Trustee Training 2021 – Charity Law Update Anne-Marie Piper - Senior Partner Please note this session will be recorded 2:00 – 2:30pm Welcome and The Year in Review Anne-Marie Piper 2:30 – 3:00pm CIFF Elizabeth Jones 3:00 – 3:40pm The Supreme Court judgment in the Agudas Israel Anne-Marie Piper Housing Association case; Equality Act implications and Kids Company 3:40 – 3:55pm Break 3:55 – 4:25pm Pandemic legal issues for charities Emma James 4:25 – 5:00pm Q&A 2 The Year in Review Anne-Marie Piper - Senior Partner In this session • The year in newspaper headlines • Registered charities at a glance • The work of the Charity Commission • New guidance • Looking ahead for the rest of 2021 4 2020 – The year in newspaper headlines Few controversies but lots of challenges and some opportunities … • “Covid-19 has led to collapse in charities’ confidence about income" • “Charities face a £12.4bn shortfall in income for the year” • “Charity sector to suffer 60,000 job losses due to coronavirus” • “Small charities face 'strain' of dealing with mental health concerns”, survey reports • The Insolvency Service’s case against Kids Company trustees came to Court • “Covid-19 has accelerated a digital evolution with the charity sector” • Public confidence in charities increased to 6.2/10 5 Registered charities at a glance (CC Register 2/21) Annual income Number of % of charities Total income % of income band charities £bn £0 to £10k 74,745 44 0.21 0.26 £10k to £100k 59,026 35 2.11 2.52 £100k to £500k 23,680 14 5.24 6.26 £500k to £5m 9,902 6 14.80 17.74 Over £5m 2,434 1 61.12 73.22 Total 169,787 83.48 100 6 The Charity Commission’s work Charity Commission Annual Report 2020 (2019/20 figures) • Whistleblowing reports received - 247 (185) • Serious incident reports - 5,730 (3,895) • Statutory inquiries - 181 of which 67 were new (155) • Compliance visits - 216 • Regulatory powers used - 1,962 (1,864) 7 New guidance in 2020 – Charity Commission ‘5-minute guides': https://www.gov.uk/government/news/regulators-new-5-minute-guides-will- support-charity-trustees-to-meet-duties (November) The guides cover five key aspects of charity management - a ‘core syllabus’ covering the basics that the regulator expects all trustees to be aware of: • financial oversight • achieving a charity’s purposes • good decision making • addressing conflicts of interest • what to file with the Commission and what support is available 8 New guidance in 2020 - Charity Commission Coronavirus Coronavirus (COVID-19) guidance for the charity sector (updated 01/2021): https://www.gov.uk/guidance/coronavirus-covid-19-guidance-for-the-charity-sector Content includes: • Meetings • Using reserves and restricted funds • Fundraising • Managing financial difficulties and insolvency • Supporting trading subsidiaries 9 New guidance in 2020 - Charity Commission • Manage financial difficulties in your charity caused by coronavirus: https://www.gov.uk/guidance/manage-financial-difficulties-in-your-charity-caused-by-coronavirus (April) • Reporting serious incidents to the Charity Commission during the coronavirus pandemic: https://www.gov.uk/guidance/reporting-serious-incidents-to-the-charity-commission-during-the- coronavirus-pandemic 10 Serious incident reporting during the pandemic Report if: • If the charity (as a result of coronavirus, furloughing of staff, government lockdown measures or loss of income) is: • unable to deliver vital services to at risk beneficiaries • insolvent or forced to close permanently • highly likely to be insolvent or forced to close permanently within the next 12 months • Fraud linked to pandemic 11 New guidance in 2020 - Charity Commission • Coronavirus (COVID-19): increased risk of fraud and cybercrime against charities: https://www.gov.uk/government/news/coronavirus-covid-19-increased-risk-of-fraud-and- cybercrime-against-charities Other guidance • Independent examination of charity accounts: examiners (CC32): https://www.gov.uk/government/publications/independent-examination-of-charity-accounts- examiners-cc32 • Prepare a charity annual return: https://www.gov.uk/guidance/prepare-a-charity-annual-return 12 Other publications - Charity Commission • Every complaint matters: a thematic review of complaints about charities: https://www.gov.uk/government/publications/every-complaint-matters-a-thematic-review-of- complaints-about-charities/every-complaint-matters-a-thematic-review-of-complaints-about- charities • New online register of charities “widens the public’s window” into how charities are run: https://www.gov.uk/government/news/new-online-register-of-charities-widens-the- publics-window-into-how-charities-are-run • Alert for charities - the importance of transparent and accountable governance: https://www.gov.uk/government/publications/alert-for-charities-the-importance-of-transparent-and- accountable-governance/alert-for-charities-the-importance-of-transparent-and-accountable- governance 13 HMRC Guidance • Guidance on claiming for wages through the Coronavirus Job Retention Scheme: https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention- scheme • Guidance on paying VAT deferred due to coronavirus (COVID-19): https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19 • Refunding tickets for cancelled charity events during coronavirus: https://www.gov.uk/guidance/processing-ticket-refunds-for-cancelled-charity-events- during-the-coronavirus-covid-19-pandemic 14 HMRC Guidance • Reforms to the off-payroll working rules (IR35) due in April 2020 postponed until 2021: https://www.gov.uk/government/news/off-payroll-working-rules-reforms-postponed- until-2021 • Revenue and Customs Brief 13 (2020): VAT charity digital advertising relief /revenue-and-customs-brief-13-2020-vat-charity-digital-advertising-relief 15 Brexit The Government has published (or updated) the following guidance to reflect changes as a result of Brexit: Claiming preferential rates of duty on goods covered in the UK’s deal with the EU Admission charges to cultural events (VAT Notice 701/47) Pay no import duties and VAT on goods for charity How VAT affects charities (VAT Notice 701/1) Reliefs from VAT for disabled and older people (VAT Notice 701/7) VAT Refund Scheme for museums and galleries (VAT Notice 998) Land and property (VAT Notice 742) 16 Charity Governance Code NCVO’s ethical principles - 2019 Principles - Beneficiaries first, Integrity, Openness, Right to be safe Charity Governance Code Code refresh - December 2020 https://www.charitygovernancecode.org/en/ • Principle 3: Integrity • Principle 6: Diversity, now called Equality, Diversity and Inclusion 17 Things we are likely to hear more about in 2021 • Coronavirus • Brexit • Scottish charity law reform (Strengthening Scottish Charity Law survey just closed) • Charity Commission guidance on the acceptance and refusal of donations • Charity Commission inquiry report on Kids Company • Charity Commission guidance on the role and responsibilities of charity’s members 18 The CIFF Case Elizabeth Jones - Partner In this session: Background to the CIFF case Why is the case so important? What were the findings? The nature of fiduciary duties ND - NC - BY CC under licensed is Author Unknown by This Photo This Practical implications How might the sector respond… 20 Background to the CIFF case ➢ CIFF established in 2002 as a company limited by guarantee ➢ CIFF is one of the country’s largest charities – assets over US$4bn ➢ Sir Chris Hohn and Jamie Cooper divorced – both were trustees and members of CIFF ➢ Third member was Dr Marko Lehtimäki ➢ Agreed Ms Cooper would step down as member and trustee after: ❑ Sir Chris and Ms Cooper each paid US$40m to a new charity ❑ CIFF granting the new charity US$360m ➢ Trustees agreed, subject to Court or Charity Commission approval 21 Why is the case important? • Lady Arden says it it • It addresses one of the ‘great unanswered questions of charity law’ • It has immediate implications for the governance of any charitable guarantee companies • It has wider implications for how the law might treat the actions of the (legal) members of any charity 22 The nature of a charitable guarantee company ➢ Two tier governance structure ➢ Like a share company but with no share capital – members have no financial interest but guarantee is to make a nominal contribution on insolvent dissolution ➢ Company directors = charity trustees ➢ Members – akin to shareholders – there to hold the company directors (i.e. the trustees) to account and to make some ‘big picture’ decisions ➢ Sometimes the company directors and members will be the same individuals 23 Decision of the lower courts The High Court – ruled in June 2017 1. The members of CIFF owed it fiduciary duties 2. The grant from CIFF was a payment requiring member approval because it was a payment to a director for loss of office 3. It approved the grant from CIFF and directed Dr Lehtimäki (as the sole member able to participate in the decision to approve the grant) to vote in favour of approving it The Court of Appeal – ruled in July 2018 1. Agreed with the High Court that members of CIFF owed it fiduciary duties 2. The Court could not compel Dr Lehtimäki to vote in favour of the resolution 24 The Supreme Court’s decision 1. Dr Lehtimäki is a fiduciary when acting as a member of CIFF 2. Members of charitable companies owe fiduciary duties to the purposes of the company 3. The Court was entitled to direct Dr Lehtimäki to vote in favour of the resolution 4. The Companies Act 2006, section 217 does not prevent the court from directing