The Bill comes at a time when public trust in charities is threatened by the fundraising scandals of last summer and the collapse of well-known charities, such as Kids Company and British Association for Adoption and Fostering. Since it was originally introduced in 2014, following Lord Hodgson’s review of the Charities Act 2006, it has suffered a variety of additions as amendments were proposed in response to successive scandals. So it is worth reviewing the content of the Bill now it has completed its journey through Parliament – and how charities will be affected by the new law.

NEW MEASURES

The Bill introduces three significant new powers for the Charity Commission.

1. Issuing formal warnings

Where a charity has committed a ‘medium-range’ abuse, such as breach of trust, misconduct or mismanagement, the Charity Commission will have power to issue a warning to either a trustee of the charity or the charity itself. The Commission must provide notice to the charity that it is going to issue a warning and take into account any representations that are made in response.

The Commission can choose to publish a warning in any way it considers appropriate. It is likely that the warning will be published online alongside the charity’s records and be easily accessible by the public. Crucially, there is no right of appeal against a warning so charities that feel a warning is unjustified will have little option other than to pursue judicial review, a route that is likely to be too expensive and time-consuming for most charities. Under the amendments accepted by the House of Lords, the Charity Commission will have the ability to vary or withdraw an official warning but this will be of little comfort to charities and trustees whose reputation has been damaged by an over-hasty warning.

2. Directing that specified action is not taken

Where the Commission has started an inquiry into a charity, it will be able to make an order specifying that a particular action cannot be taken where that action would constitute misconduct or mismanagement in the administration of the charity. If the Commission makes such an order, it must review it within six months and the charity does have the right to appeal.

3. Disqualification of trustee

The Commission will have the power to disqualify a person from being a charity trustee and from holding an office or employment in the charity with senior management functions.

In order to disqualify a charity trustee, the Commission must be satisfied that:

a)  one of seven statutory conditions is met relating to the person’s activities;

b)  the person is unfit to be a charity trustee;

c)  making the order is in the public interest to protect public trust and confidence in charities.

The trustee in question will be given notice of the proposed disqualification and will have the opportunity to make representations to the Commission. The Commission will also publish its intentions publicly. The disqualification is subject to appeal and the maximum period for disqualification is 15 years. The Charity Commission will keep a register of all disqualified trustees.

EXTENSION OF EXISTING POWERS

The draft Bill also contains a number of extensions to powers already held by the Charity Commission, including the following.

1. Automatic disqualification of trustees

The Bill extends the grounds on which a person will automatically be disqualified from acting as a charity trustee to include: contempt of court, disobeying an order of the Charity Commission, being a designated person under certain anti-terrorism regulations and being subject to the notification requirements of Part 2 of the Sexual Offences Act 2003. People caught by these provisions will also be disqualified from holding an office or employment in the charity with senior management functions.  The Bill also clarifies the existing ground of ‘dishonesty or deception’ to specifically refer to, amongst other things, money laundering offences, offences under the Bribery Act 2010 or misconduct in public office.

It is likely that these provisions will not come into force immediately due to lobbying by charities that assist with the rehabilitation of offenders. Such charities expressed concerns that the tighter provisions on disqualification will undermine their vital work.

2. Winding up of a charity

Where the Commission is satisfied that a charity does not operate, or the charity’s purpose can be promoted more effectively if it ceases to operate, the Commission will be able to order that the charity is wound up and dissolved. It will only be able to do this if it is in the public interest.

The Commission already has the power to present a winding up petition under s 113 of the Charities Act 2011 where it has instituted an inquiry and is satisfied that there has either been misconduct/mismanagement or there is a need to protect charitable property. Currently, this power is rarely used so it will be interesting to see whether the Commission is more proactive in using its more extensive powers. The Commission will need to publicly publish its intention to make the order and take account of any representations in support of keeping the charity open. There is a right to appeal.

3. Suspension or removal of a trustee

Where a Commission has suspended a trustee, it will be able to extend the suspension by twelve months up to a maximum of two years. In deciding whether to exercise this power, the Commission will be able to take into account the person’s conduct in relation to any other charity or any other conduct at all that appears to the Commission to be damaging to public trust and confidence in charities.

In addition, the Commission will now be able to remove any charity trustee, officer, agent or employee who has either been responsible for or contributed to the misconduct or mismanagement of a charity, or who knew of it but took no action to stop it.

4. Fundraising and a potential new regulator

Where charities have agreements in place with professional fundraisers, the agreement will need to expressly include reference to:

a)  any voluntary scheme for regulating the fundraising;

b)  measures to protect vulnerable people from unreasonable intrusion on their privacy, unreasonably persistent approaches for donations and undue pressure to give money;

c)  the mechanisms in place that will allow the charity to monitor the above.

Larger charities will also have to reflect the above in their Annual Reports and list the number of complaints received in connection with their fundraising activities.

A notable amendment to the Bill approved by the House of Lords will extend the existing reserve power to regulate fundraising if self-regulation fails. There will be two potential options: either a new fundraising regulator can be established with which charities must register and pay fees, or powers to regulate fundraising will be bestowed upon the Charity Commission. These amendments give charities a final chance to prove that self-regulation can work. As Lord Bridges of Headley commented in the motion to approve the Bill:

“Fundraising regulation can no longer be allowed to be governed by vested interest or to turn a blind eye to free riders and those seeking to exploit the extraordinary generosity of the British public.”

5. Social Investments

To encourage the developing social investment market, provisions have been approved to remove doubts about the extent of charities’ powers to engage in social investment. An incorporated charity will now have the power to make social investments; that is investments that directly further the charity’s purposes and achieve a social return for the charity. In doing so, the charity’s trustees must consider whether professional advice is needed before making the investment, consider any advice obtained and satisfy themselves that it is in the interest of the charity to make the investment. The investment must be reviewed from time to time and again the trustees will be required to consider whether they need to obtain professional advice.

IMPLICATIONS FOR THOSE IN THE SECTOR

During the passage of the Bill, charity lawyers and sector bodies have repeatedly expressed concern that some provisions of the Bill remain ill-defined and the powers bestowed on the Commission are not accompanied by adequate safeguards against abuse. As commented in a joint submission to the committee of MPs examining the Bill:

“the provisions as currently drafted lack sufficient safeguards. As such, their disproportionate application could threaten to further undermine public trust and confidence in charities.”

Those concerns have not been addressed directly. The Commission has welcomed the new powers as necessary for it to be more effective and asserted that it will regulate ‘in line with public expectation’ but many in the sector will remain concerned. The Commission is under increasing pressure to show its regulatory teeth.  Just this week the PACAC report on lessons from Kids Company questioned the Commission’s ability to ‘deliver on its statutory duty to prevent, detect and tackle mismanagement in charities’ and highlighted the need for it to ‘carry out its functions in the way that Government, charities and the public expects’. Balancing those often different expectations is far from easy and there is a real risk that in seeking to act decisively against the few charities that are badly governed, the Commission will damage innocent charities and discourage many more from taking the carefully judged risks that are essential to much of the most effective charitable activity. As noted by Baroness Hayter of Kentish Town when moving the motion to approve the amendments to the Bill:

“We urge the Commission to pay rather more attention to poor practice—for example with Kids Company, where it failed to grasp the extent of the financial mismanagement—rather than seeking to crack down on the legitimate activities of charities”

How valid those concerns are remains to be seen.

For more information

Please contact  Shivaji Shiva and Rebecca Ward

 

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