. Placing support to watersports for serving personnel at the heart of the Association's activities. iii. Enabling the Association, through improving its ability to bear operational risk, to fulfil a greater role in the provision of practical support to naval watersports, particularly at grassroots level. iv. Promoting lifelong membership of the Association, to provide access to sailing facilities and activities for all serving personnel, veterans and their families, and provide a means by which veterans can support the development of the sport in the Service. 5. What do we get for our 33 per annum today? Who would argue that we should lose any of this: a. Under the direction of the Central Committee, our three full time staff 3 deliver or support events, support the four Rear Commodores and Branches, run the website, social media and on-line shop, run the budget and produce financial accounts, publish the Journal and Newsletters, liaise with RYA and other clubs, represent RNSA into Navy Command and generally administer a Service Sports Association with 5100 paying Members and up to 30,000 Associate Members 4 spread around the world. b. Over 70K per year from subscriptions supports sailing events - ranging from entries at Cowes Week and the Fastnet Race to the Defi Windsurfing event, Wednesday evening sailing at the regional Sailing Centres and high profile social events around the country. c. Support for sailing campaigns, particularly grants and interest free loans 5. d. Administration of the coveted Blue Ensign and membership of one of the best known 'clubs' in the world. e. Opportunities for personnel of all ranks and ages, serving and veteran personnel and their families, to sail together, with the ethos of the Naval Service at the heart of what we do. f. Support for yachts, dinghies and facilities to enable sailing - from local membership of sailing clubs to the provision of moorings to enable members to sail. The three larger boats, Jolly Jack Tar, Jackaroo and Sail Navy head a fleet of high performance dinghies run by the RN Sailing Manager that are only available to (serving) Full Members 6. g. Administration and delivery of RYA training courses and examinations. 3 Their activities are in line with the support staffs of the other major Service Sports Associations; but because sailing is not a synoptic sport, their salaries are derived from subscriptions rather than the public purse. John Kilian, the Bosun of RNSA Moorings (Portsmouth) is funded by the bertholders themselves, not from membership subscriptions. 4 Every serving member of the Naval Service and Maritime Reserves is eligible 5 With certain caveats 6 We are looking to widen access to all full members.

3 3 h. Discounts from suppliers and manufacturers on sailing equipment. i. A worldwide HLO network with reciprocal club memberships and an active social programme. j. Provision of Club insignia/memorabilia etc Aspects to Improve 6. Our current legal status is not as well understood as it should be. There is plenty of evidence to suggest that we are an Unincorporated Association, although our colleagues in Navy Command and MOD view all Service Sports Associations, including RNSA, as 'Excepted Charities' which are subject to Charity Law 7. As you can see from the evidence at Annex A, this uncertainty is unhelpful and carries increasing risk. We must comply with the law and protect our officers, administrators and members. Risks to Avoid 7. We must not disenfranchise the Veteran element of the membership. The Charity Commission rules on membership are spelt out in para 17 of Annex A and it is quite clear that we meet these. There is 'room for interpretation' about the RN's additional Membership requirements, laid down in BR51(4) and reprinted at para 18 of Annex A. These appear to distinguish between serving and veteran personnel in a way which we have not done for decades and should not accept. Our bottom line is this: a. If you join RNSA whilst serving in either the Regulars or the Maritime Reserve, you become a Full Member. It is iniquitous to then invite you to become an Associate Member on retirement, paying a higher subscription and losing your voting rights. b. The rules imply that Associate Members are those who join RNSA after they leave the Service (or have some lesser eligibility as currently laid out in BR51(4)). Where they are not joining to take advantage of Service sport in the same way (but wish to enjoy other benefits) is it reasonable that they should be Associate Members? c. If you are a Full Member today, you will remain a Full Member in the future. 8. We will need to work closely with Navy Command in the months ahead to ensure that our approach to Membership is accepted and BR51(4) amended to reflect RNSA's Constitution. 9. A Working Group is examining the Charity laws carefully to see whether there are any activities that we currently undertake which might not be acceptable as a charity. We should wait for their report before deciding whether the constraints make adoption of charitable status unmanageable. 10. We must avoid losing our status as a Service Sports Association. Without that, we would lose any public funding which is critical to the serving membership, our privileged access to MOD land and might lose our Royal Charter and Blue Ensign. Most significantly, it would reduce our attractiveness to any new Members, 7 See BR51(4) Chapter 2, available in the Members Forum section of the RNSA website.

4 4 since Navy Command would establish a new Service Sailing Association which would be more attractive to serving personnel. By implication, the residual 'members club' would gradually decline in size, influence and activity. Options 11. What are the alternatives for RNSA? There are four basic options in a move towards charitable status which are studied in more detail at Annex A: a. Maintain the status quo. b. Change to some form of Incorporated Organisation or Company. c. Change to an Incorporated Community Interest Company. d. Apply for Registered Charity status. 12. Having looked at the four basic alternatives, discounted the status quo and responding to Navy Command direction to the four biggest Service Sports Associations (the others are Rugby, Football and Winter Sports), RNSA work in 2015 has focused on a closer examination of the Charitable Status options, the implications of such a change and the process of transfer. Charitable Status options 13. The main advantages and disadvantages of becoming a charity are set out in Annex A. They are summarised in this table: Advantages Tax advantages Potential revenue from Gift Aid Credibility with grant makers including RNRMC Protection of Incorporation Disadvantages Potential restrictions on activity, including public benefit test Rules on trading activity Rules on Trustees interests Statutory reporting obligations 14. The main options for charitable status are Charitable Incorporated Organisation (CIO), a charitable company (limited by guarantee) or an Unincorporated Association or Trust. Further details are at Annex A. 15. We have discounted the 'Unincorporated' option as the trustees would be personally liable for the organisations activities, RNSA would not be able to enter into contracts or control some investments in its own name and there are constraints over the way in which any land might be 'held'. Similarly, a Trust does not usually have a wider membership with voting rights; we consider this to be an important aspect of RNSA today and not worth giving up, so this option has also been discounted. 16. The CIO structure offers two key advantages over the charitable Trust or Unincorporated Association: a. First, the protection of limited liability status: trustees (and members) are generally protected from financial liabilities the CIO incurs. b. Second, the benefit of separate legal 'personality': as a corporate body, the CIO is able to hold property and enter into contracts in its own name, rather than the names of its trustees. In general, trustees are not personally liable under contracts entered into by the CIO, and there is no need to transfer

5 5 title to charity property or assign contracts each time a trustee retires or is appointed. In the event of legal disputes, the CIO is able to sue and be sued in its own name. 17. There are some disadvantages attached to using the CIO framework, mainly around the perceived ability to borrow money. There is no central, searchable register of CIO charges, so banks might be reluctant to lend to a CIO which cannot offer land as security. This is largely due to the relative immaturity of CIOs and is expected to diminish as a problem with time. Furthermore, the legislation has not yet been tested through the courts. Importantly, once we become a CIO, there is no going back: if we wanted to get out of it we would have to wind up the CIO and start again from scratch. The CIO's assets would not necessarily move across to the new organisation. 18. The following table summarises the main advantages and disadvantages of CIO and charitable CLG 8 : 8 Copyright Almond Tree Consulting April 2013

6 6 Recommendation 19. There is more work to do (see below) but based on research to date and the professional advice we have received from Navy Command and specialist lawyers, we are focusing our attention on becoming a CIO. At the same time, we are in negotiation with Navy Command to retain the unique elements of RNSA which we believe are at the heart of this Association - namely the integral role played by Veterans and the facilities that we all enjoy. 20. Should our application (which we would make with Navy Command support) to the Charities Commission falter, we would refocus our efforts on forming a Community Interest Company (see para 22 of Annex A for more details). Should our negotiations with Navy Command falter, we will have to examine the possibility that RNSA splits into a Service Sports Association with a supporting Members Club. This is not our preferred option. Route to Decision 21. Our aim is to reach a decision on the way forward and then act on it by mid A period of concurrent research and consultation with the Membership is now underway. The RNSA Charity Working Group (Chairman, Peter Davies, Julian Baxter, Peter Culver, Mike Shrives supported by other volunteers) is leading the programme of work listed at para 35 of Annex A. a. We are in consultation with the RNSA Accountants, Rothmans for specialist financial advice, with the RNRMC, Naval Sports Charities, RFRU, RNFA, ASA RN Gliding & Soaring, RN Tennis on their experiences; and we have engaged with the lawyers Charles Russell Speechly to provide expert Charity Law advice. None have so far suggested that anything we want to do is unrealistic. b. First drafts of a model Constitution and Rules will be available shortly for viewing in the Members Forum area of the RNSA website under Project Adventure and RNSA Future Vision/Charitable Status. c. We have a constructive dialogue with Navy Command/ Temeraire and we are under no unrealistic pressure to move in any specific direction all parties recognise the need to get this right. 22. This document will be published first in the Members Forum and sent to all Members, by and hard copy. We will embark on a series of 'Roadshows' to meet with all Branches and discuss progress, ideas and concerns. Ideally this would be completed before the AGM in February 2016, but this will depend on availability of key members of the Working Group, other subject matter experts and the Branches themselves. My duty as Chairman is to encourage debate, invite comment and develop a firm recommendation on the way forward in the first half of The 2016 AGM will provide a formal opportunity for members to discuss the issues and for the Association to measure progress. We do not consider that this AGM (by itself) is a strong enough mechanism to implement a major change such as the establishment of a charitable organisation and the current intention is to arrange for an EGM supported by a postal vote aimed at the full Membership, to select a new structure. This will realistically take place between May and December 2016, once our analysis work is complete.

7 7 Route to Implementation 24. Once a decision is reached and assuming it is endorsed by the membership, we will move to implementation. On the assumption that we opt for CIO status, we will draft our application to the Charity Commission and embark on negotiations with Navy Command over membership status. In an ideal world, both will be accepted or resolved during the next RNSA financial year (which runs 1 Oct - 30 Sep each year) and means that we would be in a position to adopt our new status by 30 Sep 2017 at the latest. Clearly, if we reach some other conclusion on future status, or our negotiations with the Charity Commission or Navy Command falter, we will review that timetable. Conclusion 25. Today, RNSA as a Service Sports Association does not comply with MOD or Navy Command policy. Furthermore, we are increasingly unfit for purpose, particularly with regard to the liabilities we expect our officers, staff and members to hold on our behalf. We need to move to a new structure that complies with policy whilst delivering the benefits we enjoy at minimum risk and preserving the aspects of the Association that are important to our current membership - and likely to be attractive to the next generation. This work is designed to identify that structure, iron out the wrinkles and deliver it whilst ensuring that our members continue to meet our objectives and go sailing.