LEGAL BLOG: Law Commission proposals could simplify charity law

Continuing its slow march to reform, the Law Commission has published a supplementary consultation on technical issues relating to cy-près and trust corporation status. Different regimes apply to charities depending on how they are constituted and these latest questions highlight unduly complex processes which would benefit from simplification.

The questions on cy-près, meaning “as near as possible”, relate to the processes and test which apply when an unincorporated charity seeks to amend its charitable purposes. The existing law requires, with limited exceptions, that the trustees must establish that an “occasion” of cy-près has arisen. These occasions are set out in s62 of the Charities Act 2011 and arise, for example, where the original purposes, in whole or in part, have been fulfilled. The commission, or court, may only make a cy-près scheme if the circumstances fit the s62 criteria. A statutory test then applies, under which the regulator must have regard to “similarity conditions” set out in s67 of the 2011 Act. These conditions are aimed at balancing the intentions of the original founder against the need for the charity to continue to be effective and relevant.

The amendment regime for corporate charities is simpler. A change of purposes is a “regulated alteration” for which charitable companies and CIOs follow a member resolution and consent procedure. The test applied by the commission, in determining whether or not to consent to the change, is policy based (rather than statutory) and primarily considers whether the proposed amendment is rational and whether it would undermine the existing purposes. There is no express requirement that the new purposes be close to the original ones.

Accepting that incorporated charities enjoy satisfactory powers of amendment for changing their purposes, the Law Commission proposes that the regimes should be aligned. For other legal forms, such as statutory charities, different processes would continue to apply. While the proposals will be welcomed by unincorporated charities, putting them on a level playing field with their corporate relatives, charitable companies and CIOs will note that the alignment would involve changing the test applied to them by the commission in determining whether or not to provide consent. If implemented, the commission would adopt the s67 “similarity conditions” test for both charitable forms, which some corporate charities may consider an undue additional regulatory burden. However, the consultation paper questions whether imposing the statutory test across the board would make a difference in practice, which is considered unlikely.

The second subject for reform relates to enlarging the availability of trust corporation status. Trust corporation status is important as it enables corporate trustees, as sole trustee, to give valid receipt for the proceeds of sale arising under a trust of land without having, for example, to appoint an additional trustee. In practice, the need to obtain corporate trustee status arises where a corporate charity wishes to apply for a grant of probate or, as is the focus of the consultation, in a merger, where the merged corporate charity will hold permanent endowment (or special trust) property as sole trustee and needs to be able to deal properly with the land.

At present, charities would generally seek trust corporation status in one of three ways by: applying to the Lord Chancellor; seeking a Charity Commission scheme; or, in the case of a CIO, by making a statutory pre-merger vesting declaration. These processes are cumbersome and can, in some circumstances, represent a significant barrier to merger. Taking on board responses to the 2015 consultation, the Law Commission, therefore, proposes that charitable companies and CIOs are given a power, by trustee resolution, to acquire trust corporation status.

Charities should be aware that the proposals extend only to charitable companies and CIOs and not to other corporate charities, such as Royal Charter bodies, which would need to use existing routes to obtaining trust corporation status where required. Bearing in mind the law of unintended consequences, the consultation also stops short of making trust corporation status an automatic right but asks whether this would be appropriate.

This further consultation should lead to helpful and long awaited reform, enabling charities better to focus on their missions and avoid costly and time consuming delays in implementing decisions. The deadline for response is 31 October.

Sarah Williams is a senior association at Bircham Dyson Bell

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