Charities: The New Law 2006 A Practical Guide to the Charities Acts

Charities: The New Law 2006 A Practical Guide to the Charities Acts General editor Stephen Lloyd Authors Alice Faure Walker Christine Rigby Stephanie Biden Mary Groom Thea Longley Abbie Rumbold Lawrence Simanowitz Andrew Small The editor and authors are all solicitors in the Charity and Social Enterprise Department at Bates, Wells and Braithwaite II JORDANS

CONTENTS Chapter 1 Introduction 1 History of the Charities Act 2006 1 The Bill in Parliament 2 The format of the legislation and Implementation 3 Five-year review 3 International comparisons 3 The position in Scotland and Northern Ireland 4 Chapter 2 The Charity Commission 5 Introduction 5 How is the Commission made up? 6 What is the role of the Commission? 7 Objectives 7 General functions 7 General duties 9 The Commission's independence and accountability 11 The Commission's Status 11 Accountability 12 The Commission's resources 13 Beyond the 2006 Act? 13 Chapter 3 Charitable purposes and public benefit 15 Introduction 15 Charity defmition before the 2006 Act 15 Overview of the charity definition in the 2006 Act 16 Scotland and Northern Ireland 17 Charitable purposes 17 The prevention or relief of poverty: s 2(2)(a) 18 The advancement of education: s 2(2)(b) 19 The advancement of religion: s 2(2)(c) 19 The advancement of health or the saving of lives: s 2(2)(d) 20 The advancement of citizenship and Community development: s 2(2)(e) 20 The advancement of the arts, culture, heritage or science: s 2(2)(f) 20

x Charities: The New Law The advancement of amateur Sport: s 2(2)(g) 21 'Sport' 21 'Amateur' 22 The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity: s 2(2)(h) 22 The advancement of environmental protection or improvement: s 2(2)(i) 23 The relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage: s 2(2)(j) 23 The advancement of animal welfare: s 2(2)(k) 23 The promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue Services or ambulance Services: s 2(2)(1) 23 Any other purposes within s 2(4): s 2(2)(m) 24 Existing charitable trusts 24 Public benefit 24 Religious organisations 27 Animal welfare and environmental charities 27 Fee-charging charities such as independent schools 27 Guidance as to the Operation of the public benefit requirement 28 Effect on new and existing charities 28 Special provision about recreational charities, sports clubs etc 29 Recreational Charities Act 1958 29 Community amateur sports clubs 29 Chapter 4 Registration 31 Introduction 31 The register of charities 31 The requirement to register 33 Small charities 33 What does this mean for small charities? 34 Transitional regime - what will happen before 2008? 36 Exempt charities 37 Which charities will lose their exempt Status? 37 What happens to charities which remain exempt? 38 Excepted charities 41 Voluntary registration 43 How does a charity register with the Commission? 43 What are the implications of registration? 45 Removal from the register 45 Charity stationery and other documents 46 Chapter 5 Charity names 49 Introduction 49 Which charities? 50

Contents xi Reasons for change 50 Time-limits 51 The direction 51 The resolution 51 Charitable incorporated organisations 52 Checklist 52 Chapter 6 Remuneration of charity trustees 55 Introduction 55 Who do the new provisions apply to? 56 How does a charity comply with ss 73A and 73B? 57 Section 73A 57 Condition A 57 Condition B 58 Condition C 58 Condition D 58 Section 73B 58 Guidance 58 Duty of care 59 Section 73C 59 Exceptions 60 Charitable companies 60 Charity Commission procedure 60 Transparency and accounting 61 Penalties for incorrectly relying on s 73A 61 Commission powers to order reimbursement 61 Trustee indemnity insurance 61 What type of insurance does it apply to? 62 What must the charity do to comply with s 73F? 62 Five-year review 63 Chapter 7 Land transactions 65 Introduction 65 Section 36 of the 1993 Act - what is a disposal? 66 Disposals not requiring Substantive compliance with s 36 of the 1993 Act 66 Disposals requiring Substantive compliance with s 36 of the 1993 Act 67 Charity Commission order under s 36(1) 67 Third party advice under s 36(3) and (5) 67 What must be done with the surveyor's report? 68 Disposal of functional land under s 36(6) 69 Section 38 of the 1993 Act 69 Methods of compliance 69 Identity of adviser 70 What must the advice cover? 70 What must the Charge secure? 70

xü Charities: The New Law Sections 37 and 39 of the 1993 Act 71 Statements 71 Certificates 72 Protection given by the certificates 72 Section 82 authority 72 Charity mergers 73 Land Registration Act 2002 73 Stamp Duty Land Tax 74 Charitable incorporated organisations 74 Rentcharges 74 Chapter 8 Powers of the Charity Commission to protect and assist 75 Introduction 76 Information powers 77 Section 8 inquiries 78 Instituting an inquiry 79 The scope of the power 79 Triggers 79 Responding to third party complaints 79 Notice 80 The inquiry process 80 The inquiry report 80 Entering premises and seizing documents 81 Temporary protective powers 83 Permanent remedial powers 84 Interim manager 85 Directions for the protection of charity 86 Suspension of membership 87 Powers independent of s 8 inquiries 87 Concurrent jurisdiction with the High Court to deal with trustees, employees and charity property 88 Appointment and removal of trustees 88 Removal of trustees 88 Appointment of trustees 89 Power to direct application of charity property 89 Notice 90 Advance notice of s 16 Orders 90 Advance notice of s 18 orders 91 Advance notice of removal 91 Advance public notice 91 Notice - and reasons - after the event 91 Court proceedings 92 Power to assist charities 93 Sanctioning action by trustees 93 Ex gratia payments 94 Formal advice 95 General advice 96

Contents xiii Power to determine membership 96 Dormant bank accounts, documents and solicitor's bills 96 Power to relieve from breach of trust 96 Automatic disqualification of trustees 97 How the Commission exercises its powers 99 Chapter 9 Challenging the Charity Commission 101 Introduction 101 Internal complaints procedures 102 Complaints about maladministration - the Independent Complaints Reviewer and the Parliamentary Ombudsman 103 The Independent Complaints Reviewer 103 The Parliamentary Ombudsman 103 Challenging formal decisions - the new Charity Tribunal 104 The constitution of the Tribunal 104 What matters may be brought before the Tribunal? 105 What is not covered? 105 Some statutory powers 105 Decisions not to act 106 Administrative complaints 106 Alternatives 107 Rights independent of Seh IC 107 Charity Commission guidance 107 What action may the Tribunal take? 107 Who may bring an action? 108 General questions of law 108 Procedure 109 The Lord Chancellor's rules 109 Intervention by the Attorney-General 110 Financial issues 110 Costs in Tribunal proeeedings 110 The Lord Chancellor's rules 111 The Attorney-General's role 111 Suitors'fund 112 Compensation 112 Appeals from the Tribunal 113 Conclusion 113 Chapter 10 Charity Investments 129 Introduction 129 Charity powers and duties in relation to investment 129 What powers do charity trustees have? 129 Powers of investment 130 Investment managers 131 Nominees and custodians 132

xiv Charities: The New Law What duties do charity trustees have? 133 Statutory duty of care 133 Standard investment criteria 134 Advice 134 Review 134 Tax considerations 135 Ethical investment 135 Programme related investment 136 Common investment schemes and common deposit funds 136 Chapter 11 Permanent endowment 137 What is permanent endowment? 137 The law on spending permanent endowment before the 2006 Act 138 The new rules 138 When do the new powers apply? 139 Small charities 139 What is a small charity? 139 What must the trustees do? 140 Larger charities 140 What is a larger charity? 140 What must the trustees do? 141 What can the Commission do? 141 Is this good news? 142 Special trusts 142 Further guidance 143 Chapter 12 Regulation of charitable companies 145 Overview 145 Winding up 145 Amendments to memorandum and articles 146 Miscellaneous 146 Chapter 13 Charitable incorporated organisations 149 Background 149 Reasons for incorporation and advantages of a CIO 150 Statutory framework 151 Key features of CIOs 152 What must be in a CIO's constitution? 152 What are the disclosure requirements for CIOs? 153 Registration of a CIO 153 RunningaCIO 154 Conversion to a CIO 154 Conversion from a charitable Company or industrial and provident Society 154 Conversion from an unincorporated charity 156

Contents xv Conversion from a Community interest Company 157 Issues to consider on conversion 157 Amalgamation and transfer 157 Merger of two or more CIOs 157 Transfer between CIOs 158 Merger of a charitable Company with a CIO 159 Winding up, insolvency and dissolution 160 Analysis and warning points 160 Chapter 14 Unincorporated charities 163 Introduction 163 Power to transfer property 164 When does the power apply? 164 What must the trustees do? 164 When does the resolution take effect? 165 What happens once the resolution takes effect? 166 What about permanent endowment? 166 Power to change a charity's purposes ] 67 When does the power apply? 168 What must the trustees do? 168 When does the resolution take effect? 168 What happens once the resolution takes effect? 168 Power to modify a charity's powers or procedures 168 When does the power apply? 169 What must the trustees do? 169 Chapter 15 Mergers 171 Overview 171 What is a 'relevant charity merger'? 172 What is the significance of being a 'relevant charity merger'? 173 Vesting declaration 173 Other consequences of a vesting declaration 175 Register of mergers 176 Post-merger gifts to transferring charity 177 Warning points 177 Continuing exposure of trustees of the transferring charity 177 Creditors of the transferring charity 178 Other provisions relevant to mergers 179 Conclusion table 179 Chapter 16 Schemes 181 Introduction 181 Jurisdiction to make schemes 182 Cy-pres schemes 182 Failed charity appeals 184

xvi Charities: The New Law Scheme applications 186 Publicity 187 Scheme to enlarge geographical area 188 Chapter 17 Regulation of fundraising 189 Introduction 189 The Fundraising Standards Board 190 Remedies under the FSB scheme 190 The future 191 Chapter 18 Public charitable collections 193 Background 193 When do the 2006 Act provisions come into force? 194 What is a public charitable collection? 195 Charitable appeal 195 Exceptions to the charitable appeal defmition 195 Public place 196 Controls on public charitable collections 197 Exemption for local, short term collections 197 Public Collection Certificate 200 Application process 200 Grounds for refusal 201 Withdrawal or Variation of PCCs 203 Appeals against Commission decisions 203 Local authority permits 204 Application process 204 Ground for refusal 205 Withdrawal or Variation of permit 206 Appeals against local authority decisions 207 Restrictions on door to door collections 207 Abolition of the National Exemption Certificate ('NEC') 208 Other controls 208 Offences 209 Statements by collectors 209 Public collections in Scotland 210 Public collections in Northern Ireland 211 Chapter 19 Control of fundraising: Professional fundraisers 213 Background to the 1992 Act 213 Who does Part II of the 1992 Act (as amended) apply to? 214 What is a charitable institution? 214 Benevolent 214 Philanthropie 215 What is a Professional fundraiser? 216 Test one 216

Contents xvii Test two 216 Exemptions from the defmition of Professional fundraiser 217 Exemption for charitable institutions 217 Exemption for companies connected with a charitable institution 217 Exemption for people paid below certain levels 217 Exemption for collectors 218 Exemption for appeals by celebrities 218 Grey areas 219 Secondees 219 Telephone fundraising agencies 219 What are the consequences of being a Professional fundraiser? 220 Section 59 agreement 220 Minimum requirements 220 Recommended additional safeguards 221 Failure to comply with s 59 222 Section 60 Statement 222 How detailed do the Statements need to be? 222 When and where should the Statement be made? 223 Transmission of money and other property by the Professional fundraiser 224 Statements by other persons 225 Who does the Obligation apply to? 225 Paid individuals carrying out a public charitable collection 225 Paid employees, officers and trustees 225 Offences 226 The right to cancel/refund 226 How much refund? 227 Codes of practice 227 Offences and enforcement 228 Scotland 229 Northern Ireland 230 Chapter 20 Control of fundraising: commercial participators 231 Introduction 231 What is a commercial participator? 232 Application of the defmition 233 Companies controlled by charitable institutions 233 Broadcast appeals 233 Affinity cards 234 Producer/retailer distinction 234 Christmas cards 234 Other examples of commercial participators 235 Section 59 agreements 235 Possible problems with s 59 agreements 237 Section 60 Statements 240 Examples of a s 60(3) Statement 241 In a shop 241

xviii Charities: The New Law A Statement made on radio or TV 241 Telephone sales 242 Criminal sanctions 242 Quasi-commercial participators 242 Example of a Statement under reg 7(2) 243 Right of charitable institutions to prevent unauthorised fundraising 243 Section 63 244 Section 75 244 Enforcement 244 Scotland 245 Northern Ireland 246 Chapter 21 Charity accounts: accounting and reporting procedures 247 Introduction 247 Summary of main changes under the 2006 Act 248 Annual return 257 Annual report 257 Content of report 258 Attachments to report 258 Obligations to file annual report with the Commission 258 Exempt and excepted charities 258 Annual Statements of account 259 Audit or independent examination 260 Audit 260 Audit or examination 261 No requirement for audit 261 Other provisions relating to audits/examinations 262 Duties of auditors and independent examiners 262 Relief from liability 263 Charitable Company accounts 263 Future changes to charitable Company accounts 264 Financial year 265 Accounting records 265 All charities other than charitable companies and exempt charities 265 Charitable companies 266 Exempt charities 266 Commission's power to order audit 266 Public access to annual report and accounts 267 Offences 267 Future review of accounting and audit thresholds 268 Group accounts 268 What is a group? 268 What is a parent charity? 268 What is a 'subsidiary undertaking'? 269 Overview of group accounts 269 Who is obliged to prepare group accounts? 270 What are group accounts? 270

Contents xix Audit of larger group accounts 271 Examination of group accounts 271 Duties of auditors/examiners of group accounts 271 Annual reports 272 Accounting records 272 Preservation of group accounts 272 Public inspection of annual reports and accounts 272 Offences 272 Further guidance 273 Chapter 22 Miscellaneous 275 Introduction 275 Financial assistance to charitable, benevolent or Philanthropie institutions 275 The official custodian for charities 276 Incorporation of charity trustees 276 Trust corporations 277 Reverter of Sites Act 1987 277 Local charities 278 Administrative provisions 278 The 1992 Act 278 Supplementary provisions of the 1993 Act 279 Supplementary provisions of the 2006 Act 279 Chapter 23 Scotland and Northern Ireland 281 Which sections of the 1992, 1993 and 2006 Acts have effect in Scotland? 281 2006 Act 281 1993 Act 282 Scottish regulation 282 Impact on charities registered in England and Wales 283 Practical implications of registering in Scotland 283 Reporting 283 Publicity 283 Consents 284 Public collections in Scotland 284 Fundraising contracts, Professional fundraisers and commercial participators in Scotland 284 Seif regulation of fundraising in Scotland 284 Which sections of the 1992, 1993 and 2006 Acts have effect in Northern Ireland? 285 Northern Ireland regulation 285 Impact on charities registered in England and Wales 285 Public collections in Northern Ireland 285 Fundraising contracts, Professional fundraisers and commercial participators in Northern Ireland 285

xx Charities: The New Law Seif regulation of fundraising in Northern Ireland 286 Appendix 1 Charities Act 1992 287 Appendix 2 Charities Act 1993 301 Appendix 3 Charities Act 2006 485 Appendix 4 Charities (Misleading Names) Regulations 1992, SI1992/1901 675 Appendix 5 Charities (Qualified Surveyors' Reports) Regulations 1992, SI 1992/2980 677 Appendix 6 Charitable Institutions (Fund-Raising) Regulations 1994, SI 1994/3024 681 Appendix 7 Charities (Accounts and Reports) Regulations 2005, SI 2005/572 687