Technical Issues in Charity Law a Consultation Paper Technical Issues in Charity Law Consultation Paper No 220

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Technical Issues in Charity Law a Consultation Paper Technical Issues in Charity Law Consultation Paper No 220 Consultation Paper No 220 Technical Issues in Charity Law A Consultation Paper Law Commission Technical Issues in Charity Law Consultation Paper No 220 Law Commission Consultation Paper No 220 TECHNICAL ISSUES IN CHARITY LAW A Consultation Paper ii THE LAW COMMISSION – HOW WE CONSULT About the Law Commission: The Law Commission was set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are: The Rt Hon Lord Justice Lloyd Jones, Chairman, Professor Elizabeth Cooke, Stephen Lewis, Professor David Ormerod QC and Nicholas Paines QC. The Chief Executive is Elaine Lorimer. Topic of this consultation: Technical issues in charity law: changing purposes, amending governing documents and applying property cy-près; regulating charity land transactions and the use of permanent endowment; payments to charity trustees and other non-beneficiaries; incorporation, merger and insolvency; Charity Commission powers; the Charity Tribunal and the courts. Geographical scope: England and Wales. Availability of materials: This Consultation Paper is available on our website at http://lawcommission.justice.gov.uk/consultations/charity-law-technical.htm. Duration of the consultation: We invite responses from 20 March 2015 to 3 July 2015. Website references: All website references in this Consultation Paper were correct on 12 March 2015. Comments may be sent: by email to [email protected] OR by post to James Linney, Law Commission, 1st Floor, Tower, Post Point 1.53, 52 Queen Anne’s Gate, London SW1H 9AG Tel: 020 3334 0200 / Fax: 020 3334 0201 After the consultation: In the light of the responses we receive, we will decide on our final recommendations and present them to Government. Consultation Principles: The Law Commission follows the Consultation Principles set out by the Cabinet Office, which provide guidance on type and scale of consultation, duration, timing, accessibility and transparency. The Principles are available on the Cabinet Office website at https://www.gov.uk/government/publications/consultation-principles-guidance. Information provided to the Law Commission We may publish or disclose information you provide us in response to this consultation, including personal information. For example, we may publish an extract of your response in Law Commission publications, or publish the response in its entirety. We may also be required to disclose the information, such as in accordance with the Freedom of Information Act 2000. If you want information that you provide to be treated as confidential please contact us first, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic disclaimer generated by your IT system will not be regarded as binding on the Law Commission. The Law Commission will process your personal data in accordance with the Data Protection Act 1998. iii THE LAW COMMISSION TECHNICAL ISSUES IN CHARITY LAW A CONSULTATION PAPER CONTENTS Paragraph Page PART 1 INTRODUCTION 1 CHAPTER 1 Introduction 3 Charities 1.3 3 What is a charity? 1.3 3 The size of the charity sector 1.6 3 Public trust and confidence 1.8 4 The background to the project 1.10 4 The different legal forms of charities 1.13 5 Incorporated charities 1.14 5 Companies 1.14 5 Charitable incorporated organisations 1.15 5 Charities incorporated by Act of Parliament 1.16 6 Charities incorporated by Royal Charter 1.17 6 Community benefit societies 1.18 6 Other incorporated charities 1.19 6 Unincorporated charities 1.20 6 Trusts 1.21 7 Unincorporated associations 1.22 7 The statutory definition of a charity 1.23 7 Different categories of charity under the Charities Act 2011 1.24 7 Registered charities 1.25 7 Exempt charities 1.26 8 iv Paragraph Page Excepted charities 1.27 8 Other unregistered charities 1.28 9 Terminology 1.29 9 Charities 1.29 9 Trustees 1.30 9 Governing documents 1.31 9 References 1.32 9 Charity Commission guidance 1.32 9 The structure of this paper 1.34 9 Acknowledgements 1.41 10 PART 2 CHANGING PURPOSES, AMENDING GOVERNING DOCUMENTS 13 AND APPLYING PROPERTY CY-PRÈS CHAPTER 2 Introduction 15 Introduction 2.1 15 The need to amend governing documents to change purposes and 2.3 15 administrative provisions Figure 1: Circumstances in which a charity may need to amend 2.4 16 its governing document Different regimes for amendment 2.6 16 The proceeds of fundraising appeals 2.9 17 CHAPTER 3 The current law 18 Introduction 3.1 18 Existing means to change purposes and other provisions in 3.2 18 governing documents Charitable companies and charitable incorporated organisations 3.3 18 Trusts and unincorporated associations 3.9 20 Statutory power to change a small unincorporated charity’s 3.11 20 purposes v Paragraph Page Statutory power to amend administrative provisions in an 3.16 21 unincorporated charity’s governing document Charity Commission schemes to change purposes and amend 3.20 22 other provisions in a governing document The historical context 3.22 23 Classification of schemes 3.24 23 Cy-près schemes 3.28 24 Situations in which a cy-près scheme may be made 3.28 24 General charitable intention 3.30 26 Considerations when making a cy-près scheme 3.33 27 Administrative schemes 3.36 28 Figure 2: administrative schemes 3.36 28 Publicising schemes 3.37 28 Conclusion 3.38 28 Statutory charities 3.40 29 Figure 3: statutory charities – the section 73 procedure 3.44 30 Figure 4: recent orders under the section 73 procedure 3.46 32 Royal Charter charities 3.48 32 (1) Amending a charity’s Royal Charter 3.50 33 (A) The express power procedure 3.53 33 Figure 5: Royal Charter charities – the express power 3.54 34 procedure (B) The supplemental Charter procedure 3.56 35 Figure 6: Royal Charter charities – the supplemental Charter 3.56 35 procedure (C) The section 68 procedure 3.58 36 (D) Amendment by Act of Parliament 3.62 36 (2) Amending bye-laws 3.63 37 (3) Amending regulations 3.65 37 vi Paragraph Page The basis on which Royal Charter charities hold their property 3.66 37 Summary 3.72 39 CHAPTER 4 Charities incorporated by statute or by Royal 41 Charter: changing purposes and amending governing documents Introduction 4.1 41 Criticisms of the law 4.7 42 Statutory charities 4.7 42 Royal Charter charities 4.10 42 Lord Hodgson’s recommendations 4.16 43 Conclusions 4.17 44 Provisional proposals for reform 4.22 45 The aims of reform 4.22 45 Royal Charter charities 4.24 45 A default amendment power exercisable subject to the Privy 4.24 45 Council’s consent Reallocating provisions between the Royal Charter, bye-laws 4.33 47 and regulations Statutory and Royal Charter charities: a new power to make 4.38 48 minor amendments The form of the new power 4.45 50 (1) Permitted amendments 4.46 50 (2) Should the power be exercisable by the charity trustees or 4.57 52 the Charity Commission? Exercising the new power 4.60 53 Royal Charter charities: combining the guidance approach with a 4.70 55 new power to make minor amendments Reform of existing amendment procedures 4.73 55 Increasing the involvement of the Charity Commission? 4.74 55 Reducing the involvement of the Charity Commission? 4.78 56 Statutory charities: affirmative and negative resolutions 4.82 57 vii Paragraph Page Internal procedures and guidance 4.85 58 Other improvements to the procedures 4.87 58 Special provision for certain statutory and Royal Charter charities 4.93 59 Parochial Church Councils 4.94 59 Higher education institutions 4.98 60 Universities governed by Royal Charter and individual Acts of 4.98 60 Parliament Figure 7: amendment procedures under Acts of Parliament 4.98 60 governing universities Higher education corporations 4.102 62 Should the new amendment power apply to higher education 4.104 63 institutions? Other categories of charities established by statute or Royal 4.111 64 Charter The impact of reform 4.113 65 CHAPTER 5 Other charities: changing purposes and cy-près 66 schemes Introduction 5.1 66 Statutory powers to change, and restrictions on changing, charities’ 5.6 67 purposes Differences between incorporated and unincorporated charities 5.6 67 Should the requirements for incorporated and unincorporated 5.13 68 charities be aligned? Incorporated charities 5.20 70 Unincorporated charities 5.21 70 Extending the power to make cy-près schemes to charity trustees 5.24 71 Figure 8: case study – cy-près scheme made by the Charity 5.28 72 Commission The impact of reform 5.38 73 CHAPTER 6 Other charities: amending governing documents 75 Introduction 6.1 75 viii Paragraph Page Charitable companies and charitable incorporated organisations 6.2 75 Unincorporated charities 6.3 75 Amendment of administrative provisions under section 280 of the 6.4 75 Charities Act 2011 Is section 280 too wide? 6.6 76 Is section 280 too narrow? 6.9 77 Inconsistency between incorporated and unincorporated charities 6.10 78 Conclusion 6.13 78 The impact of reform 6.17 79 CHAPTER 7 Cy-près schemes and the proceeds of 80 fundraising appeals Introduction 7.1 80 The current law 7.4 80 Surplus funds 7.4 80 Failed appeals 7.6 81 Identifiable donors 7.7 81 Unidentifiable donors 7.9 81 Avoiding the difficulties of failed appeals 7.11 82 The current regime 7.13 82 (1) Donors who cannot be identified or found 7.15 83 (2) Donors disclaiming 7.19 83 (3) Donors treated as disclaiming 7.20 83 (4) Cash collections and the proceeds of certain fundraising 7.22 84 activities (5) Return of the donations would be unreasonable 7.23 84 Analysis 7.25 85 National Health Service charities 7.28 85 The difficulties
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