Of interest to governance professionals engaged in the charity sector, including universities
The Charities Act 2022 was passed in February 2022 and an 18-month roll out programme has been published to help charities prepare for the relevant changes.
The Act takes forward many of the recommendations contained within the Law Commission’s ‘Technical Issues in Charity Law’ review, which in turn built upon Lord Hodgson of Astley Abbotts review of charity law in 2012: Trusted and independent: Giving charity back to charities.
As governance professionals will be aware, the aim of the Act was to simplify the processes for key administrative and reduce or remove unnecessary regulation or bureaucracy and resolving some of the inconsistencies that can arise out the different organisational forms available to charities.
The implementation plan will commence from Autumn 2022 with further staging posts in the Spring and Autumn of 2023.
The main issues to be implemented in the first stage are to include:
- Section 4: Power to amend Royal Charters
A new power for Royal Charter charities to amend their governing document, subject to Privy Council approval. It is recommended that a charity wishing to take advantage of this change enters into early discussions with the Privy Council to gain approval in principle before any membership vote.
- Sections 6 and 7: Cy-près powers
The new Act makes it easier for charities with an over-successful or failed fundraising scheme to apply those funds to other similar charitable purposes without the need to apply to the Commission for a cy-près scheme. This means funds from a failed appeal would not need to be returned to donors where: it would be an unreasonable expense to return the donation or unreasonable for donors to expect the return of the donation; the donation is less than £120; donors cannot be found; or donors cannot be identified.
Furthermore, donors no longer have the right to claim to have the donation returned up to six months after the failed appeal.
- Sections 15 and 16: Ex gratia payments
A new statutory power for trustees of all types of charity (unless expressly forbidden or restricted in the governing document) to make small ex gratia payments, up to a maximum of £20,000 depending on the charity’s income (thresholds subject to review), can be made without recourse to the Commission, Attorney General or the Court. All such payments will still need to be reported as required under the Charities Statement of Recommended Practice (Charities SORP). These powers can be used in accordance with a revised ‘statutory test’ which means the decision to make an ex gratia payment or not can be delegated to senior staff rather than trustees.
For statutory charities, the power to authorise ex gratia payments above that threshold will reside with the Attorney General, Court or Charity Commission.
- Section 30: Payments to trustees for the provision of goods and services.
The new Act remedies the oversight in the 2011 Act so that trustees can be remunerated for the supply of goods, subject to the usual conditions. The new power provides for trustees or connected persons to be paid for the provision of goods, services or goods and services to their charity and removes the requirement for goods to be supplied in relation to a service.
The second gatepost is expected to include changes to:
- Sections 9-14 and 35a: Permanent endowment
The new Act clarifies some of the issues relating to permanent endowments, including: confirming that sections of the 2011 Act relating to the power to spend permanent endowment capital where it would enable the charitable purposes to be carried out more effectively and when to seek Charity Commission approval apply to charitable companies; a new test for seeking Commission consent when the market value of the fund exceeds £25,000; and when resolutions to ease restrictions of funds take effect and when Commission approval is required.
A new statutory power for trustees to borrow from their permanent endowment, up to 25% of the value and that any expenditure is recouped within 20 years and that trustees could utilise social investments in using permanent endowment where they opt into the regulations covering total return investments.
- Sections 17-23: Charity land
Under the new Act the process for disposing of charity land is more flexible in terms of expanded the sources of advice that can be sought and provided to trustees in relation to land sales, resolves some of the gaps in the protection for buyers of land owned by a charity and amends the definition of ‘connected person’.
Various provisions of the University and Colleges Estates act 1925 are repealed and replaced with new powers that apply all the powers over land of an absolute owner to affected organisations. The disposal of land will be subject to Part 7 restrictions of the 2011 Act.
- Sections 25-28: Charity names
The Act provides more powers to the Charity Commission to direct a charity, including exempt and unregistered ones, to change its working and legal name and to delay registration of a charity or a change in name where it is the same as or too similar to the name of another charity. Where the Commission proposes to use its new powers in relation to exempt charities, there is a requirement that it consults with the principal regulator before exercising it.
The Companies Act is amended to enable a resolution of directors, rather than members, to agree to a change a name where the charitable company has received a direction form the Commission to change the charity’s name.
- Sections 38 and 39: Connected persons.
The 2011 Act’s definition of connected person will be amended to remove mention of ‘illegitimate children’.
There is also a new power for the Secretary of State to alter the definition of connected person by regulations.
The third and final tranche of changes are anticipated to cover:
- Sections 1-3: Charity constitutions
Depending on the structure of a charity there are different processes for changing the governing document, including the charitable purposes. The new Act introduces new provisions enabling governing documents to be amended more easily.
For charitable companies wanting to alter the statement of its charitable purposes in a manner that does not alter the objects’ substance, there is a new power to do so without having to seek the Commission’s approval for a ‘regulated alteration’. This aligns with rules governing the alteration of a Charitable Incorporated Organisation’s (CIO’s) constitution.
In approving changes to a charity’s purposes, the Charity Commission should take into consideration the following:
- the original purposes of the charity;
- the desirability of the proposed changed purposes to be like the original ones; and
- the need for the purposes to be relevant in the light of current social and economic circumstances.
- These considerations should be applied whether the charity is a CIO, charitable company or unincorporated charity.
Specifically for CIOs changing their governing document, the Act provides that the date of the resolution passed by its members, or a later date specified in the resolution, will be the date the change takes effect, subject to the prior approval of the Commission. Where the resolution relates to a change in the CIO’s charitable purposes, it will not take effect until it has been registered with the Commission, or on a later date specified in the resolution. Along with other requirements relating to the submission of copies of the resolution and amended constitution, the process is more aligned to that required of charitable companies under the Companies Act 2006.
Unincorporated charities have a new power to amend their governing document by trustee resolution, with Commission approval required for regulated alterations.
The Commission will also have a new power to give public notice, directly or via the charity trustees, where the change requires Charity Commission consent.
- Section 29: Powers relating to the appointments of trustees
The Charity Commission will have a new power to make an order to ratify the appointment or election of a trustee where there is a defect in the process or uncertainty as to the validity of such an appointment. Orders can only be made where the person involved gives their consent.
- Sections 33-35: Charity mergers
The new Act incorporates recommendations from the Law Commission to make it easier to transfer charity assets via a vesting declaration and should remove the need for ‘shell charities’ to catch any legacies after a merger. The definition of a charity merger is also revised to provide consistency with the new definition of permanent endowment.
Governance professionals will want to review the Act and its impact on their charity and prepare to take advantage of any new power that benefit the charity. The Institute will review its current guidance and aims to revise guidance notes in accordance with the implementation plan.
The implementation plan can be found here.